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Stay up to date with ASCs Inc. — from recent Strategic Partnering news and the current ASC/MOB Real Estate market conditions, to the most recent ASCs Inc. transactions and upcoming events.

What’s new in ASC strategic partnerships in 2018?

Why do some centers command values well above other similar centers?  How can you realize maximize value for your center?

Demand for centers has increased.

ASC management company and local hospital interest in investing in all types of surgery centers continues to be very high, with multiple buyers competing to buy centers.  After over 30 years of management companies investing in ASCs and making significant profits by helping the centers grow and become more profitable, local hospitals and private equity firms are showing a heightened interest in participating in physician-driven ASCs as these continue to be the high-quality, low-cost providers. Currently there are over 50 potential buyers seeking to invest in a shrinking supply of desirable (i.e. two or more operating rooms, Medicare certified, etc.) centers. What is new is that there is more demand for ASCs, more competition to acquire centers, and multiples that are the highest we have ever seen.   Multiples for majority interests have risen to an average of 7-8 times EBITDA, and in some cases even higher.

Who is the best strategic partner for an ASC seeking to sell an interest?  

The best strategic partner for any given center is a partner that can help the physician-owners realize their financial and non-financial goals.  These typically include helping the center increase profitability and distributions while maintaining the highest quality and efficiency.

The leading ASC management companies can bring strategies that directly impact the bottom line.  Depending on the center’s location, contracting situation, and maturity, it is common to see a “lift” in contract reimbursements and substantial savings in supply costs, plus net revenue growth.  Cumulatively these can contribute to a very significant increase in profits and distributions.

A hospital partner can also bring advantageous benefits including access to better paying contracts, referrals of cases, supply contracts, and market strategies, such as managed care plans, that can be beneficial to an ASC.  However, hospitals usually use a valuation method that results in a lower value for an ASC and there is often an element of mistrust in the impact a hospital will have on how a center is operated and managed.

How have an ASC’s options for a partner changed? 

The most interesting option available today is a three-way partnership between physicians, a hospital and an ASC management company. Previously hospitals wanted complete control so they built their own centers and competed with physician-owned centers.  Now hospitals need a low-cost, high quality provider to complete their managed care marketing strategy and physician-driven ASCs have proven to be the low cost, high quality provider. In a three-way deal the physicians get the best of both worlds: a hospital partner with better paying contracts and a management company oriented towards quality, efficiency and profitability.

How do ASC owners get the highest price and best partner?

In most cases the physician-owners will be selling their first ASC, and they will be dealing with buyers who have completed dozens or hundreds of transactions and whose goal is to buy at the lowest competitive price possible.  Here are 5 key steps to getting the highest price and best partner:

• Engage a consultant with significant ASC transactional experience who knows how hospitals and ASC companies assess value and who has a track record of increasing ASC values.

• Prepare a compelling information package that highlights the history of the center and quantifies future opportunities (contracts, supplies, cases, specialties, new partners, etc.) that will increase profitability.

• Solicit competitive partnership proposals from the leading local hospital(s) and leading ASC management companies, and use the proposals to maximize the value with the most desirable partner(s).

• Select the strategic partner that has the best track record in achieving their physician-partners’ long-term goals.  In a 3-way transaction, first select the best ASC management company and let the management company bring the hospital on board as a minority partner.

• Enjoy the future with a strategic partner that shares your values and interests in having a high quality, efficient and profitable ASC.

Jonathan C. Vick, the founder and President of ASCs Inc., has assisted in development, merger, and strategic acquisition 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, real estate sales and leasebacks, valuations, and mergers & acquisitions. He can be reached at 760-751-0250 or jonvick2@ascs-inc.com. More information can be obtained at:  www.ascs-inc.com.

Maximizing the Value of Your Surgery Center in 2018

Some physician-owners of surgery centers wonder: Why do some centers command values well above other similar centers?  How can I maximize the value of my center?

