The COVID-19 pandemic has structurally affected the inputs to cost-, income- and market-based valuations, but for surgery center administrators or physician owners, how have buyers and sellers perceptions of value been altered?
How COVID-19 affected ASC operations and valuations was the subject of a June 19 virtual conference, hosted by Becker's ASC Review and sponsored by VMG Health.
The speakers were:
- Kevin McDonough, managing director of VMG Health
- Colin Park, director of VMG Health
While valuation-altering data continues to reveal itself, the effects of COVID-19 and their impact on value is observed in both cash flow projections and current working capital levels, Mr. Park said. Financial performance for the majority of centers will be down for 2020 and the decrease is largely dependent on a center's location and local government restrictions around resuming elective surgeries.
Here are five key points:
1. While short-term financial performance and resulting valuations have been impacted, the attractiveness of the industry as whole should remain undeterred, said Mr. McDonough.
"The fact is this interruption is unlikely to repeat itself at the same level [in near-term future] due to diminished consumer fear and greater availability of PPE. What made this an attractive industry remains unaltered," Mr. McDonough said. "There still is going to be a lot of interest from financial and strategic industry buyers. "
2. Wall Street supports this consensus and considers the virus and its impact on the ASC industry to be temporary judging by forward-looking EBITDA multiples.
3. Many industry participants believe there will be "softness" for the next 12 months as elective surgery volume ebbs and flows due to shifting consumer/patient behavio, Mr. McDonough said. States that were more significantly impacted by the first COVID wave and COVID-19-related restrictions, like New York or New Jersey, will have much different recovery patterns and timing than ASCs in states with more relaxed protocols and earlier lifting of restrictions.
4. Consumer behavior plays a significant role in determining the speed of recovery and resulting impact on valuation. "You have a disruption on the surgery center side, but also a disruption on [clinicians] seeing patients in office settings," Mr. McDonough said. "It creates a two-fold disruption in the surgical patient care cycle. … When there's a disruption, clinicians see fewer patients on a day-to-day basis. This creates a lag effect, and although there's optimism, centers will work through the pent-up demand … [However,] there are some concerns around consumer behavior decisions. How many patients are just not going to the doctor or significantly delaying elective procedures?"
5. Proclaiming that there exists some universal impact to ASC value as a result of COVID is neither realistic nor accurate. Like most major macro events, the impact to the financial performance of each center is unique and can be highly variable. VMG has seen first-hand this variability in the ASC valuation engagements conducted over the last two months. Certain centers have had recovered swiftly and retained a strong balance sheet position, resulting in little impact to value while others have experienced a protracted recovery and a significant decline in balance sheet health.
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