By Matthew Searles and Rich Searles of Merritt Healthcare*
When selling an interest in your ASC or endoscopy center, you can maximize the value that you receive by considering a number of key points. These include marketing the facility to a wide range of purchasers, creating a competitive process, optimizing your facility before sale, adding back one-time or non-recurring items to earnings and clearly identifying growth opportunities. Importantly, the decision calculus should also include one often under analyzed point: the post-acquisition benefits your future partner can offer.
Consider Post-Acquisition Benefits
Simply making your selection based on the highest bidder can wind up costing you considerable income down the road. Depending on your market and the strengths of various purchasers, certain ASC companies or hospitals can provide your facility with considerable, tangible financial benefits post close. If a bidder comes in with a lower price but can increase your bottom line post sale, it may be the best choice. These benefits can include ability to recruit new surgeons, improve commercial contracts or lower costs through the buyer's purchasing power.
Since you will still be an owner of the facility following the sale, you need to consider how the facility will perform going forward. If your new partner can improve your financial performance considerably, it could more than make up for a slightly lower upfront purchase price. If your facility's performance improves post sale, you can also expect more for your shares upon retirement.
To determine how a new partner may benefit the facility, you should develop a post-acquisition pro forma by creating your own internal projection of how the new partner will impact the facility.
You must require a buyer to identify areas of likely improvement and consider these in your decision process. In developing this projection remember four key points: (1) Purchasers are not always willing to offer detail on specific benefits they may provide. They will be concerned about creating expectations that they can't guarantee. Nonetheless, you must require they provide some guidelines for this critical analysis; (2) While you can require a purchaser to identify possible areas of improvement, you cannot expect a purchaser to pay you for benefits they will bring to the partnership. If a local hospital will raise your commercial contracting rates by 5%, they will not factor in this benefit when providing you with your valuation; (3) Sellers will need to make some qualitative assumptions about certain factors. For instance, if a purchaser has a strong track record of recruiting and experience in your market, you may make an assumption that it will be more likely to recruit new surgeons. This won't be something the purchaser can guarantee and is a judgment call you will need to make as the seller; and (4) Some purchasers offer considerable benefits for their management fee, including accounting, tax, IT, human resources and other benefits. There will always be some profit in the fee, but it should not be looked at purely as an additional expense since you will no longer need to pay separately, in many instances, for the services provided under the management contract.
In summary, take an analytical approach to determining who will be your best partner post close. Clearly the purchase price is important, but making sure you select the right partner can benefit your facility in the years following the transaction.
Merritt has advised on numerous ASC and endoscopy center transactions for both hospital and ASC clients. We have learned that the benefits purchasers can bring to individual transactions vary widely and need to be analyzed before making a final decision.
Any questions can be directed to:
Matthew Searles, MBA*
Somers Town Center, B415
Somers, New York 10589
Office 914.556.6266, x1
*Registered Investment Banking Agent with Series 79 & 63 licenses. The principals of Merritt perform securities-related work in their capacity as Registered Agents of an unaffiliated registered broker-dealer, Burch & Company, Inc.