Many physician-owners of ASCs have considered selling an interest to an ASC management company and/or hospital but their centers may not be prepared to attract the highest possible offers.  The information below is intended to assist ASC owners in preparing their center to attract the highest offers from the best strategic partners.

Surgery centers are in demand – this is a “seller’s market”.  Your center is probably worth more than you think it is, but to realize maximum value the center must be properly prepared so that it represents exceptional value to the buyers.

What is the future of outpatient (O/P) surgery and how will this impact the value of ASCs?  Demand for O/P surgery is expected to skyrocket over the next decade fueled by cost containment, convenience and clinical advancements.  This is expected to result in an exponential growth of case volumes.  Centers can prepare for this growth by aligning with strategic partners that bring resources to capture this growth and profit from it.  So, for many owners, the goals are to prepare their ASC to represent maximum value and to partner with an entity that will ensure that their center will benefit from future growth in O/P surgery.

Why are more hospitals interested in acquiring ASCs and how will this impact the value of independent ASCs?  Hospitals have high overhead and are under pressure from payors to offer greater value.  The easiest and fastest way for a hospital to provide greater value is to acquire existing O/P centers that have a lower cost structure.  Most ASC fees are about 50% of HOPD fees and payors are directing their customers to lower cost facilities.  Hospitals must acquire or build cost-efficient ASCs so that they can compete.  With more qualified buyers, the value of ASCs increases.  Increased demand for centers is why we are seeing higher multiples than ever before being offered for ASCs.

What can ASC owners do to increase profitability and the value of their ASC?  The fastest way to increase the value of a center is to identify and recruit additional users, to increase the number and complexity of procedures, and to quantify the additional revenue that these procedures will generate.  Most of this projected additional revenue will be reflected on the net income line as few additional expenses will likely be incurred.  This will not have an immediate impact on profits but it will reflect future profitability and will have an impact on the multiples offered, thus increasing the value of the center, often significantly.

How can ASC owners use competitive bidding to maximize the value of their ASC?  With increasing demand for O/P surgery, and hospitals and ASC management companies seeking partnerships with ASCs, it makes sense for ASC owners to solicit competitive bids from entities that are interested in partnering with their center.  Typically, hospitals use a discounted cash flow analysis to value a center while the ASC management companies use a multiple of trailing 12-month earnings, with no discount.  The ASC management company’s valuation approach almost always places a higher value on an ASC than the hospital approach.  Even if the hospital is your first choice as a strategic partner, it is good practice to obtain competitive bids from several of the leading ASC management companies in addition to the hospital.  The competitive offers reflect “fair market value”.  This usually results in higher offers and a choice of strategic partners.  Often a 3-way deal (physicians, hospital, ASC management company) is the end result, with the physicians as the largest shareholder.  To increase the value further, a second round of bidding will enable the sellers to bring their preferred strategic partner’s offer up to the price of the highest bidder.

How can ASC owners maximize the value of their ASC/MOB real estate?  Physician-owners often don’t realize how valuable their ASC/MOB real estate has become.  It is often advantageous from a business perspective to sell an asset once it has fully appreciated and is returning a low ROI, such as is typical with medical real estate.  If the physicians own their ASC/MOB real estate they have an opportunity to sell and leaseback the property with no change in rent and no personal guarantees of the long-term lease, at a very attractive profit.  For example, a 10,000 sf ASC paying $360,000 in annual rent would have a sale and leaseback value today of over $5 million.  Most sale and leaseback transactions attract multiple competitive offers within 30 days and a deal can close in as little as 60 days.  A 1031 exchange will shelter the sellers from capital gains taxes.

Jonathan C. Vick, the founder and President of ASCs Inc., has assisted in development, merger, and strategic acquisition transactions for over 500 physician-owned ambulatory surgery (ASCs), endoscopy centers (ECs) and surgical hospitals since 1984. He advises on ASC and EC sales, real estate sales and leasebacks, valuations, and mergers & acquisitions and can be reached at 760-751-0250 or jonvick@ascs-inc.com.

© Copyright ASC COMMUNICATIONS 2018.

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.