The valuation question is a very important one, one that’s wrapped up in many sub-issues. Certainly, there's the calculation of a purchase price. However, as I'll elaborate on in a moment, it's only a part of a larger set of issues.
First, many physician owners think that valuation is some sort of rote multiple of earnings, with earning generally expressed as EBITDA. But the reality is that that's only true if the person doing the valuation has no real clue about what it means to actually own and operate a surgery center, as opposed to viewing it as a sort of factory inhabited by worker bees, surgeons they consider to be spreadsheets in scrubs.
Sure, an earnings multiple approach to economic return is an element in valuation, but so, too, are many other factors, such as whether the facility is single specialty focused, and if so, what specialty, or whether it's multi-specialty. Whether it's owned by many physicians as opposed to a few physicians. Whether it's owned by physicians from one medical practice or from multiple medical practices. Where the facility is located geographically down to, in many markets, the specific neighborhood. And, the personalities of the surgeon owners and whether or not they get along -- these are just a few of the factors.
If the question is a direct one as to how we at American ASC Partners perform a valuation analysis, it involves factors such as I mentioned a moment ago plus others -- essentially it’s a bit of a proprietary black box, but those are all elements.
An essential for surgeon owners to take home is that valuation isn't necessarily a fixed thing but is fluid because price and terms are interrelated. In other words, sometimes there is a way to pay more, in exchange for a better payment terms. Banks, as capital sources, exert a huge amount of control over how facilities are valued and sellers who are willing to be part of the solution in that regard can receive a higher price for their facility.
Additionally, from the seller’s perspective, the price you receive comes with a price that you pay; that is, the price you pay for having the wrong type of partner, which is the partner who views you as a simple financial transaction, as a walking, talking EBITDA multiple, a valuation without any value.
That’s not how we view our prospective partners: To us you are highly valued surgeon partners, as much our customers as are the facility’s patients, and never, ever, “spreadsheets in scrubs”.
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