15 things to know about ASC valuation from HealthCare Appraisers' 2015 Survey

The ambulatory surgery center field was very active last year with new transactions and partnerships, according to the HealthCare Appraisers' 2015 ASC Valuation Survey, and the action will likely continue this year.

“For 2015, acquisition activity is expected to remain high, as 60 percent of our respondents plan to purchase between one and five ASCs, 25 percent plan to purchase between six and 10 ASCs, and 5 percent plan to purchase 15 or more ASCs,” according to the HealthCare Appraisers report.

The survey includes 21 respondents representing more than 500 surgery centers across the United States. Here are 15 things to know about ASC valuation based on the HealthCare Appraisers survey:

1. Most ASC company respondents are willing to pay a premium for ASCs in certificate-of-need states, with 57 percent reporting they would pay a premium of 0.51 to 1.0 to the typical multiple.

2. More than half of the respondents said out-of-network revenue at 20 percent of the ASC's total revenue would exceed the risk tolerance as a viable investment. But, 16 percent of respondents reported no risk threshold for out-of-network ASCs.

3. Around 40 percent of respondents said out-of-network ASCs would reduce the typical multiple by more than 2.0.

4. For out-of-network centers, nearly half of the management companies convert revenue when adjusting valuation models. Another 26 percent apply higher risk factor/discounts, according to the HealthCare Appraisers survey.

5. For multispecialty ASCs, 78 percent of the respondents reported multiples of 7.0 to +8.0 times EBITDA when purchasing a controlling interest. The multiples for multispecialty ASCs were higher than the previous survey.

6. When purchasing controlling interest in single specialty ASCs, 65 percent said the prevailing valuation multiples were 6.0 to 7.9 times EBITDA.

7. The typical management fee ranges from 5 percent to 6 percent of net revenue for more than two thirds of the management company respondents. Eleven percent reported management fees of 7 percent of net revenue.

8. Comparatively, the management company fees reported were lower than in the previous HealthCare Appraisers survey.

9. Just under half of respondents have a typical minimum management fee of $100,000 to $199,999 per year.

10. There were only 15 percent of the respondents with management fee arrangements putting their fee "at risk" for performance metrics; 85 percent have no "at risk" management fee arrangements.

11. At single specialty centers, 60 percent of management companies prefer six to 10 physician owners.

12. For multispecialty ASCs, 61 percent of management companies prefer 11 to 15 physician owners.

13. The management company's preferred ASC ownership structure reported in the HealthCare Appraisers survey is:

• Less than 10 percent ownership: 10 percent of management companies
• 11 percent to 29 percent ownership: 35 percent of management companies
• 30 percent to 50 percent ownership: 25 percent of management companies
• 51 percent to 75 percent ownership: 25 percent of management companies
• More than 75 percent ownership: 5 percent of management companies

14. Forty-five percent of management companies say their competition for acquisitions is increasing; 50 percent said there was no change from the previous year.

15. According to HealthCare Appraisers, 60 percent of ASC management companies plan to purchase one to five ASCs in the next 12 months. Another 25 percent plan to purchase six to 10 centers.

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