AE July/August 2018 Vol 27 No 4 - 11

If we could find a new partner, strengthen
access to payer contracts with better
reimbursement, retain the physician
partnership, and commit to added capital
to attract new services, the future of the
ASC would be bright.
nership interest from one established surgeon to new surgeons.
The valuation was in the typical
range of a multiple of EBITDA
(earnings before interest, tax,
depreciation, and amortization;
EBITDA is a measure of gauging
a company's performance and
profitability) and accepted for
purchasing at 51% equity interest
in addition to the management
buyout with additional funds. It
is typical that a multiple in the
range of 5-7 times EBITDA is
common for controlling interest
in an ASC by corporate management parties after adjustment for
trends and material issues. But we
did set aside financial reserves (or
withholds from the purchase price)
for working capital thresholds and
contingent liabilities. These are
typical adjustments in the acquisition of an ongoing business and
can range from 10-20% of the
purchase price; they are subsequently released to the seller after
a set period of time when the final
calculations are complete and audited 3-6 months later. Examples
of these include standard working
cash needs of the business on a
monthly basis, which are related to collections on such things
as accrued account receivables,
patient refunds, liability claims
or malpractice risks, misrepresen-

tations, undisclosed expenses or
contractual obligations, etc.
ENTERING DUE DILIGENCE
REVIEWS
After agreeing to a tentative offer,
the "Due Diligence" phase of
any sale begins. This process is
intense, extensive, and tedious for
6 long months.
In our case, the process required
a review of all personnel records,
building lease agreements, contracts, meeting minutes, policies
and procedures, AR and AP analysis, financial statements, procedure
mix, reimbursement analysis,
compliance inspections, physician
surveys, staff surveys, malpractice
claims, and governing board and
medical staff documents. Accounting adjustments to the EBITDA
calculation were made to "normalize" the accrual expenses for income
statements as well, to substantiate
the valuation. Working capital
thresholds and calculation adjustments were especially sensitive. 
Then we had to discuss the
transition of control, the new
governance structure, and the
decision-making process for
future decisions concerning staff,
equipment, critical supplies, and
major fee increases. As you can
imagine, the staffing and organizational changes were the most

sensitive. It would always be safe
to say that there is an expected
turnover of staff members with
the new management team,
whether that turnover comes from
cultural change or employees uncomfortable with the new policies
or management style.
CLOSING TIME
In the final weeks before closing
was scheduled, we dealt with the
following issues:
* real estate leases,
* arbitrary accounting adjustments,
* required working capital threshold formula,
* contract wording,
* withholds, and
* escrow contingencies.
The negotiations were often contentious, with both sides drawing
lines in the sand.
Then, three days past the deadline for the closing, the deal was
done (even though personnel at the
ASC were still on our payroll and
benefits for another 30 days). After
several months, the dust settled
and efforts to improve the overall
operations were underway.
It did take another year before
profit distributions were re-introduced, and about a year overall for
things to get settled and be deemed
a successful transition. When buying
or selling entities such as an ASC,
"change" is inevitable and expectations must be recalibrated in order for
success to be achieved. AE
Dan D. Chambers,
MBA, COE (214-3791842; dan.chambers@
keywhitman.com), is
executive director of
Key-Whitman Eye
Center, Dallas, Texas.

www.asoa.org // AE

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http://www.asoa.org

Table of Contents for the Digital Edition of AE July/August 2018 Vol 27 No 4

AE July/August 2018 Vol 27 No 4 - Cover1
AE July/August 2018 Vol 27 No 4 - Cover2
AE July/August 2018 Vol 27 No 4 - 1
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AE July/August 2018 Vol 27 No 4 - Cover3
AE July/August 2018 Vol 27 No 4 - Cover4
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