4 things to know about ASC benchmarking, transactions and valuation

Two representatives from the valuation and advisory firm VMG Health shared some insights from their annual benchmarking analysis, as well as transaction and valuation trends, at the Becker's ASC 22nd Annual Meeting: The Business and Operations of ASCs, on Oct. 22.

VMG Health Director Colin Park shared basic ASC industry trends from the firm's benchmarking analysis. According to Mr. Park, growth in ASCs has leveled off and same-center growth has flat lined. Additionally, ASC supply has exceeded physician demand, meaning many ASC owners and operators struggle with attracting new physician investment.

This oversaturation of the market does provide excellent opportunities for consolidation, however, said Mr. Park.

Despite the challenges ASCs face, VMG Health has observed an uptick in the debt ASCs have taken on in the past two years, an indication of confidence, said Mr. Park.

"Interestingly, in 2014 and 2015, we're seeing surgery centers take on new debt. And really, the willingness to take on new debt is the leading indicator that ASCs are hopeful for future growth," said Mr. Park. "It shows confidence, and it can be a result in ASCs resyndicating, remarketing, adding new physicians or adding new equipment."

ASCs are in an environment where their revenue is growing, but not at a high rate, and the only way to combat declining margins is to improve cost containment and operating efficiency, said Mr. Park.

VMG Health Managing Director Aaron Murski shared observations in the ASC transactions market and how the trends influence ASC value.

"Who are the buyers and what are their motives? When we discuss ASC value, it's helpful to think about who is out there pursuing these deals," said Mr. Murski

The big two buyers people often think about are hospitals and health systems, but there are also ASC management companies and operators and other surgery centers. According to Mr. Murski, the equity models and deal terms vary considerable from deal to deal.

Although many factors vary from market to market, Mr. Murski noted one factor that has been fairly consistent: ASCs are well-positioned in the current environment.

"As a low-cost provider, ASCs have been positioned well and will continue to be positioned well, even in light of things like high-value networks and bundled payments," said Mr. Murski

Ultimately, the VMG representatives left the audience with the following four main takeaways regarding ASC benchmarking, transactions and valuation.

1. The ASC market is a very attractive place to invest from a value perspective. The biggest value drivers in the market are cost containment, disciplined operations and maximizing value through strategic alignments.

2. ASCs are well-positioned for healthcare reform trends which will continue going forward.

3. It's a sellers market and ASC demand will likely remain high for some time.

4. The core challenge ASCs face is finding physicians to invest in the surgery center, particularly finding aligned physicians.

 

 

More articles on ASC transactions and valuation:
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7 lessons learned from hospital-ASC partnerships
AmSurg shares rally 1.1% — 5 notes

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