Mergers and acquisitions are natural for a maturing industry, such as the ambulatory surgery center sector.
Three ASC industry thought leaders offered three key thoughts on ASC M&A activity in a session at the Becker's 13th Annual Spine, Orthopedic & Pain Management-Driven ASC Conference + The Future of Spine. The session was moderated by Melissa Szabad, JD, a partner with McGuireWoods.
1. M&A activity today. M&A activity in the ASC space is occurring at a healthy pace, from single centers to the company level. Many freestanding centers are seeking partners, and Tenet and United Surgical Partners International partnered this year to create the largest ASC company in the market. "ASCs are challenged to extend their life cycles with new surgeons who are being scooped up by health systems, but despite all of that multiples remain as strong as they have been," said Todd J. Mello, ASA, CVA, MBA, partner and co-founder of HealthCare Appraisers
Three-way joint ventures between an ASC, hospital and management company continue to take place. Though transaction models are no longer as straightforward as they once were, the activity does not seem to be slowing. "There is a prevailing feeling that if you are not consolidating, you won't be able to remain competitive," said Matt Searles, managing partner of Merritt Healthcare.
2. Prices and valuation. With a lively transaction market, valuation services are in high demand, and competition is keeping prices high, according to Mr. Mello. "The majority of surgery centers are still unconsolidated," he said. There remain many opportunities for acquirers who are increasingly interested in the ASC space.
Despite interest in the market, not all ASCs are created equal. "Valuations are higher for the better centers. Less attractive centers just don't have those multiples," said Mr. Searles.
3. To sell or not to sell. In such an active market, ASC owners are asking themselves if now is the right time to sell. With multiples trending at a healthy high, many owners are concerned waiting will result in taking a loss on the center. "If you can warrant multiples of seven to eight times, there probably won't be a better time," said Mr. Mello.
It may be the right time to sell for some centers, but the decision always hinges on each ASC's individual position. If the buyers are not attractive or the center could be improved to attract a better buyer, waiting to sell may be wise. "If you want to add new doctors, wait until they get in," said Michael Stroup, senior vice president of acquisitions of United Surgical Partners International. "You want them to be owners." This will make an ASC a more attractive acquisition target.