How do you understand the art of sales prices – who has use it or lose it money, what management company is going public, who has a strategic need for a center in a certain area, etc?

Great question. A value is for a certain point in time and your center is worth as much as someone is willing to pay for it. If you are looking to maximize your value capture and the terms of the deal, you would conduct what Investment Bankers term the Broad Auction Approach. I typically stay away from the word auction with buyers because the word is what is it is and it sometimes elicits a negative connotation in their mind, but they are smart people and know what we are doing. You would prepare your center then go to market with it. Market it to every conceivable buyer and buyer type for centers like whatever center you are marketing. This process would help you learn the answers to your questions. While granted this process takes a little longer, you will get the answers to your...

What should someone expect from the ASC buying and selling processes?

For us, expectations equal goals.  Some of the goals that sellers want are peak price and terms as well as a partner that will help grow their business. In order to be able to accomplish those goals, the sellers should expect and be prepared to create a strategic and PROACTIVE sales process and then execute on that process. This will put them in the best position to obtain their expectations. A proactive process will increase the speed, make it more efficient, and manage and increase the overall perception of the business in the eyes of the buyers-which directly affects the value. Additionally they can expect to learn more about their business, their market, etc. You want to know that in and out because you will understand the assumptions driving your financial model and this forms the basis for the valuation. We would recommend that sellers perform a SWOT analysis-Strength, Weakness, Opportunities, Threats. A SWOT analysis guides you to identify the positives and negatives inside your Ambulatory Surgery Center business (that is the S and W) and outside of it, the external environment (that is the O and T). This will not only help the sellers understand what they need but also communicate what they expect from a buyer and the sale process. Additionally, you need to expect to put a team around you to help ensure you meet your goals. 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 surgery center 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 such as legal and tax that you will encounter 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 A transaction committee that is empowered by the group of owners and a Valuation professional  and lastly expect the unexpected and not allow it to create deal fatigue. Humans are emotional creatures and our emotions sometimes get the best of us and understanding the stressors going in will help you manage your...

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...

What is the life cycle of an ambulatory surgery center (ASC)?

The life cycle of an ASC has the following stages: Startup Initial Growth Rapid growth Slowing growth Plateau Decline Startup The startup is the surgery center’s pre-development phase where you are trying to figure out what direction you want to go with your ASC and how you are going to get there. For example you are a group of busy podiatrists and your case volume shows that the pro forma will be below breakeven. Do you go out and recruit some orthopaedic or spine docs and develop your ASC with just surgeons? Do you “sell” at this point in time a piece of the project to an ASC Management Company or a hospital health system? Initial Growth Then you have the the initial growth phase, which is a very important stage in your center’s development towards profitability. This is when you set the tone, lay the foundation, and the physician partners and utilizers have their first impression of the operations of the center. Additionally you will be able to address the surgical case load commitment that you based your surgery center’s pro forma off of. Profits will not be there until the fix cost are covered, thus you should focus on working with the surgeons to capture the surgical volume that you put in your surgery center’s business plan’s pro forma, on operational efficiencies and containing cost. If your doctors are not aggressively shifting cases to your center you need to address it in this stage. You need to be working towards your surgery center breaking even as quickly as possible. That being said, you should look to see if you need to be open every day or not, have minimal staffing, and recruit more surgeons that will do cases in your surgery center. There are outpatient surgery centers that are 4 or 5 years old and are not out of this stage of development. So it is important that you know how to market oupatient surgery. Rapid Growth In this stage you are covering the ASC’s fixed cost, have worked out the operational inefficiencies and working well with the surgeons. You are making consistent surgery center distributions and your EBITDA is expanding with each added case. As we have said many times before, once you are at break even every dollar of revenue should add between $.65 and $.85 to the bottom line. During this expanded growth phase is where the fun begins or everything that you worked towards moves faster. Your hard work and strategic operations are paying off with results. The profits are being driven by the core surgeons. Slowing Growth While surgery centers can go from the Initial Growth stage to the Slowing Growth stage, skipping the Expanded...

What marketing materials do you need to prepare in order to market your center and what information is contained in each?

Marketing materials often represent the first formal introduction of your ambulatory surgery center to the potential buyer/investor. They are essential for peeking the investors’ interest and creating a positive first impression. Effective marketing materials present the target’s investment highlights in a succinct manner while also providing back-up evidence and basic operational, financial and other essential business information. The two main documents for the early stage of the process are the teaser and the confidential seller memorandum. Teaser The teaser is the first marketing document presented to prospective buyers. It is designed to inform buyers and generate sufficient interest for them to want to know more. The goal is to garner interest not to screen out. You will have a phone conversation with the potential buyers that have sufficient interest. That conversation will help determine if they are a serious buyer or not. The teaser is generally a short one or two page synopsis of the surgery center, including the overview, highlights and summary financial information. You want to include the most important information that a buyer wants to know about first such as: How many physicians are partners and how many perform cases at the center The case mix In-network or out of network and the percentage of each The size of the center (sq ft and ORs, procedure rooms, etc.) Case volume Percentage of the overall cases are perform by each physician Years in the business Revenue and EBITDA The year over year growth In a CON state or not Location (we would only put the general area of the country) A few compelling lines about the future growth of the center and local market Make sure that this is a positive presentation of the ASC. Do not put in screening statements or screening questions. I received an email a few years ago from a physician owner of an ASC-the email I assume was his version of a teaser. The tone of the email was combative with a lot of screening statements that did not leave a very positive first impression. I actually visited the center almost two years after I received that email. The center is amazing, it is very profitable at about 20% capacity, the capabilities are limitless, the rooms are huge, there are plenty of ORs and procedures rooms, the CON is very liberal for an ASC because it belonged to a hospital at one time but the center is stuck in neutral. The challenge is the disconnect in the process and not working to find common ground. The physician’s demands were presented as if in stone with no flexibility. Based off the response or lack thereof, the introduction was not successful and it tainted...