Becker's ASC Review

Executive Briefing: 28 EXECUTIVE BRIEFING 3 EXECUTIVE BRIEFING Q: What are some keys to a successful strategic transaction? JF: For owners this is likely a once-in-a-career event, which puts you at a distinct disadvantage when dealing with sophisticated and experienced buyers, so it is important to not only be very involved in the process but to do certain things to realize the best possible outcome, such as: • Gain the attention of the most qualified buyers and best possible strategic partners by creating a comprehensive confidential information memorandum that provides all the relevant and critical details of your practice and/or ASC, including growth prospects. • Build a secure data room with all the detailed information that a prospective buyer will need to review in the format that will enable them to evaluate your organization. • Set expectations early on with prospective buyers regarding your process and the timing, along with expectations and delivery dates, so you can keep this process on track. • Understand that a strategic transaction is a complex and time-consuming process that can stretch to a year or more. • Each buyer will have their own specific goals, and it is important to make sure that their goals are in alignment with yours, and that they have the resources, expertise and track record to achieve the representations that they make to you. • Achieve the best possible outcome by engaging in a competitive process with multiple qualified buyers. These include management companies, hospitals, private equity firms and other investors. There needs to be real competition to realize the optimum financial and nonfinancial outcomes with the most compatible strategic partner. • Engage an experienced healthcare attorney to review all the transaction documents. • If the physicians also own the real estate, ensure that the rent is fair market value and that the lease contains terms that facilitate the sale of both the business and the real estate to ensure you realize maximum value for all your assets. Again, these are just some of the many items to consider when undertaking a strategic transaction. Q: What are the biggest challenges or changes you have seen in the strategic transaction process? JF: I would say the biggest challenge is the sheer complexity and time-consuming nature of the sales process. There are really two distinct stages of every transaction: the first stage involves all the steps that lead to your group accepting an offer, and the second stage, which begins once an LOI is signed and ideally ends with your group closing the deal. The previous question regarding what goes into a successful transaction is really stage one, which ideally ends with your group accepting an offer with an exceptional partner. Next comes stage two, in which the prospective buyer will engage a third-party to do detailed due diligence regarding all aspects of your organization, and your legal counsel who will begin to review the agreements. The diligence work essentially involves providing all information regarding your organization including facility information, corporate and owners' legal documents, service contracts, leases and debts, ownership, licenses and permits, financial statements, revenue reports and statistics, payer, benefits and HR related items, insurance, taxes, chart reviews including patient and revenue analysis, anesthesia review and much more. This is why having a very well-defined process and strictly adhering to it, providing information in a clear and concise manner, being actively engaged throughout the entire process, and ensuring you are in agreement with the valuation are essential to ensuring your transaction closes to your satisfaction at the end of this process. The due diligence phase is very intensive and typically takes 60 to 90 days to complete. Lastly, having qualified legal representation that understands the complexities of your particular type of transaction and has the ability to effectively manage this to a successful close is critical. Q: What can owners expect to get paid for the practice and/or ASC? JF: When talking to owners, we always discuss this, and the truth is that the market will determine the price. When we engage with a new client, we may have a preliminary idea, but until you run a competitive process, you simply won't know. For example, a buyer will consider the location of the organization, how desirable it is from a strategic and market perspective, they will evaluate the physician owners, their ages, their specialties, their case volumes, their staff, how many ORs they have, the practice platform and size and growth opportunities, capacity, revenues and EBIDTA, infrastructure, and a myriad of other factors. A buyer will want to understand how they can impact all aspects of the business and will then apply a multiple based on this to their valuation. Most transactions ultimately end up in the 7X to 10X multiple range for majority interest sales and typically 4X to 7X multiples for minority interest sales, but there are outliers on either side of these multiples. Q: Final thoughts or advice you would give to owners considering a transaction? JF: Make sure all the partners are on the same page and clearly define your goals, put together a detailed marketing package that provides prospective buyers with all the information they will need to evaluate your business. Solicit as many qualified buyers as possible, create a competitive process and get to know every prospective partner you are interested in. At the end of this, it is important to understand that unless you find the right partner, there is no obligation to move forward with a transaction. And remember, this is an extremely time-consuming and complex process, so you should absolutely consider having someone help you manage this. n For over 20 years the industry leading team at ASCs Inc. has represented the best interests of physician-owners of more than 300 surgery centers, surgical hospitals and group practices that have sold an interest in their business or real estate. By leveraging the experience, knowledge and expertise gained from successfully completing hundreds of transactions we enable our clients to realize the absolute best financial and non-financial outcomes by effectively positioning, marketing and managing the complex and time consuming sales process with our risk- free approach

• Cover