Planning Strategies
Big Players Are Acquiring ASCs
If you own an independent ASC, you can consider bringing in a corporate partner.
BY RICHARD E. GABLE, PH.D., M.B.A., CEO

The market for ambulatory surgery center (ASC) acquisitions has become extremely active. More than 20 public and private companies are now bidding for ownership interests in a limited number of surgery centers, including ophthalmic ASCs. This is leading to increased demand and higher values for surgery centers with growth potential.

As interest in surgery centers has intensified, more capital has become available for acquisitions. Companies specializing in ASC strategic partnering (surgery center sales to corporate partners), such as ASCs Inc. and M*D Resources, report ASC merger and acquisition activity has doubled this year -- and at higher valuations.

IT'S A SELLER'S MARKET

According to Jonathan Vick, the founder and president of ASCs Inc., surgery center transactions are now being completed at valuations not seen since the early 1990s. Good quality multispecialty surgery centers are commanding multiples of four to six times EBIDTA (earnings before interest, depreciation, taxes, and amortization), and single-specialty centers are realizing multiples of three to five times EBIDTA. In addition, sellers can often retain the existing accounts receivable, further increasing the sale price.

Here, I'll explain why having a corporate partner for your ASC can bring you valuable financial and operational benefits. These benefits include:

A obtaining a selling price that usually greatly exceeds your initial investment and provides liquidity for an otherwise illiquid investment

• a continued ownership interest in the center
• professional management that's incentivized to increase profits
• a corporate partner that will handle resyndication, negotiating with payers, and other business matters.

While the larger ASC companies require at least 51% ownership interest so they can consolidate revenue and earnings, many emerging companies will purchase a minority equity interest, leaving the physicians firmly in control.

BUILDING A BETTER BOTTOM LINE

One of the major benefits of having a good corporate partner is increased revenue and profits.

According to SMG Marketing, corporate-owned surgery centers average facility fees of $1,342 per case compared with only $1,062 for independent surgery centers. By operating numerous ASCs, corporate players can negotiate higher facility fees with managed care plans. They can also make their facilites available to a variety of subspecialists who perform higher-fee procedures. Corporate ASCs also enjoy economies of scale in such areas as purchasing, advertising and computer services.

But be sure to pick the right corporate partner. Remember, you're entering into a long-term relationship with the buyer. Perform your own due diligence on the purchasing company to ensure that the partnership will achieve your goals. Review the buying company's financials and operating record. And speak with physicians who are already in partnership with the buyer.

OPEN THE BIDDING

In representing physician-owned surgery centers seeking partners, ASCs Inc. often provides a sales prospectus to several ASC companies. This strategy generates multiple offers for each surgery center, giving the physician-owners a choice of partners and purchase terms.

Surgery center owners who want to receive purchase proposals should first determine the value of their center. This can be done by hiring an accounting firm to conduct an appraisal (the evaluation can cost $15,000 or more), or by engaging a consultant who specializes in packaging surgery centers for sale to ASC companies. In most cases, the consultants work on a "success-fee" basis and receive a transaction fee only after the seller has successfully formed a partnership and received payment for the portion of the surgery center sold. OM

Dr. Gable is chief executive officer of Dynamic Health Connections, Inc., in Lake Forest, Calif., which provides specialized consulting expertise for subspecialty physician groups, managed care organizations and other medical organizations. You can reach him at dhc38@aol.com.