ASC transactions are lengthy and require physician owners to understand the process well before entering it
Here is what each phase looks like in practice:
Phase 1: Pre-diligence and preparation (three to 12 months before going to market)
Healthcare transaction attorneys recommend that ASC owners begin pre-diligence work well before any buyer conversation. According to McDonald Hopkins, a surprise regulatory discovery during the transaction process can significantly stall or derail a transaction. Areas to address during pre-diligence include referral source arrangements such as anesthesia and pathology contracts, tax structure and certificate-of-need rules.
Phase 2: Market preparation and buyer identification (two to four months)
Once pre-diligence is complete, the sale preparation phase begins. According to the report, this is when it’s critical to engage an M&A advisor, prepare financial documentation and distribute a sales prospectus to prospective buyers.
Phase 3: LOI negotiation (one to two months)
A letter of intent establishes the framework for the deal. According to McGuireWoods, the LOI contains non-binding obligations of the parties as well as binding provisions such as exclusivity periods and break-up fees. The purchase price and post-closing governing rights may not be fully negotiated at LOI stage and remain subject to due diligence.
Phase 4: Due diligence (two to four months)
In this phase, the buyer’s accounting and legal teams examine the ASC from every angle, including financials, compliance history, billing practices, physician agreements, payer contracts, real estate and regulatory status. According to McDonald Hopkins, preparation for this phase will expedite timing, minimize adjustments to the purchase price and avoid hidden issues that could cause a buyer to walk away. For centers with compliance exposure, including billing irregularities, above-FMV compensation arrangements or undisclosed liabilities, this phase can extend substantially.
Phase 5: Definitive agreement and closing (two to four months)
The parties move to the definitive purchase agreement, covering representations and warranties, indemnification, closing conditions and post-closing obligations. In deals involving multiple physician-owners, alignment on terms is a common source of delay.
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