Valuation multiples for ASCs were higher than ever in 2007, and orthopedics, ENT, ophthalmology and general surgery are the most desirable specialties, among other findings, according to the 2008 ASC Valuation Survey by HealthCare Appraisers. This article is based wholly on the Healthcare Appraisers survey. Thirteen management partners representing more than 300 ASCs nationwide participated in the survey.
Valuation multiples for ASCs were higher than ever in 2007, and orthopedics, ENT, ophthalmology and general surgery are the most desirable specialties, among other findings, according to the 2008 ASC Valuation Survey by HealthCare Appraisers. This article is based wholly on the Healthcare Appraisers survey. Thirteen management partners representing more than 300 ASCs nationwide participated in the survey.
Here are 10 facts and statistics that summarize the highlights of the report.
1. Sixty-two percent of respondents bought one to five centers in 2007 and plan to do equivalent business in 2008.
2. Preferred ownership varies: One company bought less than 10 percent of ownership interests in its centers; three bought 11 percent to 29 percent; four bought 30 percent to 50 percent; and five bought 51 percent to 75 percent.
3. It’s still a seller’s market; the respondents overwhelmingly said their attitude toward new projects was “opportunistic,” and that they are willing to consider a wide variety of projects. About 54 percent said they would consider de novo; 62 percent would consider established centers; and 39 percent would consider turnarounds. All said they would consider paying premiums for ASCs in states with certificate of need or other significant barriers to entry.
4. Multiples paid to purchase a controlling interest have remained steady in 2007, with the majority of respondents (59 percent) observing 6.0x to 7.0x multiples of EBITDA and 33 percent observing 7.0x or higher multiples. This represents an increase over 2006, when 7.0x multiples were observed one-quarter of the time (correspondingly, the percentage between 6 and 7 fell by 8 percent; multiples of 5.0x to 5.9x held steady from 2006 to 2007).
5. For the buy-out of under-performing or retiring physicians, 62 percent of respondents rely on a formula, with one-third paying a 4 EBITDA multiple or higher, and another one-third paying multiples of 3 to 3.5.
6. For new physicians buying in, 77 percent of respondents pay between 2.5x and 4.0x multiples of EBITDA.
7. When purchasing a center, the most significant factors impacting value are opportunities for growth, the nature of the specialties performed in the center, and the extent of physician ownership (16 to 20 physician-owners is preferred by seven of 13 respondents, and four say they prefer 11 to 15 physician-owners).
8. Twelve of 13 respondents rely primarily on EBITDA less i-bearing debt to measure earnings, and 10 say that, when valuing a potential acquisition candidate, the period they most typically incorporate into the valuation/purchase offer is the trailing 12 months.
9. Favorable reimbursement terms for orthopedics, ENT and general surgery make them preferred specialties. All 13 respondents regarded orthopedics as desirable; 12 noted ENT as such; 11 said ophthalmology was; and 10 said general surgery was desirable.
10. The least desirable specialty was plastic surgery, noted by eight of the respondents.
“Competition for acquisitions in 2007 remained as strong as prior years,” says the executive summary. “Overall, despite changes in Medicare reimbursement, the impact of which varies depending upon specialties, the value of surgery centers and the competition for deals continues to remain strong.”
For access to the current and past valuation surveys, go to http://healthcareappraisers.com/pub.html. For a complete profile of HealthCare Appraisers, go to www.beckersasc.com/resources.html#Valuation. And, for more information on the survey, e-mail Todd Mello at tmello@hcfmv.com or Curtis Bernstein at cbernstein@hcfmv.com.
Here are 10 facts and statistics that summarize the highlights of the report.
1. Sixty-two percent of respondents bought one to five centers in 2007 and plan to do equivalent business in 2008.
2. Preferred ownership varies: One company bought less than 10 percent of ownership interests in its centers; three bought 11 percent to 29 percent; four bought 30 percent to 50 percent; and five bought 51 percent to 75 percent.
3. It’s still a seller’s market; the respondents overwhelmingly said their attitude toward new projects was “opportunistic,” and that they are willing to consider a wide variety of projects. About 54 percent said they would consider de novo; 62 percent would consider established centers; and 39 percent would consider turnarounds. All said they would consider paying premiums for ASCs in states with certificate of need or other significant barriers to entry.
4. Multiples paid to purchase a controlling interest have remained steady in 2007, with the majority of respondents (59 percent) observing 6.0x to 7.0x multiples of EBITDA and 33 percent observing 7.0x or higher multiples. This represents an increase over 2006, when 7.0x multiples were observed one-quarter of the time (correspondingly, the percentage between 6 and 7 fell by 8 percent; multiples of 5.0x to 5.9x held steady from 2006 to 2007).
5. For the buy-out of under-performing or retiring physicians, 62 percent of respondents rely on a formula, with one-third paying a 4 EBITDA multiple or higher, and another one-third paying multiples of 3 to 3.5.
6. For new physicians buying in, 77 percent of respondents pay between 2.5x and 4.0x multiples of EBITDA.
7. When purchasing a center, the most significant factors impacting value are opportunities for growth, the nature of the specialties performed in the center, and the extent of physician ownership (16 to 20 physician-owners is preferred by seven of 13 respondents, and four say they prefer 11 to 15 physician-owners).
8. Twelve of 13 respondents rely primarily on EBITDA less i-bearing debt to measure earnings, and 10 say that, when valuing a potential acquisition candidate, the period they most typically incorporate into the valuation/purchase offer is the trailing 12 months.
9. Favorable reimbursement terms for orthopedics, ENT and general surgery make them preferred specialties. All 13 respondents regarded orthopedics as desirable; 12 noted ENT as such; 11 said ophthalmology was; and 10 said general surgery was desirable.
10. The least desirable specialty was plastic surgery, noted by eight of the respondents.
“Competition for acquisitions in 2007 remained as strong as prior years,” says the executive summary. “Overall, despite changes in Medicare reimbursement, the impact of which varies depending upon specialties, the value of surgery centers and the competition for deals continues to remain strong.”
For access to the current and past valuation surveys, go to http://healthcareappraisers.com/pub.html. For a complete profile of HealthCare Appraisers, go to www.beckersasc.com/resources.html#Valuation. And, for more information on the survey, e-mail Todd Mello at tmello@hcfmv.com or Curtis Bernstein at cbernstein@hcfmv.com.