COVER STORY

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For SalePrepare carefully to get the best price for your ASC.BY ROBERT KURTZ

12 ASC FOCUS MARCH 2014

All of the steps in the process of selling an ASC are important, but actually preparing for the

sale is one of the most overlooked, says Blayne Rush, president of Ambulato-ry Alliances, a health care investment banking and brokerage firm based in Dallas, Texas. “When potential buyers of your ASC believe that you are pre-pared and understand your business, they are more likely to take you seri-ously, believe what you are telling them and increase the purchase price and im-prove the terms they offer.” Maximizing this value is what makes the preparation process so important, says Joshua Kaye, a part¬ner in the international DLA Piper law firm and co-chair of the firm’s US Health Care sector. “Buyers have become much more disciplined. The sales preparation process will maxi-mize the likelihood of a smooth and successful transaction

and better ensure that the ASC receives a pre-mium purchase price multiple.”

Put in the WorkThe first step in preparing an ASC for sale is to make sure all owners agree that a sale is the appropriate course of action for the facility, says Curtis H. Bernstein, managing director for health care business, technology and consult-ing solutions provider Altegra Health in Miami Lakes, Florida. “If they are not, the process may take a lot longer and you will likely encoun¬ter some significant challenges to com¬pleting the sale.” According to Rush, “You need to have in-depth conversations with all the partners, go through the potential sce-narios of what a transaction would look like and then keep the commu-nication lines wide open. I have seen many times when a controlling inter¬est physician or group of physicians takes charge and

keeps the others in the dark, and the deal unravels because those that were kept in the dark are not satisfied or di-vert their cases.” Selling an ASC is a complicated pro-cess involving a variety of business, tax, health care regulatory and cor-po¬rate securities issues, Kaye advises, so ASCs should consider engaging an appropriate team of experts and con-sul¬tants. “There are a number of great sur¬gery center investment bankers and bro¬kers who understand the ASC in-dustry and the likely buyers, and they can best position an ASC for a suc-cessful sale. Engaging competent legal counsel and financial advisers to assist an ASC will also ensure that the ASC is focused on appropriate issues and the transaction documents reflect market terms.” The tasks needed to sell an ASC range from the simple to the very complex, Rush adds. “You can merely collect the due diligence materials and provide the financials to whomever comes calling, or you can take a very proactive, sys-tematic and strategic approach to sell-ing your business.”

ASC FOCUS MARCH 2014 13

A crit ical component of pres-ent-ing the ASC to potential buyers in the best l ight--and thus create the most value--is to make sure im-portant agreements are already in place before the ASC goes on the market, Bern-stein says. “These in-clude agreements with payers and non-compete agree¬ments with physician owners that pre¬vent them from aligning with a com¬pet-ing provider of surgical services. An ASC needs to align the interests of the current owners with the fu-ture successes of the center. Buyers are going to pay less to buy an in-terest in a center when the owners or the high¬est uti l izers can poten-tially leave and move their cases elsewhere.” According to Kaye, “An ASC with numerous physician-owners who ac-tively use the facil i ty will typically command the attention of a number of interested buyers, which can cre-ate a bit of a frenzy and drive up the potential price and value of the ASC. Many ASCs,however, have physicians who currently use the facil¬ity but are not ASC owners. I t is worth considering further align-ing those physi¬cians’ interests by sell ing them an own¬ership interest in the center and request¬ing that their ownership be coupled with a non-compete, further solidifying their relationship to the ASC.” One of the init ial actions a buyer will undertake in considering a pur-chase of an ASC involves a rigor-ous due dil igence process. An ASC should perform such a rigorous due dil igence process on i tself as well , Rush advises. “You should do an analysis of your business, such as a SWOT (strengths, weaknesses, opportunities and threats) analysis, in order to understand your surgery center and the market around it . This will al low you to understand what you can do internally and ex-ternally to increase the revenue and profits of the business and to either take those steps prior to the sale to add value or have knowledge of

the opportunities that exist to share with potential buyers.” Bernstein adds, “Buyers want to earn a certain level of return based on historical operations and even, hopefully, a higher return based on improvements, whether i t is through lower costs or attracting additional physicians to the center.” During the due dil igence pro-cess, Kaye notes, both buyers and sellers need to keep the Stark law, anti-kick-back rules, the Health In-surance Por¬tabili ty and Account-abil i ty Act of 1996 (HIPAA) and other regulatory concerns in mind. “It is important to review all f i-nancial relationships with referral sources, including any medical di-rectorship agreements, leases with referral sources and physician buy-in agreements, to ensure that they have been properly valued for fair market value, are fully executed and are other¬wise structured to comply with appli¬cable laws. All are important matters to address prior to a sale as opposed to in the midst of a sale process,” he adds.

Common MistakesIn preparing for a sale, make sure to map out the potential buyer uni-verse and then proactively approach each buyer, Rush says. “You need to go to all the buyers that might have an interest in buying your center and get as many proposals as possi-ble. Just because one company paid the most or was the best partner for

a friend’s ASC does not guarantee that the buyer is the right one for you. Phy¬sician sellers will never know what the maximum value of their ASC is unless they strategi-cally go through a well-designed planning process and then execute that plan by going to the entire mar-ket at the same time.” Another step that ASC owners often overlook when preparing for a sale is not doing their own due dil igence on possible buyers, Kaye says. “While purchase price may be a key driver in determining a buy-er, i t is also important to under-stand the management culture, the geographic area in which the buyer operates, and the management ser-vices and management style of the buyer that the buyer will implement on a post-sale basis.” Rush says another mistake--and one that can be financially devastat-ing--is a failure of physicians to ap-proach the sale process in the same manner they approached building and running an ASC. “Physician owners of ASCs will l ikely com-plete only one or two merger and acquisit ion transactions over the course of their l ifetimes, yet those deals will probably be the most sig-nificant f inancial transactions of their careers. While they studied how to build and run an ASC, and brought in the right people for the project, many owners choose to go i t alone when they sell their ASC. The inexperience of these essen-tially novice sellers can prove fi-nancially catastrophic as they ne-gotiate with a buyer ’s full-t ime, professional team. It is imperative to put together a team early on or commit to doing deep dive research. “No different than in surgeries,” he adds, “you cannot guarantee that you will not have something go wrong during a sale, but you can plan, do trial runs, adjust and have contingencies in place in order to maximize the desired outcomes.”

When potential buyersOf your ASC believe that You are prepared and Understand your business,They are more likely toTake you seriously ….”

-----Blayne Rush, Ambulatory Alliances

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