ASC Owners: When Is the Right Time to Sell?

At the 12th Annual Spine, Orthopedic and Pain Management-Driven Conference in Chicago on June 13, Colin Park, a manager with VMG Health, Thomas J. Chirillo, senior director of outpatient services and ASC development with Tenet Healthcare, and Barton C. Walker, JD, a partner with McGuireWoods, discussed ASC ownership sales, valuation, compensation and non-competes during a session moderated by Amber McGraw Walsh, JD, a partner with McGuireWoods.

Question: When is the best time to sell your ASC?

Answer: The decision to sell is dependent on each individual market and ASC. There are three different components to take into account when deciding to sell a controlling stake, according to Mr. Chirillo.

Emotional. "Once you mention that word [controlling] with a surgeon, it sparks a flurry of questions." Surgeons have to consider the time they have invested building the ASC's business when considering selling a majority stake.
Financial. The price offered for a significant portion, or all, of an ASC is an important factor for its sellers.
Strategic. "The strategic reason behind a sale is to partner with an entity that can up the level of leverage [in the market]."

"Selling a minority interest centers around a turnaround element, adding physicians or bringing in a management company as an impartial partner," said Mr. Chirillo.

Q: What are some major valuation trends?

A: "This is market specific. There can be a competitive bidding process," said Mr. Park. "I would say over the last few years we have seen a widening range of ASC values."

Q: How does out-of-network strategy affect valuation?

A: Out-of-network strategy, though often questioned as a sustainable strategy, is still utilized in the ASC industry. The efficacy of the strategy varies widely from market to market. "It really comes down to risk and how this affects future earnings. Any additional layer of risk will impact value," said Mr. Park.

Q: Do you see a difference in willingness to pay for ASCs from different buyers?

A: The ASC market remains relatively fragmented, which leaves opportunity for consolidation and acquisitions. "The main consolidators are always going to be hungry for revenue," said Mr. Walker. "Sellers are unsure of the future. They are ready to take some money off the table."

Q: How important are non-competes?

A: "From a buyer's standpoint, a non-compete is pivotal," said Mr. Chirillo. "They need the protection necessary to stop the business from going to a competitor."

"Non-competes are fairly standard, everyone should have that expectation. If physicians have competing interests elsewhere, address that," says Mr. Walker. "It will ultimately become a pricing issue, get it on the table"

More Articles on Transactions and Valuation Issues:
Finding the Best Hospital Partner for Your ASC
ASC Value: How Important Are CON, Out-of-Network Opportunities?
11 Joint Venture ASCs Opened or Announced in 2014

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