Strategic Partnering

If you are considering selling a portion of your surgery center or practice, this is a very advantageous time to do so; purchase prices and terms are attractive and there are over 50 well-qualified strategic partners nationally that are interested in outpatient and practice businesses. Most businesses receive multiple offers from well-capitalized buyers and prices can be leveraged higher for the sale of either minority or majority interests. It is impossible to tell how long this “seller’s market” will persist but now is most certainly the most active period we have ever seen in the outpatient space.

Fluctuations in the value of financial assets such as stocks, bonds, and real estate have increased an awareness of the importance of asset allocation. Many surgeons are overweight in the investments they have in their group practice or ASC business 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 or group practice well before retiring to avoid significant discounting of a retiring partner’s value to the center.

With many successful centers and physician practices available and over 50 companies competing to acquire interests, many businesses are being presented with opportunities to sell a minority or majority share to a corporate partner. There are several excellent companies interested in buying minority interests and this makes a sale more attractive to many physicians as it allows them to retain a majority interest, control and 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 companies for them to solicit. ASCs Inc. will help you select the best companies for you to partner with and, through our valuation and competitive bidding process, will help you get the highest price. Our clients typically enjoy ASC values that are significantly higher than their peers.

Competition for good quality centers with growth potential has kept offering prices high. Multiples for majority interests have been in the 7-9+ times EBITDA (less debt, plus cash) range and higher in CON states. For minority interests we are seeing offers in the 4-5 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 or more) and, while stricter credit requirements have made buyers more selective, they remain very interested in high quality businesses. The way to maximize the value of your ASC or group practice is to demonstrate that the current business is sustainable and that there are real growth opportunities that would benefit from corporate partner expertise, such as improving payor contract terms, recruiting new users, volume purchasing power, improving billing and collections, and adding ancillary services.

Capital gains and income taxes are anticipated to rise in future years. 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.

A strategic partner can bring significant value to either your surgical facility or your physician group practice, or both. Depending on the strategic partner, there are a great many value adds that they can potentially bring to your organization including recruitment, payor contracting, revenue cycle enhancement, reductions in supply costs, HR and accreditation support, IT and governance and a myriad of other support services that are typically part of a new partnership.