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 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...

How do you choose what surgery center buyers and investors to contact?

This goes back to the market and what you want, what market your surgery center fits into. If you center has an EBITDA of $600K and not really high level executive team, then there is zero reason to go to the financial markets. Thus you would look at the hospital health systems that are in your market area or want to be in your market area. How would you know if they want to be in the market area? Call them. When in doubt, pick up the phone and present the teaser. It is a lot of work, but at this stage of the process you MUST create competition. For example, one center had been in conversation with a hospital literally 5 miles from it for a few years. This hospital had not been very helpful in the development of the center by pressuring the docs to not refer there. A few times they made offers and over time those offers were reduced and timelines not met, etc. The physician owner finally engaged us and we created competition for the center through solicitation offers from health systems not in the local market, but with hospitals in the region. We were able to negotiate an increase in sales price of 40% and much more favorable terms with the hospital 5 miles away because they did not want the competition putting a flag down in their backyard. This was a situation where we allowed the rumors to fly because it helped drive up the price and allow us to have very favorable terms. It all started with the teaser being emailed, then a follow-up call presenting the teaser. ASC Management companies are fairly easy to locate. There are about 60 national and regional management companies. They all have websites that have information about them and their investment box. Recalling what we said about defining the market for you surgery center or your buyer universe if you center scores high as far as the most attractive characteristics and have an EBITDA of a million or more then the majority buyer would be in your universe. When in doubt send your teaser out, typically to the CEOs or development executives. Also have your surgery center development companies agreement drawn up and looked...

How do you market your surgery center to those buyers and investors?

The first step in marketing you surgery center begins with contacting prospective buyers. This typically takes the form of a scripted phone call to each prospective buyer by a senior member of your group or the investment banker, followed by the delivery of the teaser and Confidentiality agreement via email, mail or some other method. We also will sometimes use email first; make contacts through LinkedIn, not posting in the groups but direct one to one contact and mail depending on the target market. After the prospective buyer shows interest, we will discuss their desires with them and their ability to actually do the deal. This includes where their funds are coming from, who on their side would be involved with evaluating the transaction, what their typical steps are, timelines, etc. We want to get a feel and set the tone for the process. After both parties feel comfortable and have executed confidentiality agreements, you will present the prospective investor the seller memorandum. You typically give them several weeks to review, study the information, have internal discussion,s etc.  During this time we will maintain a dialogue with the investors, often providing additional color, guidance and materials as appropriate on a case by case basis. We will open the data room for most of the investors at this time. This will further solidify the interest and trust. After that time we will verify the investor’s continued interest and we could set up a conference call and then an onsite visit. Depending on the number of interested parties, we could start the LOI process and negotiate that. Again depending on the number of buyers that are a solid fit we could start the site visits then go to the LOI, it is a process-based decision made at that point and...

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...