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How to create a strategic partnership with a hospital

How to create a strategic partnership with a hospital
Written by Jonathan C. Vick, Founder and President, ASCs Inc | February 05, 2016
There can be significant benefits to having a hospital as a partner for a surgery center, as long as the terms of the partnership are beneficial for the surgery center. If the partnership is not beneficial a center may find that it has sold equity to a non-producing partner and this can prevent the physician-owners from achieving their long term goals.

It is advisable to have a plan on how the hospital will be brought in as a partner and specific expectations and goals in mind prior to initiating discussions with the hospital. Here are some thoughts on how to successfully bring in a hospital as a partner:

First of all when seeking a strategic partner it is usually politically important to include one or more hospitals in the negotiation. From a business perspective it can be very beneficial for an ASC to have a hospital partner if they will give you access to their contracts and if they will refer patients to your center. These are big “ifs” and need to be clearly negotiated as part of the deal, before the deal is signed. Usually only one hospital is included as a partner.
Secondly the hospital’s usual starting position is that they need to own 51% and they use the income method of valuation so they almost always give the center a lower value than the ASC management companies that use the market multiple of EBITDA method to value a center.
Thirdly, if the hospital ends up as a 51% owner, regardless of what they say, they will want to run the center like a hospital thus destroying the efficiencies and economies that have made your center successful in the first place.

So based on our experience our recommendation is to:
1. Include the hospitals in the negotiation so they feel they are part of the process
2. Seek partnership proposals from several ASC management companies that have models that include a hospital partner and that have a track record of negotiating successful 3-way deals with a hospital as a minority partner
3. Obtain partnership proposals from more than one ASC management company as they will offer more than the hospital so this establishes FMV for the center and creates competition to maximize the value
4. If it makes sense to have a hospital partner a 3-way deal can result in the best of all worlds: access to hospital contracts and referrals, a management company that knows how to profitably manage ASCs, the highest possible price, and a corporate partner that is oriented to maximize profits so that distributions will continue to increase.
5. Negotiate a deal first with the selected ASC management company, and then with your management company’s assistance and expertise negotiate bringing the hospital in as a partner if it provides specific benefits to the partnership.

Jonathan C. Vick, the founder and President of ASCs Inc., has advised on development, merger, strategic acquisition and real estate sales transactions for over 500 physician-owned ambulatory surgery (ASCs), endoscopy centers (ECs) and surgical hospitals since 1984. He has extensive experience in ASC and EC sales, development, business planning, operations, valuations, and strategic mergers & acquisitions. He can be reached at 760-751-0250 or at e-mail: jonvick@ascs-inc.com. More information can be obtained at website: www.ascs-inc.com

 

© Copyright ASC COMMUNICATIONS 2016.

What Do ASC Buyers Look for in Potential Acquisitions?

Jon Vick of ASCs Inc. gives a detailed picture of the ambulatory surgery center buyer’s market, what qualities buyers look for in potential ASC acquisitions and how ASC leaders can position their centers to attract the right buyers.

Question: Who are the primary buyers in the current ASC market? 
To find out the answer to this question, and more, click here.

4 smartest things ASC owners do today: Preparing for sale

When physicians decide to open an ASC, business success is top of mind. Conducting present business in a way that maximizes future business, however, is a priority that can escape those who are not extremely planful. Here are four of the smartest things ASC owners can do today to maximize future gains from the sale or transfer of various parts of their business.

Read more at Becker’s ASC Review

ASCs Inc. markets your surgery center to the right buyers

Most surgery center owners want the highest price for their surgery center and a corporate partner that will grow the business and its profits. Whether you are selling a minority or majority interest, you want to sell to a partner with a track record of success that places a high value on your surgery center.

With over 30 surgery center companies interested in investing in surgery centers, selecting the right buyers makes all the difference between an average price and a premium price. By selecting the right prospective buyer, sellers will realize a higher selling price and a partner that increases profits and distributions. ASCs Inc. advises and assists surgery center owners so that their center is professionally marketed to leading surgery center companies that are looking for specific types of centers. ASCs Inc. helps surgery center owners maximize the selling price by recognizing and valuing all of the profits and assets of a center, creating a competitive environment, and marketing the surgery center to the buyers that want to invest in your type of center.

What is “ASC strategic partnering” and how will it benefit you and your partners?

ASC Strategic Partnering is when you form a partnership with an entity that can help your center grow, become more profitable, and increase the value of the center and the distributions to the partners. ASC management companies almost always value ASCs higher than hospitals do but having a hospital partner can provide other strategic benefits.

A strategic partner brings more than money to the table. While ASCs Inc.’s goal is to obtain the highest possible values for our clients, in most cases money is not the seller’s only goal. Since buyers almost always want the sellers to retain a significant (usually 49% or greater) interest in the ASC, it is in the seller’s best interest to partner with an ASC management company and/or hospital that will improve the cash flow and value of the ASC.

From a strategic perspective the best partners are ASC management companies that can bring recruiting, contracting, case costing analysis, billing and collection and purchasing expertise to the table. Each of these skills can help your center improve its business and generate increased profits and distributions. In many cases, a hospital that is willing to provide access to its hospital contracts can be a strategic partner, but this is a relationship that must be carefully managed. This is why a 3-way deal between the ASC, a management company and a local hospital can be a very practical and workable strategic alliance, especially as Accountable Care Organizations (ACOs) are becoming dominant and insurance companies are “steering” patients to the low-cost providers. We call it “the best of both worlds” alliance – ASC management expertise and access to better paying contracts, in an environment that places high value on the ASC as the high quality, low cost provider.

Partnerships with private equity firms that are “rolling up” groups of ASCs for resale are usually not “strategic”. Private equity roll-ups, or leveraged buy-outs, are engineered by investment firms to buy a group of ASCs and then sell them at a profit to a higher bidder. These are not strategic as the private equity buyers tend to know little about the ASC business and don’t bring expertise that will help your business grow. Thus ASCs Inc. recommends partnering with an ASC management company and/or a hospital in a strategic partnership that results in tangible, valuable benefits for the ASC physician-partners.

There are currently over 20 ASC management companies seeking ASC acquisitions. Prices being offered by the ASC management companies are the highest they have ever been, as ASCs with good growth opportunities are becoming harder to find. Based on your situation and goals, ASCs Inc. will help you find the best strategic partner and obtain the highest value for your center, as we have for over 500 centers since 1984. ASCs Inc.’s proven competitive bidding process results in a choice of strategic partners and higher purchase prices for physician-owners of ASCs.

For a copy of the annual ASC Valuation Survey, or for more information e-mail info@ascs-inc.com or call ASCs Inc. at 760-751-0250.