Solicitation – The Key To Recognizing Increased Values From Your Radiation Oncology Center

How to Sell a Surgery Center

By: Blayne Rush, MHP, MBA

June 23, 2010

 

The economic fallout from a slow economy and potential changes from national healthcare reform are affecting selling prices of radiation oncology centers and surgery centers. There are many steps that physician owners can take to drive valuations up, such as ensuring an appropriate mix of both young and mature physicians and good growth in case volumes. In the current risk-averse environment, lenders are being gun shy and forcing buyers of radiation oncology centers to put more skin in the game and come up with a bigger piece of pie as well as guarantees to cover more of the debt.

Surgery center buying and selling will continue, but how do you counter the slowing rate and get your radiation oncology center before the top buyers in the industry?

Create a Competitive Environment

The investment banker brings several attributes to the table that will drive up the value of your radiation oncology center.

The key advantage is the fact that he has the ability to create a competitive bidding environment to drive up prices. Creating competition is the best way to get an item to attain its highest possible value.

There are psychological elements involved as well as the principles of supply and demand. If an item is perceived as being scarce, then more buyers are likely to come forth with bids to participate in a rare opportunity.

Secondly, having multiple buyers is like giving the item a stamp of social validation, i.e. people are more likely to take a recommended action if they see others like them doing so. For example, we see this all the time in real life, especially in online marketplaces such as eBay.

Just Like in the Real World

In eBay, whenever there are multiple buyers, higher prices inevitably result. Further, when a person has made the first move or made an emotional commitment, he or she is likely to pursue that commitment further. No matter how small your first move is, you are likely to want to continue moving in that same direction.

For example, on eBay a first move would be entering a small initial bid. Then you notice that other buyers are following suit, and you find yourself upping your price because you feel that the item you desire is being taken away from you. After all, no one likes to lose.

This kind of buying behavior is also seen in real estate, when interested buyers offer higher than the listed price for a single property when they are aware that there are others just as keen as they are to get into the house.

Another area where competition is actively used is in bankruptcy. It is common for the trustee to find a stalking horse, which is a first favorable bid for the company’s assets, to prevent receiving unseemly low offers.

By soliciting a stalking horse, it sends out a strong message to potential buyers that they must come up with even more favorable terms to buy the assets of the bankrupt company. More often than not, the stalking horse creates upward pricing pressures, and potential buyers have to bid higher than they would have been willing to pay were they the only buyer.

Creating a Competitive Market Through a Two-step Process

Your investment banker draws from these known psychological factors to maximize the market price of your center through a two-stage solicitation process.

i.) The first step is to proactively introduce your center to multiple buyers, not just hospitals or health management companies, but various kinds of buyers such as private equity firms, roll-up buyers, tunnel buyers, and even competitors.

ii) The second step is to determine the top serious buyers and then negotiate and leverage competitive offers. When your investment banker creates an aura of demand among several serious buyers, it stands to reason that a committed bidder will offer top dollar to arrive at a final sales price that will exceed what you could have gotten on your own.

Extensive, Time-tested Network

The investment banker has an extensive and wide network of industry contacts built over years of client development. Basically, it is his business to put in the time and focus to sell your radiation oncology center to the widest possible base of clients, creating a competitive market for your center. Lawyers and chartered accountants may have clients. However, they are neither trained nor comfortable with the amount of introductions nor are they typically skilled in recognizing the selling points of your radiation oncology center. An investment banker who specializes in radiation oncology should readily have 200 potential buyers to immediately call to solicit interest.

Creating the Buzz

Getting an investment banker to negotiate on your behalf is key to getting multiple bids. It is his job to tell your story and use his persuasion and negotiating skills to shape the opinions of potential buyers. With his communication abilities, he can break through barriers, clear misunderstandings and be the intermediary to convey information between the seller and the buyer so that everyone is informed.

Furthermore, potential buyers are more likely to take you more seriously and more likely to follow the recommendations of someone, such as an investment banker, who is seen to have relevant expertise and authority

Quality of Buyers

It is important that bids are solicited from companies that are interested in your type of center, that have the financial capital to close the deal, and that have a track record of operational success with other similar centers. The investment banker has contacts in all sectors and industries and will be able to filter through his network to find the right potential buyers that best match your wants, needs and desires.

Timing Your Sale

The best time to sell your radiation oncology center is when your business is profitable and still expanding. You get the best valuations when you are on the growth track with at least 30% capacity to expand. Premiums diminish when your center is at peak or on a downward trend. The investment banker can structure a deal to sell part of your center at its growth stage, and then sell the rest at peak for maximum gains for you.

 

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