How to Sell Your ASC: Thoughts From ASCOA's Luke Lambert

At the 18th Annual Ambulatory Surgery Centers Conference, Luke Lambert, CEO of ASCOA, discussed the steps involved in selling an ambulatory surgery center.

1. Build consensus among ASC owners. Mr. Lambert says the first step in selling an ambulatory surgery center is getting physician owners to agree on the decision. "Sit down with physicians and talk about the pros and cons of selling a piece of their center," he says. Explain to the physicians that when they sell their ownership, they're basically giving up a future stream of income for a sum of money today.

"What's nice is that if you wait over time to get your money through center income, you're taxed at income rates" he says. "Today, the federal rate most of your physicians experience is 35 percent plus local and state tax, in contrast to the long-term capital gains rate of 15 percent. Difference in taxation makes a big difference." For some physicians, surgery center ownership may represent a large portion of their net worth, and they may want to diversify by selling ownership and redeploying value into other assets.

Of course, there are negative aspects to selling a surgery center as well. The surgeons will not have complete control of the center anymore, and the new partner may not benefit the center long-term. If the center doubles in profitability in the next five years, distributions will still increase but physicians will have foregone some participation in the process.

2. Price the surgery center. To identify whether it makes sense to sell, you must get a fair market valuation for the price of your center, Mr. Lambert says. There are several issues that can negatively affect surgery center pricing, including out-of-network billing, growth prospects and threats in the local community. For example, if your center reaps a significant profit from OON billing, you probably will not get an attractive price from a buyer. "You might get a 7x [multiple of EBITDA] for an in-network center and a 3x multiple for an out-of-network center," Mr. Lambert says.

Growth prospects can also negatively affect your pricing if your surgery center profits are flat or declining. In addition, any threats in the community — such as hospital employment, physician practice acquisition by hospitals, poor payor mix or nearby competitor surgery centers — may be a dissuading factor for buyers.

3. Make a list of potential buyers. Mr. Lambert advises making a list of potential buyers, including local hospitals, management companies looking for profitable centers and turnaround buyers. "Reach out to them and explain what you're trying to do," he says. "If they're interested, send over a confidentiality agreement." Don't wait for buyers to come to you; be proactive and reach out first.

4. Put together a "book" on your center. Once you have contacted potential buyers about your situation, put together a "book" on your center that includes all the relevant information on the sale. Mr. Lambert says this might include the size of the center, number of ORs, terms of the lease, whether the building housing the ASC is owned by physicians, how the anesthesia service workers, list of equipment, financial history, income statement and balance sheet.

He also says centers should provide lots of productivity data, including case volume by physician, specialty and payor and revenue by physician, specialty and payor. "We give them a profile of the competitive environment, with a breakdown of ownership and debt guarantees," he adds. "Profile all the facility owners too, because the real value is in the physician owners."

When you send the "book" to potential buyers, you should also be upfront about what you're looking for. Would you like a minority or majority ownership? What kind of percentage ownership are you looking for, and what kind of buyer would you prefer?

5. Receive proposals and compare them side-by-side.
Organize buyers' proposals into an apples-to-apples comparison, Mr. Lambert says. Put proposals in a grid so you can compare management fees, pricing, ownership percentage and other factors. Then sit down with your physicians and discuss which proposals they like the best. Narrow the pool down to 2-3 potential buyers and invite them to the center. "This should be a mutual sales process," Mr. Lambert says. "They come out and tell you why [they should buy the center], and you're there to say why the center is a good buy."

6. Negotiate a letter of intent. Once you have settled on the buyer you like best, push to negotiate a letter of intent, Mr. Lambert says. "Usually physician groups tend to be 10 or more physicians, and you can't negotiate that well with such a big group," he says. "The committee might have 3-5 physicians — anyone who wants to participate is welcome, but you want a small group to represent overall physician ownership."

Mr. Lambert said you should identify two or three points that matter the most to your physicians and tell the buyer what you want. "If your counter is rejected, consider your second choice buyer," he says. "Competition and negotiation enables you to get a good deal." He says 'items worth negotiating' might include: who dilutes when bringing in new partners, retirement provisions, cash required at closing, physician approval before selling to local hospital, granting of clinical staff privileges and other issues.  

7. Perform due diligence. Give the buyer full access to all the information they need about the center, and ask for information on the buyer as well, Mr. Lambert says. You would give the buyer information such as on-site audits, financial testing, physician interviews, chart audits and staff interviews.

8. Collect signatures and fund the deal.
The final step in selling the center is collecting signatures and funding the deal, Mr. Lambert says. "Collect signed signature pages from physicians to be held in escrow ahead of the intended closing date — meaning you keep the signatures at the center and don't turn them over to the buyer until all issues have been worked through," he says.

Learn more about ASCOA.

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