What do you see as the prospect of selling a center with heavy out-of-network and how are buyers valuing out-of-network centers?

To sell a surgery center it requires an agreeable willing buy and an agreeable willing seller at closing. We use to say a willing buy and a willing seller, but that is the conceptual world, because they are willing under their terms or their definition of fair deal.

The prospect of selling a ASC with heavy out-of-network depends on the center, the market and state the center is in, and the earnings level of that center.

There are buyers and sellers of out of network (OON) centers. Some of those buyers will take the most conservative route and normalize the case rates to the in network rates and then value that pro forma from there. Some will increase the discount rate in the DCF modeling and then some will just slap a reduced multiple of EBITDA on it. The amount of discount is the difference among the strategic buyers. From the standpoint of an investment banker we must work hard to understand the “story” both historically and future in order to be able to convey that message and in turn work to keep the discounting to a minimum.

So there are some buyers that are more aggressive and willing to look at out of network centers in a more positive light but those are getting harder to find. If the center is in a market and state that has not been aggressive towards OON-Such as Texas, and the payer mix has a higher percentage of traditional PPO insurance then the prospects are still solid.

If the center has a very large EBITDA then it will catch the attention of the private equity group buyer universe. PEG buyers that are doing their first healthcare deal are less likely to apply as high of a risk discount to the out of network revenue.

The biggest challenge with out of network surgery center transactions is the worth or value or pricing of the deal. So if the willing seller is willing to take the discount then the prospects are very good, but if they are less willing to take the haircut then prospects are less than 5 years ago, but it is solid with the right ASC profile, market and buyer universe.

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Category: Selling My Ambulatory Surgical Center
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