What are the goals of the preparing to sell stage?

When you think about selling your ambulatory surgery center, you as the surgeon owners will have a few outcomes that you want see. Typically some of those outcomes are peak price and terms as well a corporate partner that will help grow your surgery center business, etc. In order to put your surgical center business in the best position possible to reach those outcomes you must work hard in preparing your surgery center for sale. The goal of the prepare to sell stage is to prepare you surgery center so it looks as appealing as possible to potential buyers. Just as you would put a new coat of paint on your house before selling, you should make your company look as attractive as possible. This takes time, effort, money and foresight. Physician owners might find that their ASC runs better with all of these value enhancing factors in place, which makes their implementation a good idea for all parties involved. Surgery center buyers and ASC investors will find that preparatory work enables them to recognize the right acquisition fit when it comes across their desk. Making sure your surgery center is as appealing as possible requires us to look at it in a multidimensional manner. Some of the goals are to: Increase the speed of the process Make the process more efficient Manage and increase the overall perception of the buyers (which directly affects the value) Learn as much about your business as you can You want to properly position your business and articulate its investment merits. This process also allows for the identification of potential buyer concerns on issues ranging from growth sustainability, margin trends and case or procedural concentration, contingent liabilities and any physician partner issues. You need to understand the assumptions that drive your surgery center’s financial model. This is very important as this forms the basis for the valuation that will be performed by the prospective buyers/investors. Therefore you must approach your surgery center’s financial projections from the buyer’s perspective and gain comfort with the numbers, trends and key assumptions driving them. You need to understand the valuation methodologies that ASC buyers will use in their analysis (comparable companies, precedent transactions, multiples of trailing EBITDA, DCF analysis and sometimes LBO analysis-which is using debt) The more questions that you answer upfront the fewer you must answer during the process to get the surgery center buyers familiar with your ambulatory surgery center’s story. The longer your surgery center business is on the market the easier it is to lose momentum. Time kills deals, speed matters, thus this process matters. Efficiency.  The more information you provide the buyer the more quickly they can determine their interest level...

When should an ASC recruit physicians, undergo syndication or engage in resyndication of the surgery center?

Ambulatory surgery centers sometimes look at physician recruitment as a one-time “event,” carried out at some stage in the development, which can later be forgotten about during the center’s day-to-day operation. The most successful surgery centers understand and make surgeon recruitment an ongoing process. For some centers, this will be a paradigm shift and one that they will need to make. The market is changing, and centers that do not adapt will not survive. If you are not at 100% utilization and your goal is to grow the center, you should always be recruiting. Each dollar of revenue once you are at breakeven point can add up to between $.65 and $.80 of profit to the bottom line.  Successful recruitment campaigns are as, if not more, important to the success of your ASC than strong payor contracts and business best practices. The most successful surgery centers have owners that have adopted a physician recruitment mindset. A large part of your administrator’s job needs to be on going physician recruitment. At least 20% of their time needs to be in the field meeting and recruiting new physicians. Physician partners should be recruiting as well. There should not be anything going on as far as what doc is doing their cases where in the market that the administrator does not know about. Nothing! That takes a commitment and lots of work. Remember that each additional dollar of revenue can add up to between $.65 and $0.80 of profit to the bottom line once an ASC achieves breakeven financial status. Each partner needs to keep that in mind when considering how physician recruitment results in increased patient volume and profitability … their ultimate conclusion will be that case load recruiting is a highly profitable investment of their time. Syndication can primarily take on one of two forms: (1) syndication of a “de novo” or start-up ASC; or (2) selling interests in an existing ASC to physician utilizers or potential utilizers. The sale of ownership interests to physicians who bring cases to the ASC is an important factor in determining an ASC’s success. Selling equity interests in the ASC to physicians who regularly use the facility strengthens their relationship to the surgery center. Also, physician ownership is often a prerequisite to consummating a sale of the surgery center. Leading up to a sale of the surgery center is another optimal time to syndicate. Adding 100 cases a month of pain to your orthopaedic ASC could help you receive double digit multiple of trailing EBITDA as we have pointed out in the...

How should an ASC define its wants, needs and desires?

