If you are considering selling a portion of your surgery center, this is a very advantageous time to do so; purchase prices are attractive and there are many well-qualified and interested buyers. But there are also clouds on the horizon. ASC Association President Kathy Bryant predicts that outpatient surgery centers' payment rates will fall below 50% of HOPD rates unless legislation that protects ASC payments is passed, negatively impacting ASC revenues and values.

ASCs Inc. represents many successful ASCs and endoscopy centers and we are obtaining very attractive competitive bids from leading ASC management companies. We leverage these bids to obtain the best corporate partner and highest values for our clients. Recently we have been helping clients form 3-way partnerships with ASC management companies and hospitals so their centers can realize significant increases in facility fees by accessing hospital contracts.

The ASC industry has experienced significant acquisition and merger activity over the past 12 months with a larger percentage of deals concentrated on high quality (less than 20 percent "out of network") centers than in previous years. ASCs Inc.'s process of "leveraged competition" results in attractive multiples for sellers of high quality ASCs with growth potential. There are several reasons for this activity and sustained multiples.

Top quality centers being offered. More centers that are doing very well, with high revenues, profits and earnings before interest, taxes, depreciation and amortization (EBITDA) margins are being offered for sale. It is not unusual now to see physician-managed centers that have EBITDA margins of 25% to 40 %, or more. Many centers have added ancillary services to improve their financial performance. However, many surgery center owners have seen their profit growth slowing and would like to take some money off the table. Thus selling a minority or majority interest to a professional management company that will help the center continue to improve its profitability and increase the distributions to the physicians is attractive.

Diversification opportunity. The nation's economic difficulties and the impact this has had on investment assets such as stocks and real estate have increased an awareness of the importance of asset allocation. Many surgeons are overweight in the investments they have in their ASC business and ASC real estate and realize that selling a portion of these will help them diversify their assets. This becomes accentuated for senior physicians who are planning their retirement and want to make sure their nest egg is adequately diversified. Timing is important: it is far better to sell an interest in an ASC well before retiring to avoid significant discounting of a retiring partner's value to the center.

Increased deal flow. With more successful centers offered and 40 companies competing to acquire ASC interests, many centers are being bombarded with opportunities to sell a minority or majority share to a corporate partner. There are many good companies willing to buy minority interests and this makes a sale more attractive to many physicians as it allows them to retain a majority interest and thus more of the profits. For groups that want to take more money off the table, there is strong competition to buy majority interests as well. Because of the growing number of companies it has become increasingly difficult for physicians to make a short list of the best 3-4 companies for them to solicit. ASCs Inc. will help you select the best companies for you to partner with and, through our competitive bidding process, will help you get the highest price. Our clients typically enjoy ASC values that are at least 10% higher than their peers.

High, stable prices. Competition for good quality centers with growth potential has kept offering prices high. Multiples for majority interests have been in the 6-7 times EBITDA (less debt, plus cash) range. For minority interests we are seeing offers in the 5-6 times EBITDA range for centers with significant cash flow and good growth opportunities. The leading companies have capital to invest (some with credit lines of $200 million) and, while the credit crunch has made the buyers more selective, they remain very interested in high quality centers.

Incentives to sell: Capital gains taxes, adverse legislation. In 2009 we have seen a spike in physician-owners wanting to make a sale because of an expectation that capital gains taxes will increase in 2010. This anticipation of an increase in the capital gains tax rate is providing a strong incentive to seek the sale of interests in ASCs prior to the enacting of new tax laws. The possibility of adverse legislation that could prohibit or restrict physician referrals to physician-owned ASCs, which could significantly reduce the value of all ASCs, is also a factor.

Real estate sales. Many physicians who own their medical office building (MOB)/ASC real estate are interested in further diversification by selling their real estate as well as their ASC. We have advised and assisted clients to obtain very attractive sale/leaseback deals with medical real estate investment trusts and private equity firms. These sales are usually done following the partial sale of the ASC business, albeit to completely different buyers.

I urge you to take advantage of the current advantageous timing opportunity for selling a portion of your center. The market for ASCs & ECs will change; it is only a matter of when. ASCs Inc. has assisted in development, merger, and acquisition transactions for over 200 physician-owned ASCs, endoscopy centers and surgical hospitals since 1984. If you would like to discuss your situation and goals in complete confidence please call me at 760-751-0250 or e-mail me at JonVick@ASCs-inc.com. I am looking forward to discussing how ASCs Inc. can assist you in achieving your goals.

Sincerely,