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 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...

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 is stage one and two surgery center due diligence?

The phrase due diligence is actually a misnomer. It was originally used in connection with public underwriting. The principal liability section of the Securities Act section 11 establishes a defense in securities lawsuits for misleading prospectuses for certain persons, like underwrites, if they exercise due diligence in investigating the company before selling its securities. The term is now more broadly used to mean the investigation that an investor or a buyer undertakes of a prospective seller. The due diligence process is extremely important as it affects the buyer’s decision whether to invest or acquire the company, what terms and for what prices. Additionally, this allows you to get a very deep and wide understanding of your business because you must be able to present your business in the most favorable light. The goals of the prepare to sell my ASC stage is to prepare your surgery center so it looks as appealing as possible to a potential buyer. Additionally, the speed of the process, the efficiency of the process and overall buyer perception are three big components that you want to manage. Here is how we get a handle on that. Being organized and proactive vs reactive helps those three things happen. This also allows you to get in front of any potential weaknesses that you might have or see and allow you to craft the message around the options you see around how these could be strengthened. Stage one and stage two data are essentially the paperwork stages and can be exchanged remotely and easily.  We use a virtual data room with folders and give different levels of access. Some of the buyers will argue that doing due diligence is a costly process for them and want some sort of no shop or standstill agreement in place. This is not real in our experience and we are against standstill agreements in most situations without a break-up fee, but that is another topic for another day. Proactively providing the paperwork will help rebut the notion that this process is expensive for the buyers. As we have stated there are two stages here, sometime depending on the size and scope of the business we are selling and the buyers we will actually combine the stage one and two but with them broken out you can wait to give more information as you get more comfortable with knowing that the potential buyer is a real buyer. Stage one Physician Information: Curriculum vitae with D.O.B. Corporate Entity Structure: List of all shareholders. Percentage ownership by type of security. Description of corporate parent and subsidiary ownership structure. (This information will help us prepare an ownership and corporate structure chart that will enable us to...

How should an ASC handle underperforming surgeons?

Underperforming physicians are a problem in most centers. Once upon a time, a surgery center had 20 to 30 partners, but only a few were truly committed to the ASC and used it exclusively for their cases. Times have changed and those committed physicians are increasingly getting upset with the underperforming physicians and those underperforming physicians reduce the value of the surgery center in the eyes of the buyers. Even though we are discussing this in the context of preparing your surgery center for sale, we believe that you need to constantly reevaluate the ownership structure of your facility to reflect its current users. This will help keep the incentives of the owners properly aligned to maximize the ASC’s value, which puts your center in the best light for an acquisition. Fairness and group persuasion might be the best and easiest ways to convince partners to sell some or all of their shares. Have someone, or a group of someones, approach the offending physicians and ask them to sell their shares. There are two ways to redeem the outgoing physician’s shares. An existing physician or physicians can purchase  them. The ASC can purchase the shares from the selling physician. When the ASC is buying back the shares, it typically holds them until a new physician-investor is identified, and then the ASC sells the shares to the new physician. A new physician-investor can purchase the shares directly from the selling physician. Most ASC documents have agreements in them whereas all partners must fulfill the one-third test, which means that for a physician owner, one-third of his income derived from performing outpatient surgery  must be performed at the surgery center in which he has an ownership stake. The ASC safe harbors. If the physicians are not adhering to that, the typical agreement allows for removal for non-compliance by some method. Additionally many ASC documents have the “no cause” termination or defaulting partnership provision within them, enabling a vote be it the board or a supermajority of owners (usually 65 percent to 80 percent) to remove an owner for any or no reason or because of a defaulting event. If your operating agreement doesn’t contain any of these and you are looking at this in the preparing to sale context, you should be able to squeeze them out by their paying FMV for their shares and not being allowed to be part of the new company that you would create with the buyers and with the docs that are committed to the surgery center. Remember, this is general information and you need to be working with your lawyer to execute...