What do you see as the prospect of selling a center with heavy out-of-network and how are buyers valuing out-of-network centers?

To sell a surgery center it requires an agreeable willing buy and an agreeable willing seller at closing. We use to say a willing buy and a willing seller, but that is the conceptual world, because they are willing under their terms or their definition of fair deal. The prospect of selling a ASC with heavy out-of-network depends on the center, the market and state the center is in, and the earnings level of that center. There are buyers and sellers of out of network (OON) centers. Some of those buyers will take the most conservative route and normalize the case rates to the in network rates and then value that pro forma from there. Some will increase the discount rate in the DCF modeling and then some will just slap a reduced multiple of EBITDA on it. The amount of discount is the difference among the strategic buyers. From the standpoint of an investment banker we must work hard to understand the “story” both historically and future in order to be able to convey that message and in turn work to keep the discounting to a minimum. So there are some buyers that are more aggressive and willing to look at out of network centers in a more positive light but those are getting harder to find. If the center is in a market and state that has not been aggressive towards OON-Such as Texas, and the payer mix has a higher percentage of traditional PPO insurance then the prospects are still solid. If the center has a very large EBITDA then it will catch the attention of the private equity group buyer universe. PEG buyers that are doing their first healthcare deal are less likely to apply as high of a risk discount to the out of network revenue. The biggest challenge with out of network surgery center transactions is the worth or value or pricing of the deal. So if the willing seller is willing to take the discount then the prospects are very good, but if they are less willing to take the haircut then prospects are less than 5 years ago, but it is solid with the right ASC profile, market and buyer...

Trailing Twelve Months

Trailing twelve months (TTM) measures a company’s financial health. It covers the company’s earnings over the 12 months immediately prior to the report. This ensures that the data isn’t affected by seasonal trends. It’s one way to valuate a center, using TTM EBITDA (earnings before interest, taxes, depreciation and amortization).

EBITDA

EBITDA refers to earnings before interest, taxes, depreciation and amortization. It is considered a good way to evaluate profitability and is often used to assess the performance of a company.

Gordon Growth Model

Gordon Growth Model is an equation used to calculate the value of stock based on a future series of dividends that grow at a constant rate. It tends to be applied to mature companies with low to moderate growth.

Discounted Cash Flow (DCF)

Discounted cash flow (DCF) is a form of analysis used to valuate ambulatory centers using the time value of money. What this means is that it accounts for the fact that a set amount of money has different buying power in the future than it does in the present. It uses a mathematical formula to account for this difference when determining the value of a particular company.