What are the different marketing processes that can be utilized when selling a surgery center?

The circumstances and needs of the owner lead to the selection of an appropriate marketing process for the business. The three marketing processes are negotiated sale, targeted auction and broad auction approach. A negotiated selling process is warranted when only one prospect is identified and the entire process is focused on that prospect. A targeted auction process is used when a handful of prospects are identified and speed and confidentiality is a big concern. A broad auction process is used when you want to cover all of the markets and maximize your sales price and terms. The seller should match their needs with one of these marketing processes. Hybrid approaches can be used and very often are. For instance, a negotiated transfer process may involve several buyers simultaneously at different points in the process. There may be a handful of buyers interested in purchasing the company, some of whom are making offers while a few may be meeting the owner for the first time. A targeted auction may be used for as few as two prospective buyers, but ideally involves more. In this case, the process is orchestrated to convince the buyers that an auction is underway.

Targeted and broad auctions each have one and two-step variations. A one-step auction is like herding cats with prospective buyers playing the part of the running felines. The investment banker attempts to maintain control and keep the procession as orderly as possible. With a fair amount of skill and some luck, a buyer might be corralled into paying a fair price. A two step auction is more formal than the one-step auction and much more managed. The two steps are stages with some soft deadlines.

In general terms, we are not fans of the negotiated sale approach because in its purest form, it removes the biggest leverage that you as an owner have and that is competition. Buyers know this and that is why they want to proactively pursue you and have you execute a no shop clause. There are exceptions to this, but not many. For example if you have a one OR surgery center that is essentially an extension of your office and you are retiring and want to sell it to your partner, that might be a situation where the negotiated process is acceptable. If you are selling to an unaffiliated doctor or group of doctors you need some competition.

The dictionary defines an auction as “the public sale at which goods or property are sold to the highest bidder.” The auction process concept had been modified in an attempt to sell privately owned surgery centers. The process attempts to entice a limited number of buyers in a quiet auction setting. Unlike a public sale auction, where the bidders see each other and strategize based on this awareness, the private auction creates a bidding environment. A savvy intermediary or seller for that matter orchestrates this process to the benefit of the seller, both in terms of confidentiality and a maximized selling price. We get asked a lot about terms because we stress the selling price more often that the terms and synergies or culture fit if you will with the buyer. Terms and synergies are very important. The better the price, the more room we have to deal with terms and it has been our experience that when a strategic buyer sees a great fit they will be one of the higher offers and be more flexible with their terms.

We typically shy away from using the word auction when we speak with buyers, nor do we want to advertise that an “auction process” is being employed for obvious reasons: buyers dislike being part of this process and sometimes the buyers that are the best fit will not partake. The buyers do understand that we are actively negotiating with multiple buyers. The justification to the seller is that the process will in reality make the deal easier to close. We have seen it over and over, when a seller is negotiating with one buyer, a great deal of the time the deal falls apart late in the process because of the seller’s perceptions. This process ensures that the seller understands the current market and the market value of the surgery center.

Targeted auction means targeting a short list of potential buyers and working to get offers from about 3 of them and negotiated those offers. The targeted auction focuses on a few clearly defined buyers that have been identified as having a strong strategic fit and or desire as well as the financial capacity to purchase your surgery center. There is a risk of leaving money on the table by excluding a potential bidder that may be willing to pay a higher price. The targeted auction is better than the negotiated marketing approach in most situations; the challenge is choosing who goes on that short list. I have seen it advised many times over that you should go to three buyers and get offers. You are not selling a commodity, you are selling a very unique business that you have spent a lifetime building. The limitation to this approach is that you are rolling the dice, hoping that you will somehow end up with the best three potential buyers, when it is just as probable that you could end up with the three that will offer the least. At an ASC business conference we attended, the CEO of one of the strategic buyers that market themselves as turnaround specialists asked how we knew which buyers were the most active. He has found it tough because the hot ASC buyers from the year before are not very likely to be the hot surgery center buyers the next. That is one of the challenges.¬†Since we have established that you are in search of the most qualified and MOTIVATED buyers, the broad auction approach is what we recommend for most situations and this is the answer to that CEO’s question.

A broad auction maximizes the universe of prospective surgery center buyers approached. This may involve contacting dozens of potential bidders, comprising of the strategic buyers and financial buyers. By casting as wide of a net as possible, a broad auction is designed to maximize the likelihood of finding the buyers that will offer the best prices, terms and culture fit.

While this approach typically requires the most work during most parts of the process; such as organization, preparing the list of target markets and targets within those markets, marketing process points and resources compared to the negotiated sell with a single buyer; it also is the only approach that will ensure that you obtain the peak price and terms. Even if you want to sell your surgery center to the local hospital, we cannot stress enough that the broad auction approach is the process that you want to use. In short, you want to find the buyers that are under the compulsion to buy and negotiate those offers as high as you can and then those offers become the fair market value (FMV) that the hospitals are looking for. Because if you engage the default method of FMV of engaging a FMV professional, the result will be a hypothetical value!

IF you want to read more about this you can review our website, our article about Market Value or our webinar.

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