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relate to litigation settlements and con- tracts between related parties. Once the sustainable level of future


cash flow has been determined, the cash flow is discounted to a present value uti- lizing a risk-adjusted discount rate. The risk factors considered when formu- lating a discount rate include potential regulatory changes, lack of physician diversification, financial leverage or debt, competition and case mix. To the extent an ASC can lessen the effect of these risk factors, the value of the ASC will increase.


Market Approach The two primary methods under the market approach are the guideline public company (GPC) method and the merg- ers and acquisition (M&A) method. The GPC method employs the use of ratios developed from the market price of traded shares of publicly traded com- panies. The M&A method is based on transactions involving both public and


Having a valuation professional who understands the nuances of valuing ASCs and has a good grasp of the regulatory environment is essential for avoiding the common pitfalls of ASC valuations.”


— Tami M. Bolder CBIZ MHM, LLC


private companies. Comparability is typically an issue when using the mar- ket approach, and it is important that adjustments are made for any differ- ences between the subject ASC and the guideline companies. Under both meth- ods, valuation multiples are determined from the market data and applied to the subject ASC. Multiples of EBITDA are


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most common, although in some cases multiples of revenue may be used as well. While current market data might provide good insight into how buy- ers and sellers are valuing interests in ASCs, the transaction data found in many of the available databases might be incomplete so it might be difficult to find companies that are sufficiently comparable to the subject ASC. As a result, the market approach is generally used as a supplementary method for valuing ASCs rather than as the sole or primary method.


Common Errors in ASC Valuations There are many pitfalls to be aware of in ASC valuations. Some of the more common pitfalls are: ■■


■■ ■■


Failure to understand ASC reim- bursement


Failure to understand local market conditions


■■ Unsupported growth assumptions Ignoring capacity constraints


■■ ■■


Failure to adjust for non-operating/ non-recurring income and expenses Having a valuation professional who understands the nuances of valuing ASCs and has a good grasp of the regulatory environment is essential for avoiding these common pitfalls.


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Conclusion Any ASC considering a transaction will benefit from obtaining a fair mar- ket value appraisal. As ASCs continue to grow in popularity, there will be a continued interest in investments by both strategic and financial buyers. A valuation prepared by a credentialed valuation specialist will help buyers and sellers of ASCs withstand regula- tory scrutiny.


Tami M. Bolder leads the Valuation & Litigation Advisory practice for the Northeast Ohio region of CBIZ MHM, LLC. Write her at tmbolder@cbiz.com.


22 ASC FOCUS JUNE/JULY 2018 |www.ascfocus.org


Failure to understand key health care regulations


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