There are many decisions ambulatory surgery center administrators and physicians partners need to make before entering into a merger or acquisition. Jon Vick, president of ASCs Inc., has helped more than 200 ASCs through the process by representing the seller and bringing the surgery centers purchase proposals from ASC management companies. "We do upfront work as a service in order to help the physicians understand what their options are and what the value of their center is," says Mr. Vick. He offers five tips for surgery centers considering a merger or acquisition.
1. Don't feel threatened by an acquisition or a merger. Surgeons are often interested in the details of an acquisition or a merger while administrators feel threatened because they fear they could lose their jobs. However, Mr. Vick says that after an acquisition or a merger, the new company wants to keep good administrators on board and will often offer better salaries and benefits for all personnel. "Good companies look for solid, well-trained staff who are oriented toward patient satisfaction," he says. "They want to make sure there is a good pre- and post-operative process and the staff can answer questions for the patient during that process." As long as the administrators and staff members are doing well before the merger or acquisition, the new company will want them to continue their job afterward.
2. Look for strong surgeons who could become future partners. While the acquiring companies are attracted to surgery centers that have a good quality medical staff, the companies are also interested in ways to make the center grow. The surgery center should present a list of perspective physician partners from the community, some of whom might already be using the center. Consider adding a surgeon who performs a new procedure or adding more surgeons to supplement the surgeries performed by the current partners, which will increase patient volume. "The companies are looking for quality and growth opportunities," says Mr. Vick. "They want a center that has a high quality medical staff with growth opportunities."
3. Have in-network payor contracts. Centers that are out-of-network are much less attractive to companies than those that have well-established in-network payor contracts. "The out-of-network surgery centers are charging a high price and the insurance companies are resisting paying that price," says Mr. Vick. "The insurance companies resist paying OON fees because they are too high. There are some centers now that have made a ton of money being OON and the future of those centers is uncertain." This uncertainty is why payors and potential acquiring companies are wary of acquiring out-of-network surgery centers. In-network surgery centers fetch a better price and have higher multiples of EBITDA than OON surgery centers.
4. Consider the goals of physician partners. Physician partners are at different stages of their lives when the mergers and acquisitions occur, and different companies are best equipped to help them depending on where they are in their careers. If the physician-owners are nearing retirement, they often want to sell majority interest to get the highest price possible and then allow new surgeons to come in after the merger or acquisition takes place, says Mr. Vick. On the other hand, younger physicians more often are interested in selling a minority interest and staying with the company after the merger or acquisition to help grow the practice. "Some practices talk to minority interest companies, but they want to sell majority interest," says Mr. Vick. "Make sure to talk to the right companies. The first thing you need to consider is what the physicians' goals are. The second thing is what the growth opportunities are for the center as this is what the buyers are interested in."
Pinpointing specific business goals, such as syndicating new partners, improving payor contracts, bringing in new cases or increasing profitability, helps the surgery center chose the right company for the merger or acquisition. "The surgeons need to look at the companies’ track records to determine which companies will help them achieve their goals," says Mr. Vick.
5. Solicit proposals from multiple companies. As with any sale or purchase, the surgery center should meet with at least two or three companies and receive business and purchase proposals from them before finalizing the agreement. The proposals from these companies indicate what the companies will do for the center, how the company plans to grow distributions and list references, and a valuation for the center and what the company will offer to buy. "We recommend surgery centers get two to three purchase proposals so they can compare them and have negotiation leverage with the companies," says Mr. Vick. Many surgery centers hire a consultant to help them with the negotiations.
Learn more about ASCs Inc.
Read other articles featuring expertise from Jon Vick:
- 5 Steps to Choosing a Corporate Partners for Your Surgery Center
- 7 Best Practices on Selling Shares in an ASC
- Partnering With a Corporate Entity Versus a Hospital: Q&A With Jon Vick, President of ASCs Inc.
1. Don't feel threatened by an acquisition or a merger. Surgeons are often interested in the details of an acquisition or a merger while administrators feel threatened because they fear they could lose their jobs. However, Mr. Vick says that after an acquisition or a merger, the new company wants to keep good administrators on board and will often offer better salaries and benefits for all personnel. "Good companies look for solid, well-trained staff who are oriented toward patient satisfaction," he says. "They want to make sure there is a good pre- and post-operative process and the staff can answer questions for the patient during that process." As long as the administrators and staff members are doing well before the merger or acquisition, the new company will want them to continue their job afterward.
2. Look for strong surgeons who could become future partners. While the acquiring companies are attracted to surgery centers that have a good quality medical staff, the companies are also interested in ways to make the center grow. The surgery center should present a list of perspective physician partners from the community, some of whom might already be using the center. Consider adding a surgeon who performs a new procedure or adding more surgeons to supplement the surgeries performed by the current partners, which will increase patient volume. "The companies are looking for quality and growth opportunities," says Mr. Vick. "They want a center that has a high quality medical staff with growth opportunities."
3. Have in-network payor contracts. Centers that are out-of-network are much less attractive to companies than those that have well-established in-network payor contracts. "The out-of-network surgery centers are charging a high price and the insurance companies are resisting paying that price," says Mr. Vick. "The insurance companies resist paying OON fees because they are too high. There are some centers now that have made a ton of money being OON and the future of those centers is uncertain." This uncertainty is why payors and potential acquiring companies are wary of acquiring out-of-network surgery centers. In-network surgery centers fetch a better price and have higher multiples of EBITDA than OON surgery centers.
4. Consider the goals of physician partners. Physician partners are at different stages of their lives when the mergers and acquisitions occur, and different companies are best equipped to help them depending on where they are in their careers. If the physician-owners are nearing retirement, they often want to sell majority interest to get the highest price possible and then allow new surgeons to come in after the merger or acquisition takes place, says Mr. Vick. On the other hand, younger physicians more often are interested in selling a minority interest and staying with the company after the merger or acquisition to help grow the practice. "Some practices talk to minority interest companies, but they want to sell majority interest," says Mr. Vick. "Make sure to talk to the right companies. The first thing you need to consider is what the physicians' goals are. The second thing is what the growth opportunities are for the center as this is what the buyers are interested in."
Pinpointing specific business goals, such as syndicating new partners, improving payor contracts, bringing in new cases or increasing profitability, helps the surgery center chose the right company for the merger or acquisition. "The surgeons need to look at the companies’ track records to determine which companies will help them achieve their goals," says Mr. Vick.
5. Solicit proposals from multiple companies. As with any sale or purchase, the surgery center should meet with at least two or three companies and receive business and purchase proposals from them before finalizing the agreement. The proposals from these companies indicate what the companies will do for the center, how the company plans to grow distributions and list references, and a valuation for the center and what the company will offer to buy. "We recommend surgery centers get two to three purchase proposals so they can compare them and have negotiation leverage with the companies," says Mr. Vick. Many surgery centers hire a consultant to help them with the negotiations.
Learn more about ASCs Inc.
Read other articles featuring expertise from Jon Vick:
- 5 Steps to Choosing a Corporate Partners for Your Surgery Center
- 7 Best Practices on Selling Shares in an ASC
- Partnering With a Corporate Entity Versus a Hospital: Q&A With Jon Vick, President of ASCs Inc.