Why would I want to sell my ASC?

Let’s look at this answer as it pertains to each of the stages of the ambulatory surgery center cycle, with selling the surgery center as the end in mind. It depends on what you want at the end of the day. Is your goal to build a center where you can have a significant liquidity event? Or do you want to use the ASC as a profitable tool? Keep that in mind as we go through this process. Your main question is how to sell my surgical center? In this case, selling an ASC refers to taking on investors that are not physicians. Thus you are selling a good portion of the business or taking on non-physician investor partners. Common reasons surgery center surgeon owners sell include a desire to diversify assets, reduce exposure to debt guarantees if the center is not performing well, gain strategic benefits from some buyers, such as a hospital’s ability to increase reimbursement or recruit, and to acquire advantageous tax rates from the liquidity event. That is, owners are taxed at the rate for capital gains today rather than the tax rate for their future income over time, which is higher. There are certainly a number of advantages to aligning with a corporate partner: professional management, access to capital, greater focus on growth and realizing a return on your investment. Selling in the Startup Phase This is the pre-development phase where you are trying to figure out what direction you want to go, or can go for that matter. The main reason that you might want to bring on a corporate partner or hospital health system during this stage is to diversify your risk. From a pure financial perspective it is much more financially beneficial for you to hire some consultants to help you develop the center and an investment banker to recruit the physicians and sell them shares in the company, than to join with a corporate partner. The reason is that when you build the business up and once you have done all you can do and growth is moderate, you can then sell it for a multiple on the profits, whereas in this stage the corporate partners would pay the same as you do to get in the project and then almost always require a management agreement where they would take a percentage off the top. Now there are some other reasons that you might want to join a partnership, such as better reimbursement to the surgery center from non-governmental payers than the center could have negotiated on its own, but a lot of startup ASCs depending on the market still start out of network and leverage that process to get...

When and how do you present the information to the potential surgery center buyers and ASC investors?

So you want to know when and how do you present the information to the potential surgery center buyers and ASC investors? You present the information in sections, or chunks if you will. Look at the process as a weaving the sell/buy process. While you are selling your center, you also are buying a partner if you will, thus it is a delicate balance of selling and screening. After you present the teaser and have a conversation or conversations with the potential buyer until you feel comfortable enough with each other. Then you will send the seller memo and later open the data...

How do I know when it’s time for me to consider selling my ASC?

Great question. You want to consider selling your ASC when an outside investor can add the most value to the partnership and right as you are peaking with what you can do with the center. This can occur at different stages for different surgery centers. There are buyers and sellers at all stages. It is tough to anticipate a future decline in business, so it is necessary to determine where the surgery center business is and where it is headed. Easy right? I recommend that you think of your ownership shares in your surgery center as you would shares in NIKE, Facebook, GE, etc.; value can go up or down almost anytime. Let’s 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 Overbuilt 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 program Threats Competing Hospitals In-office procedural rooms Competing ASCs Fractured partnership/disgruntled partners The major threat to success in the SWOT is “the competition.” So it can help to think of the competition in a broad sense as you consider threats to your...

How do you manage the process?

So how do you manage the process? No surgery center buyer offers to pay a higher price without being incentivized, even if it can afford to. It is the seller’s responsibility to employ a transfer process that leverages its strengths so that an ASC buyer will pay the maximum price and fair terms. Having said that, you want to release information as close to your timeline as possible in order to manage the process and your timeline and CREATE THE COMPETITION that will allow you to obtain the peak price and terms. We want the buyers to be in the same stage of the process as the others so we can leverage them against each other and be more confident in our negotiating position. We typically, if the surgery center warrants this, go to the private equity group markets and to ASC Management Companies, then to hospitals. The reason is that in our experience that is the order of the highest priced offers and we want to have offers in hand if at all possible before hospitals health systems go to obtain a FMV. We set the tone and outline what we want to see in a LOI during discussions with the ASC investor/buyers. We do not allow no-shop clauses unless they are accompanied with break-up fees. In other words, we will continue to market the surgery center and negotiate with potential buyers unless you put up money that if you do fail to close you lose it. Most of the buyers will attempt to have the no shop clause in the LOI but back off of it when we convey the break-up fee or they will pay the breakup fee. We have gotten break up fees into LOIs with all types of buyers. You might even receive what a buyer will convey as a preemptive offer, which is an offer that has the intent and it is an attempt to lock out the other bidders with a high purchase offer.  Simply put they want to prevent you from marketing the surgery center, locking the center up with their offer while they conduct their due diligence. In these cases you need to look for the loopholes in their LOI and point those out, but most are not really preemptive offers, they just want you be buy into that and agree to the no shop...

How do I identify the ideal time to sell my ASC?

Since we know that your ASC is worth the most when you still have moderate growth, so it would be at the top of the expanding growth stage or at the beginning of the slowing growth stage. The market has recruitable surgeons, and your center can take on more cases or has excess capacity if you have to expand your day and start surgeries at 6 am and stop them at 6 pm or expand your week and do cases on the weekend. We will assume for this question that your desire is to maximize the sales price and sales terms to you and your partners and to take on a partner that will be a good fit and increase your profits. So all of that is straightforward and an easy concept. The tough part is, when will we know all of this? When we go through this process with a specific client we would conduct in-depth interviews with the owners to get a better understanding of what they want and what they are willing to commit to in order to get there, as well as the due diligence of the center’s business. We would then lead them through SWOT analysis that would help us understand what paths to discuss. Your weaknesses and opportunities in addition to what you are willing to commit to is really what determines the answer to the question. You will then determine from that process if you have the desire to execute on some of the strategies that will take advantage of some of the opportunities that have been identified in order to expand the rapid growth cycle and slowing growth cycle. In the event that you are unwilling or unable to expand the rapid growth stage of your surgery center, it does not have to be a “do it yourself” project, so that would be an ideal time to sell. If we execute the plan that is produced from the above, then the ideal time would be to sell after the changes have been made and the newly recruited surgeons have seasoned a little...