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...

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...

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...

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...

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...