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22 Transactions & Joint Ventures A SCs Inc., president Jon Vick discusses his career with ambulatory surgery centers and where he sees the industry mergers and acquisi- tions, as well as ASC/MOB real estate, headed in the future. Q: How did you get started with surgery centers? Jon Vick: In 1983 I was selling yag and excimer lasers, tinted soft contact lenses and glass (yes, glass) IOLs. Our OPH clients started asking how they could build a Medicare-certified ASC to get their cataracts out of the hospital, increase their efficiency, provide a better experience for their patients and increase practice income. With two other partners we formed SurgiCenter Development Corporation to provide consulting services to ophthalmolo- gists and other specialties and collected information from many sources and published a book on How to Develop your Own Outpatient Surgery Center. During the next 15 years we developed over 90 single- and multispecialty surgery centers and 25 GI/endoscopy center partnerships. Q: What's the status of the ASC mergers and acquisitions market? JV: Over the last few years we have seen significant consolidation in the ASC management company segment of the industry as well as a number of new en- trants, and hospitals are now actively seeking to acquire lower cost ASC facilities. The net result has been an increase in acquisition activity, more competition to acquire centers, and consequently an increase in multiples being offered. In addition private equity buyers have shown increased interest in buying centers and networks of centers due to the proven long-term profitability of ASCs and their sustainability in the face of a continually changing economic and reimbursement environment. The valuation of ASCs has also increased significantly as more assets are taken into account during the valuation pro- cess as well as the value of growth opportunities. Q: How did it happen that you expanded your business into real estate too? JV: Many of our ASC and GI endoscopy center clients own their ASC/MOB real estate, and this real estate was often purchased many years ago and im- proved by the physician-owners. The book value is now often far below what the market value is and the annual returns are usually only 2 percent to 3 percent. ASC strategic partners are not interested in buying ASC real estate, but there are many real estate investors who are interested. In the current low interest rate environment there are more buyers than sellers. We found that we could help our clients sell their ASC/MOB real estate, realize a very attractive fair market value for it, and sell their ASC real estate at a significant profit, and with no personal guarantees on a long-term leaseback. Their ASC real estate is often now worth many times what the original cost was. n ASC M&A, Real Estate Today: 3 Key Thoughts From Jon Vick By Laura Dyrda USPI Net Revenue Jumps 9% in Q1 Amid Tenet Transaction — 10 Things to Know By Laura Dyrda United Surgical Partners International reported a huge jump in first quar- ter consolidated net revenue. Here are 10 things to know from the financial report: 1. USPI reported a 9 percent increase in net revenues to $158.1 million over the same period last year. 2. The operating income increased 17 percent to $55.8 million in the first quarter of 2015. 3. Cash flow from operating activities in the first quarter totaled $39.1 million, significantly less than $61 million reported in the same period last year. 4. In the first quarter, USPI's consolidated subsidiaries invested $2.3 mil- lion in maintenance capital expenditures and another $1.4 million in ex- isting facility infrastructure. 5. The system-wide revenue for USPI facilities increased 14 percent on a year-over-year basis. 6. System-wide net revenue increased 9 percent in the first quarter on a same-store basis. 7. In March, USPI entered into a transaction with Tenet Healthcare and Welsh, Carson, Anderson & Stowe where Tenet and USPI will combine their short-stay surgery and imaging center assets into a new joint ven- ture. Tenet will own 50.1 percent of the venture and will consolidate fi- nancial results. Tenet is on track to take full ownership of the company over the next five years. 8. The new joint venture will have ownership interest in 244 ASCs, 16 short-stay surgical hospitals and 20 imaging centers. 9. Centers will maintain the USPI brand and three-way partnership model with physicians and not-for-profit health systems. The combined opera- tions will have partnerships with 50 health systems and more than 4,000 physicians. 10. USPI currently has ownership in or operates 218 facilities, with 153 being jointly owned with a healthcare system. n