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Robert Goettling, Principal, The Bloom Organization LLC Curtis Bernstein, Managing Director of Valuation & Transaction Services, Altegra Health October 15, 2015 Surgery Center Synthesis: Bringing Together Healthcare Entities to Maximize Value
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Overview 2 1.Introduction 2.Update of ASC Mergers & Acquisitions 3.Case Studies 1.Merger 2.Single-Specialty Roll-up 3.Two-step transaction
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Trends for 2016 3 Creative joint ventures with large hospitals / health systems *** The 3 or even 4 party joint ventures and the benefits Creative, non-health system payer strategies will get traction Efforts by ASC companies to expand into NY Buyer demand will stay high and thus valuations will stay high Continued decline of out-of-network volume and rates
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What is LIFT and LOFT? ASC Industry Terms Defined 4 LIFT is the increased revenue per case, revenue, and profits an ASC achieves by partnering with an entity that can achieve higher reimbursement for the ASC through better commercial contracts. LOFT is the increased case volume, revenue, and profits an ASC achieves by partnering with an entity that can drive more case volume to the ASC from a large network of providers.
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The Effective Multiple 5 The effective multiple is the numbers of years to breakeven when deciding whether to hold or sell. $700,000 / $25,000 = 28x
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6 A 6x multiple is not the same as 6 years worth of distributions Ordinary Income* = 39% Fed + 7% State= 46% Capital Gains * = 24% Fed + 7% State= 31% 6x at cap gains is ≈8 years worth of distributions at ordinary income. *Approximate, high income marginal rates, excluding city tax. Understanding the Tax Benefits
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Case Study #1: Practice Merger w/ New ASC 7
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Merging of Practices Increases Attractiveness to Buyers 8 GI group # 1 at max capacity of old center GI Group #2 at max capacity of old center Build and open state-of-the-art endo center in 9 months Build and open state-of-the-art endo center in 9 months National ASC developer Hospital with employed GI and managed care leverage 2 groups merge practice JV deal closed on paper at Month 0
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Doctors get brand new ASC with capacity for growth and make more $ owning 49% than when they owned 100%, while walking a way with $8 Million in purchase price Compelling Economics
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Case Study #2: Single Specialty 10
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Getting Creative Joint Venture ASC 1ASC 2 MEC ** GI Drs/ Current MEC Owners GI Drs/ Previous A/MKE Owners Doctor Group ASC 1 Doctor Group ASC 2 Doctor Group ASC 3 Avg. Age = 63 Group Practice Entity Hospital ASC Company ASC 3
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Significant Synergies
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Case Study #3: 2 Step 13
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Some ASCs Have Major Issues to be Addressed Prior to Sale Majority of ownership with one physician Aging physician group with no succession plan Declining volumes Out of network
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Possible solution…2 Step Transaction Step 1 Transaction –Minority position –Lower multiple / valuation –Fixes “issues” prior to step 2 Step 2 transaction –Buy up to majority ownership position –6 – 18 months after Step 1 –Higher multiple / valuation Reaping the benefits of Step 1 –Issues have been fixed
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Hypothetical Transaction Well planned 2 step strategy can lead to real value creation.
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Questions? 17
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Thank you! Bob Goettling – 305-974-0700 rgoettling@bloomllc.com Curtis Bernstein – (720) 240-4440 curtis.bernstein@altegrahealth.com rgoettling@bloomllc.com curtis.bernstein@altegrahealth.com 18
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