Trends in Surgery Center Mergers and Acquisitions for 2020

 Laura Dydra, the editor-in-chief of Becker’s ASC Review, sat down (remotely) with Jim Freund, a senior partner at ASCs Inc. and Becker’s Healthcare very first vendor partner more than 25 years ago to get his take on what they have seen happen in the M&A space since COVID-19.

LD - What is your sense of what is happening in ASC M&A since Covid-19 began?

JF – We have truly seen a paradigm shift away from hospital-based procedures to the ASC setting and Covid-19 has acted as yet another catalyst. With CMS continuing to approve higher acuity procedures that can be performed in the ASC setting and with payors taking a more active role in directing patients to high quality, lower cost of care settings, non-hospital outpatient surgical facilities are becoming a more integral part of the healthcare delivery system.
While we continue to see strong demand coming from the national ASC management companies that have historically partnered with independent physician-owners, virtually every healthcare system and hospital has initiatives in place that involve expanding their freestanding surgical facilities footprint. In addition we have seen an influx of new investment coming from the private equity and investor markets, through their own firms or partnering with ASC industry organizations and individuals.

LD – Why would an ASC owner sell an interest in their business?

JF – The challenges that we have encountered this year have definitely made owners and executives reflect more than ever on just how challenging it is to manage this complex business themselves and how they could potentially benefit from being part of a larger organization. Some of the advantages of “scale” that are often not available to most independent ASCs include enhanced referral networks, recruitment services, better payor contracts, supply purchasing power, operational infrastructure, advanced technology, revenue cycle, finance, data analysis and accounting services, human resources and more. We suggest exploring the variety of options that are available and determining what makes the most sense for each individual center.

LD - We see more ASCs selling to hospitals. What can physician-owners do to ensure that they end up with the best possible strategic partner?

JF - When it comes to selling to a hospital the most important advice we can give is take an active role in managing the sales process and not relinquish control of the process to the hospital. While hospitals may be required to pay “fair market value” for an ASC, physician-owners can actively impact what “fair market value” is. What we suggest, even when you know who you want to partner with, is obtaining competitive proposals for your center to determine its true value, in much the same way we determine value of virtually any other significant asset we sell. In addition, there is intrinsic value that your center adds to the buying organization that is not easily replicated - your physician staff, case mix, facility, employees, patients, reputation - all are assets to any partner.

LD - What are buyers looking for?

JF - They are looking for ASCs that can enhance their organization financially and functionally. ASCs must meet each individual buyer’s criteria, which would include a desirable geographic location, having the right mix of specialties and physicians, a facility that is in excellent physical condition, and profitable. They want to understand an organization’s growth trajectory, the ages of the physician-owners and succession planning, financials, contracts, in and out-of-network mix, staff, and more. In addition, they will want to clearly understand how they can impact the center from a financial and non-financial perspective, ensuring that real synergies exist between buyer and seller, and clearly understand how this transaction will positively impact their organization.

LD – What are some keys to a successful strategic transaction?

JF - Virtually every physician-owner of successful surgery centers has been approached by multiple entities that have an interest in acquiring their center or practice. For owners who want to explore selling an interest in their center it is important for them to understand that this process is extremely complex and time consuming - often lasting more than a year. We believe any successful transaction involves the following: First, clearly define your goals, why are you selling, what would you like to have in new partnership and make sure all the partners are in agreement. Second, do a thorough analysis of your business, make any necessary corrections, and create a marketing package (we compile a Confidential Information Memorandum, or CIM). This will contain an overview of your organization and physicians, growth strategies, challenges and opportunities, staff, infrastructure, competition and detailed financial, payor and provider reports. Next, solicit interest from the most qualified and likely buyers, comprised of large national, regional and local buyers and engage them in the buying process. Lastly, run a competitive buying process that will enable you to negotiate the absolute best financial and non-financial terms for your center. Remember, you will only get one chance to do this, so getting it right is important.

LD – If the physicians own both the ASC business and the ASC real estate, is there a strategy available to maximize the value of both?

JF – When we initially work with any ASC owner we take into consideration all of their assets, which aside from their ASC business can often include their real estate. Since this may include their ASC, practice and even ancillary services, we want to make sure that they understand the ramifications that their real estate can have on the strategic transaction, and vice versa, and ensure that they have a plan in place that will enable them to realize maximum value for both assets.

There are both value and timing strategies and it is important to consider these prior to the sale of either asset. Adjusting the rent up or down to fair market value can have a direct impact on the value of the ASC business, which typically will sell for a multiple in the 6X to 9X multiple of EBITDA range, depending on growth opportunities. The real estate today will sell for a multiple of 14X to 17X multiple of annual rent, depending on a number of market factors. It is critically important for physician-owners to understand that while they have 100% control of their business and real estate that they make the right decisions regarding rent, lease terms and selling their real estate assets. In today’s market, prior to selling their business to a strategic partner, we most often recommend that clients sell their real estate.

LD – Final thoughts or advice when it comes to what the future brings or what to consider?

JF – I know this may sound a bit critical but I don’t believe it is realistic for ASC owners to expect that they will end up with an optimal outcome when it comes to selling an interest in their business without the experience, expertise and knowledge that comes from managing this complex and time consuming process many times over. Seek the advice of experts when it comes to selling your center and make sure you have someone looking out for your best interests. You can do this in an at-risk basis, meaning that if you don’t get the results that you want, you don’t have an obligation to sell.

Jim Freund has been a principal and held leadership positions with several industry leading firms over the past thirty years. He leverages the knowledge and expertise gained from working with over 1000 ASCs to advise clients on strategic transactions, real estate sales and leasebacks, valuations and mergers & acquisitions and can be reached at 203-733-8818 or More information can be obtained at:

ASCs Inc. is focused exclusively on representing physician-owners of surgical facilities (and their ancillary practices) who are selling an interest in their business or their real estate. Their industry leading team leverages the knowledge, experience and expertise that comes from successfully managing more than 250 transactions to ensure their clients end up with the absolute best financial and non-financial results.


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