The recent financial crisis has illustrated that the market for ambulatory surgery center (ASC) transactions largely mirrors the general economic marketplace as a whole. Just as with much of the investing public, depressed equity markets have caused traditional ASC investors to pull back and use caution in evaluating investment decisions. Although the U.S. markets have rebounded from their lows, ASC transaction behavior continues to reflect a wait-and-see attitude, one that not only affects investors’ public equity investment decisions, but also ASC investment trends.
Participants involved in the industry have first-hand experience of the effect the economic crisis and the accompanying uncertainty have on the value of ASCs. These participants, who range from large national operators to single ASC-physician joint ventures and wholly physician-owned centers, are confronted with the following questions:
How does the current economic environment affect the acquisition market and frequency of controlling-interest transactions in existing centers? How does fair market value (FMV) in today’s market compare to commonly-accepted historical standards?
Transactions in ASC equity interests can involve a controlling (or majority) equity interest stake or, conversely, a minority equity interest stake. A controlling interest transaction generally involves an acquisition of an equity interest that provides the acquiring entity with effective control over the ASC. Often, but not always, the transaction would provide the acquirer with greater than a 50 percent interest in the ASC. The standard of value and the frequency of transactions vary when comparing control versus minority equity transactions. For the purposes of this discussion, we will be examining recent trends in control interest transactions.
The entities involved in the aforementioned control interest acquisitions include national ASC management and operating companies (ASC operators), acute care hospitals or health systems and individual physicians or physician groups. These transactions occur when an institution desires to acquire or divest an existing ASC partnership for financial or strategic purposes. A less common, though growing, trigger event that requires a control interest valuation involves two or more ASC partnerships merging into a single ASC entity. Based on market experience and observations, the recent financial crisis and resulting uncertainty have caused a material slowdown in these transactions.