What to Expect When Selling Interest in ASCs
"Merger and acquisition activity has picked up over the past few years," said Matt Searles. "Primarily, this is a maturing industry; there are certainly willing buyers and attractive valuations that exist. Buyers include primarily national ASC companies and hospitals and on a limited basis insurance companies and private equity groups."
The motivation for making deals varies depending on whether you are the buyer or the seller, and whether the buyer is a hospital or management company. The primary motivation for the sellers is:
• Strategic partnerships that can bring economies of scale
• Liquidity in the sale of a mature business at a compelling capital gains tax rate
• Concern over healthcare reform
• Potential increases in capital gains
Primary motivation for the buyers includes:
• National companies: They have economies of scale and lower cost structure of individual acquisitions, thereby lowering effective multiples paid
• Hospital buyers: Alignment of interests with physicians and conversion of HOPDs that could result in higher rates paid thereby lowering effective multiple paid for the ASC
• Private equity buyers: Looking for investment platforms
• Insurance companies: Looking for platforms for care delivery at a lower cost
Rich Searles recommended ASCs gain offers from several potential buyers before deciding to sell a surgery center. "Sellers should provide potential purchasers with a deadline for submitting letters of intent, which is non-binding except for certain provisions," he said. "Sellers can use multiples of earning t oanalyze and compare various offers."
Several qualitative and quantitative factors will be considered by both parties in the potential agreement. Narrow the field to two to three purchasers and invite the buyers in for an onsite presentation and question and answer session. "During the process, it's important to have one or two center representatives responsible for facilitating responses to questions and data requests from the buyers," Rich Searles said.
Matt Searles said the most successful deals he sees are the ones where he is able to work with the surgery center to optimize their best qualities and the surgeons have a realistic idea of the value of their center. "The challenges come when the expectations are in the virtual range that doesn't exist," he said. "Our clients and centers have been realistic."
The discussion on out-of-network contracting highlighted the recent push in-network from payors. "Out-of-network plans are not going to be valued in an applicable way," said Matt Searles. "As a developer, it's a fantastic way to boost income but the opportunity for those plans is waning. The purchasing community knows this and won't pay a premium for out-of-network contracts."
Another important theme for the discussion was anesthesia providers, due to the office of the inspector general's recent release on the matter. The traditional model for surgery centers was an anesthesia group would independently contract with the surgery center and both sides kept professional fees for the cases. However, in recent years, surgery centers have contracted with anesthesiologists to ensure they have high level coverage or in an attempt to turn anesthesia into a profit center. "It's something that has always carried a certain amount of legal risk to it," said Scott Becker.
Both Rich Searles and Matt Searles are Registered Investment Banking Agents with Series 79 & 63 licences. Securities offered through Burch & Company, Inc.
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