1. Improved ASC financial performance. We are seeing more centers that are doing very well, with high revenues, profits and earnings before interest, taxes, depreciation and amortization (EBITDA) margins. It is not unusual now to see physician-managed centers that have EBITDA margins of 40 percent or more. Many centers have added ancillary services to improve their financial performance and have attended seminars, such as those sponsored by the Ambulatory Surgery Center Association and ASC Communications, and have implemented the recommendations discussed. However, many have also seen their profit growth slowing and are seeking a sale to take some money off the table; at the same time, they attract a professional management company that will keep their distributions growing.
2. Diversification opportunity. The nation’s economic difficulties and the impact this has had on investment assets such as stocks and real estate have increased an awareness of the importance of asset allocation. Many surgeons are overweight in the investments they have in their ASC business and real estate and realize that selling a portion of their interest will help them diversify their assets. This becomes accentuated for senior physicians who are planning their retirement and want to make sure their nest egg is adequately diversified. It is far better to sell an interest well before retiring to avoid significant discounting of a retiring partner’s value to the center.
3. Increased deal flow. With more successful centers and more than 30 companies competing to acquire ASC interests, many centers are being bombarded with opportunities to sell a minority or majority share to a corporate partner. There are many good companies willing to buy minority interests and this makes a sale more attractive to many physicians as it allows them to retain a majority interest. For groups that want to take more money off the table, there is strong competition to buy majority interests as well. While it may be increasingly difficult for physicians to make a short list of the best 3-4 companies for them to solicit because of the growing number of companies, firms that specialize in ASC mergers and acquisition consulting can assist them to partner with the best companies and get the highest price.
4. Higher prices. Competition for good quality centers with growth potential has driven multiples higher. It is now common to see multiples for multi-specialty ASCs in the 7-8 times EBITDA (less debt, plus cash) range. We are now seeing offers only slightly below this range offered for single-specialty ASCs with significant cash flow and good growth opportunities. Minority interests are being valued in the 5-6 times EBITDA range. Buyers have money (some with credit lines of $200 million) and the credit crunch has not slowed their deal making.
5. Incentives to sell: Capital gains taxes, adverse legislation. We have seen a spike in ASC physician-owners wanting to make a sale now because of an expectation that capital gains taxes will increase in 2009 to pay for wars, Wall Street bailout, etc. This anticipation of an increase in the capital gains tax rate is providing a strong incentive to seek the sale of interests in ASCs prior to the enacting of new tax laws. Additionally, the fear of adverse legislation that could prohibit or restrict physician referrals to physician-owned ASCs, which could significantly reduce the value of all ASCs, is also a factor.
6. Real estate sales. Many physicians who own their medical office building (MOB)/ASC real estate are interested in further diversification by selling their real estate as well as their ASC. We have advised and assisted clients to obtain some very attractive sale/leaseback deals offered by medical real estate investment trusts and private equity firms. These sales are sometimes done at the same time as the sale of the ASC or separately, albeit to completely different buyers.
Jonathan Vick is the founder and president of ASCs Inc. Mr. Vick has assisted in development, merger, and acquisition transactions for more than 200 physician-owned ASCs, endoscopy centers and surgical hospitals since 1984. Contact him at jonvick2@aol.com. Learn more about ASCs Inc.
