Critical ASC Mistake: Accepting Highest Bidder but not Best Long-Term Partner

Kevin McDonough, senior manager at the Dallas office of VMG Health, discusses why an ASC looking for a partner shouldn't base its decision solely on who is offering the most upfront money.

 

Kevin McDonough: Some ASCs appropriately send out their ASC to bid, get a number of bids on it and then ultimately select who offers the most money upfront as opposed to who would be the best long-term partner. It may not be an insignificant amount of money, however when you look at it from a long-term perspective, oftentimes the appropriate and superior long-term partner — who may offer a lower initial bid — should be able to make that money back many times over in the way of enhanced distributions after the sale.

 

That's one thing we see particularly now that acquisition activities have started to pick up and most of the bids out there are relatively competitive. Oftentimes you have certain firms that aren't necessarily bound by fair market value opinion — smaller companies or those that aren't involved with a not-for-profit health system. They may often offer a higher multiple however they may be somewhat unfamiliar with the market which can result in the inability to capture additional volume and enhanced financial performance on the backside of the transaction.

 

ASCs need to ask potential partners what they could bring to the table after the transaction. How are you going to help us besides just taking money off of the table? That's obviously one goal, and an important goal for the group, but almost more importantly is what can you do to put us in a better position in the market than what we did entering into this transaction? Examples include enhanced managed care contracts, successful recruitment efforts, improved vendor supply contracts, recruitment of a well-trained staff and identifying potential long-term strategic opportunities.

 

Learn more about VMG Health.


Read more insight from Kevin McDonough:

 

- 9 Points on Transactions and Valuations of ASCs

 

- Is There 'Hidden Value' in a Poorly Performing ASC?

 

- 3 Surprising Factors That Impact an ASC's Value

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