Whenever you start the prepare to sell process or even a little before you need to understand the physician owner’s and the ambulatory surgery center company’s wants, needs and desires. This will help you in a couple of ways. It will help you get a handle on how you can tell your story or in other words sell your surgery center, the strategic position of the surgery center in the market place as well as understand what you need in a new partner. Additionally, know what you want out of a ASC sales transaction. We can discuss some of the typical wants, needs, and desire but this is mostly very center and owner specific. We ask each surgery center partner what they want to see in a buyer and what they want out of a sale of their surgery center. This helps get a handle on the questions, but also helps with physician buy in. We want to take a look at the thought process in a more strategic fashion. What we do if we are brought in early enough in the decision making process is to recommend doing a SWOT (Strength, Weakness, Opportunities, Threats) analysis. There are others that you could use to get to the same place, but it is the one most of us have heard about and it is fairly easy and straightforward. A SWOT analysis guides you to identify the positives and negatives inside your Ambulatory Surgery Center business (S and W) and outside of it in the external environment (O and T). This will help you to develop a full awareness of your situation, which will help with creating a plan and making the decision. Do you hold or sell, and what is your path forward if you sell or hold? You can list internal and external opposites side by side. Answer these simple questions: what are the strengths and weaknesses of your physician group, your ASC, your market, and your efforts or actions, and what are the opportunities and threats facing it? Some of the elements typically found in a SWOT for a surgery center: Strengths Young engaged partners Multi-specialty case mix Well paying long term contracts Weaknesses Low volume High Debt Disengaged partners Low paying contracts Over built center Opportunities Ability to take on more cases or expand Improve payor contracts (e.g. an ASC that sold with payor contracts at 100% of Medicare. This was a huge buying point for the strategic buyer because it was an easy opportunity to increase revenue shortly after they bought the center.) Recruitable surgeons in the market Lower expenses Improve business best practices Internal cases that can be brought to the center Able to establish a direct to patient marketing...

What are some strategies ASCs might utilize in recruiting new physician users?

Recruiting new physicians to a surgery center, especially in this mature market is a stressful and strategic process, here are some ASC strategies you can use. Approach recruitment and retention as one and the same. You need to be recruiting your current doc in order to retain them because if you are not, someone else is. Additionally, when you are recruiting new doctors you need to approach it with retention in mind. In other words, you need to make sure that everyone understands that this is a partnership and that you will be hopefully be working together for a long time to come. Thus work hard to ensure that everyone is treated as special. We have a two avenue approach to this process. 1) We work with existing partners and physicians that utilize the center to develop an ongoing target list, gleaned from their knowledge of available physicians (or knowledge of physicians that will know who should be on our radar, such as anesthesiologists, they seem to be in the know and are great resources), and 2) We will create a mass list of all the potential physicians and surgeons that are seeing patients in the center’s market area. We will market all identified physicians through the avenues discussed above. One of the greatest assets in recruiting new physicians is the mindset and commitment of the current physician base. This support can take form in a variety of ways, including speaking with new recruits, giving tours, attending new recruit open houses, going on physician visits, attending recruitment dinners, making phones calls, and/or agreeing to be part of a letter-writing campaign.  The role of current individual owners will depend on their personalities and comfort level, but nonetheless all owners should accept – as part of their ownership mindset – the responsibility to be part of the recruitment process. The role can range from sharing names of potential new recruits to being the champion recruiter. Recruitment of new physicians should be an agenda item at almost every board meeting. During discussion on this item, physicians should identify which physicians the ASC should be reaching out to. Ask physician-owners to come prepared to put forth a few names of physicians and a little background — if known — so that the designee responsible for recruitment can pursue that physician in coordination with the physician partners. Part of the ASC’s plan should be to have a continually updated target list of physicians in the community that should be contacted and a list of physicians coming into the community for future consideration. All owners and staff should be walking billboards for the center to their practice partners and other colleagues, as well as keeping...

How should an ASC put together a team of advisors for the sale, and who should be on that team?

Physician owners of ambulatory centers are very intelligent and accomplished professionals, but in general will likely only complete one or two sales transactions in the course of a lifetime. Yet those deals will probably be the largest and most significant financial sales transactions of their career. So by definition, the inexperience of these essentially novice surgery center sellers can prove financially catastrophic as they negotiate with a surgery center buyers’ full-time, professional M&A team. Additionally there are many implications that you will encounter, such as legal and tax, not to mention the negotiation strategies and business implications. Having the right advisors upfront can help you structure the transaction whereas to mitigate or lessen them You should have a team that consists of the following: Transaction Accountant Business accountant Transaction lawyer Industry specific Investment Banker Key member(s) of your management team (If you are a larger group of surgeon owners then a transaction committee that is empowered by the group of owners) Let’s speak briefly about the why behind the group and their roles. You should engage your accountant and a transaction accountant. They might be the same person, but oftentimes not. It is important that you seek out an accountant with significant experience with business transfers. I do not believe that they need to have specific ASC transaction experience. You need one who understands the different methods that you can use to transfer the business and the tax consequences of each. Your current accountant might know some, but do they know enough to make strategic recommendations? Do they understand the tax consequences around the allocation of the sales price? While we as investment bankers understand the tax implications and deal structure because of our experiences and finance education, we will point you and your accountant in some directions; we do not offer tax advice. While it is very possible that you have healthcare lawyers that you call on often, you need to make sure that you have an attorney on your team that is very experienced with surgery center business transfers and the associated deal documents, and more importantly has the temperament to make sure the deal does not stall because they want to argue and debate issues that are not very important or worse allow their ego to get in the way. Some articles attempt to tell physicians owners that they do not need a broker to help them sell their surgery center because the buyers are readily available. The authors of that must have only had experience with or exposure to some business brokers that only fax out a one pager on your center and then get out of the way. These are not the ones that you want...