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  • surgery center shares

    I have been approached by the ambulatory surgery center I do some cases at to buy shares.   One of the other docs states they recently paid off majority of their debt, and he is getting a good return at this time.  The ASC accepts some insurance plans and it seems like it is well managed. What specific questions and financial information should I be asking/looking at to see if this will be a good investment?

  • #2
    Well ideally you should know how to read a balance sheet, income statement, and statement of cash flows.  Ask for them and review them - or get someone to review them for you if accounting isn't your thing.  Ask existing investors about the size of their investment and the size of their dividend checks.  Is there a competing facility?  Is this the best center that you could invest in?

    I have invested in several ambulatory surgery centers.  So far they have been profitable.  The local politics and the volume of procedures are key.  If it is aligned with a powerful integrated delivery system (e.g. hospital network or large practice surgical group) and if there are many types of surgical specialists operating there or who will bring their business it can be lucrative with minimal risk.  There are a lot of factors to consider though… e.g. who does the appraisals of value?  How often?  How does one buy out?  What happens to low volume or retiring surgeons?  Will there be treasury shares to bring in new partners?  How often will you be allowed to buy more shares?  How equitable is the buy in?  When are dividends paid? Is it managed by an outside company and if so how much are they paid?  What are the payer trends in your area, etc.

    Also, read comments here: https://www.whitecoatinvestor.com/forums/topic/surgery-center-buy-in/

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    • #3
      Read the contract carefully. Get past tax return copies. Some thoughts:

      • how do you get out if you need/want to,

      • how is any buyout calculated (any guarantees?)

      • what are the restrictions on ownership,

      • how are decisions made,

      • are you expected to put in $$ if the center needs funding,

      • what is the debt,

      • what is the ROI (tax returns),

      • who determines annual distributions, how are they calculated?

      • ask for a copy of the general ledger and balance sheet to review. Any debts beyond mortgage? Any unusual distributions?

      • take a look at the liability insurance - make sure it is adequate.

      • what happens in the event of your death? Do your heirs get a guaranteed buyout? Inherit an illiquid asset?


      Look at this with your attorney and/or CPA.
      Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        It's a commercial real estate investment, just something in our field.  So, the key remains -- know the local politics and traffic that's coming and going to come to the center.

        That's just as important as the current and historical state of the center.  Like disclosures always say, past performance makes no promises on future.

        Being in the same sector allows one to make a 'safer' investment because of our exposure to knowledge what's coming around the curve a little more.

         

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        • #5


          It’s a commercial real estate investment,
          Click to expand...


          With all due respect, it is not a commercial real estate investment. It is an investment in a business, that may or may not own the underlying real estate.

          In my experience , the Surgery Ctr. typically does not own the real estate, although I am sure there is wide variability in that around the country.

           

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          • #6
            @NJDoc - You're right, it doesn't have to be tied.   If not though, you're not really buying 'surgery center' shares, but investing in a medical group without the hard asset which IMHO would be a much higher risk investment tied only to revenue and no appreciation value.

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            • #7
              You (OP) have to be in a position to evaluate the business (as WD said, balance sheet, income statement, etc. and be able to answer questions like those that Johanna posed). If you are not, you need someone on your side to do so on your behalf. Do not rely on their pro forms, projections, or glossy brochures, and, for god's sake, do not rely on a buddy who is currently an investor (he could be getting screwed and not know it).

              I would also be wondering why they are approaching you, especially if they have paid down their debt and cash returns are solid. One reason could be to increase your loyalty to the center and perhaps direct more patients. Another (cynical) reason would be that they are in need of more cash to keep the doors open.

              Comment


              • #8




                You (OP) have to be in a position to evaluate the business (as WD said, balance sheet, income statement, etc. and be able to answer questions like those that Johanna posed). If you are not, you need someone on your side to do so on your behalf. Do not rely on their pro forms, projections, or glossy brochures, and, for god’s sake, do not rely on a buddy who is currently an investor (he could be getting screwed and not know it).

                I would also be wondering why they are approaching you, especially if they have paid down their debt and cash returns are solid. One reason could be to increase your loyalty to the center and perhaps direct more patients. Another (cynical) reason would be that they are in need of more cash to keep the doors open.
                Click to expand...


                Even very successful ASC often approach surgeons with the opportunity to buy in.   The "give" from them is the opportunity to invest in a successful enterprise and receive dividends that far exceed your other investment options (e.g. mutual funds).  The "get" is growth of the business, revenue and volume growth, a committed surgeon who isn't likely to compete or defect at the drop of a hat.

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                • #9
                  I'm curious what benefit the current owners have in selling you shares of the center. Is it that by having you own shares you would do more cases there? if the debt is all paid off and it is a profitable business I don't really understand the incentive to sell some of that business (unless the owner is trying to get out of the business)

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                  • #10




                    I’m curious what benefit the current owners have in selling you shares of the center. Is it that by having you own shares you would do more cases there? if the debt is all paid off and it is a profitable business I don’t really understand the incentive to sell some of that business (unless the owner is trying to get out of the business)
                    Click to expand...


                    Wealthydoc answered that question right above you. Their incentive is to have the surgeon have some skin in the game. If a surgeon has ownership interest, they are more likely to keep doing cases at the surgery center. Win/win situation for everyone.

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