How Private Equity Views ASC Investment

At the 19th Annual Ambulatory Surgery Centers Conference in Chicago on Oct. 25, Geoffrey C. Cockrell, JD, partner and co-chair of McGuireWoods' private equity group, and Rutul Shah, vice president at merchant bank Creative Health Capital, discussed how private equity firms view investment in the ambulatory surgery center industry in a panel session moderated by Scott Becker, JD, publisher of Becker’s ASC Review and a partner at McGuireWoods.

Mr. Shah said there is currently private equity activity in the ASC space, explaining that the industry has "lots of potential opportunity given how fragmented the industry is."

According to Mr. Cockrell, private equity investors are looking for "a platform [they] can really scale," noting that not every industry is accommodating to that type of growth. For the ASC industry, its fragmentation does provide a significant opportunity for scale.

In addition to scalability and growth, private equity funds also make investment decisions based on the finances of the company they may invest in. For example, very large private equity funds are not usually interested in deals below a certain EBITDA because they focus on a smaller volume of high value deals. Middle-market funds, as their name suggests, are more likely to be interested in companies with a bit lower EBITDA. The panelists noted that most middle market funds are looking for companies with somewhere around $10 million in EBITDA.

Mr. Becker noted that in addition to private equity funds, venture capital funds are also potential investors in surgery center companies. In general, private equity funds look for more mature, stable groups to invest in, while venture capital funds are willing to take on a bit riskier investment.

Mr. Shah said that private equity activity in general is currently quite strong, and he hasn't seen this level of private equity investment since 2006-07. He expects private equity to continue to be quite active in the near future due to its more recent acceptance as a core asset class for institutional investors, such as pension funds.

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