FEATURE Small ASCs Can Attract Buyers Too
Deliver strong management, diversified revenue and a balanced payer mix BY ROBERT KURTZ
I
t is a good time to be a seller of an ASC, says Glenn Prives, an
attorney at the law firm of McElroy, Deutsch, Mulvaney and Carpenter in Morristown, New Jersey. “Numerous parties are interested in acquiring well-run ASCs these days. Hospitals are shopping, private equity firms are hungry for deals and management companies are looking to expand their portfolios.”
ASCs are in such high demand, he adds, that even facilities on the smaller
side in terms of number
of annual cases, physicians and/or operating rooms might find it eas- ier to attract buyers today compared to what they might have found in the acquisition environment just 10 years ago.
Inherent Obstacles Unfortunately, while smaller ASCs are garnering increased attention from buyers, challenges associated with their size can harm their poten- tial to capture the interest of prospec- tive partners, says M. Derek Long, a health care consulting manager at Knoxville, Tennessee-based PYA. “Smaller ASCs typically run a bit lean from a staffing standpoint and may lack a business development and marketing team you might find in a much larger ASC,” he says. “A lot of large ASCs have such a team that can go out, look for potential buyers for the center and serve as the point people and negotiators.”
Another staffing challenge often associated with smaller ASCs is facility management, says Hilsman
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Knight, managing director at Vert- ess, a health care merger and acquisi- tion consulting firm based in Tucson, Arizona. “In a small ASC, you may find the few physician owners get very involved with the daily opera- tions of the facility in its early days of operation. They become entrenched in these roles, which can negatively affect their availability to perform procedures and generate revenue, which is important to buyers.” A lack of sophisticated and dedi- cated management might lead to inef- ficiencies, Prives says. “Where this can become particularly concerning is the monitoring of continued adherence to a compliance plan, which requires sig- nificant time and expertise.” Then there are those obstacles associated with just being a “small” ASC, Long says. “These facilities typically include just one or two oper- ating rooms and may perform or rely heavily on a single specialty. This is not necessarily a deterrent to buyers if the specialty generates high margins, such as orthopedics, but if the spe- cialty generates lower margins, it may be a hindrance.”
Another potential limitation, Knight says, is the number of prac- ticing physicians. “If you have only a few physicians performing proce- dures at the ASC, this can raise a red flag for buyers, especially if most of the revenue is associated with one or two owners. When buyers start look- ing at the ASC, an area of focus is future revenue of the business. They will consider what the business would look like if the owners chose not to participate in the ASC or substan- tially decrease the amount of time they participate in the ASC following an acquisition.”
Raise Your Profile
Despite these and other obstacles, there are opportunities for smaller ASCs to enhance their appeal to prospective sellers. A good place to
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