comparing offers from two similar practices. If the buy in is same for both practices, which one is more desirable?
One group offers potential Partnership after 2 years and other offers an opportunity to purchase up to a 10% (ten%) ownership in the ASC as determined by ASC based on a multiple of EBITDA. Thanks
I wrote a longer post, which is below, but I looked back through your history and saw this is the place with the 500K non-compete penalty and 40-50% narcotic population. You need to make sure you have the right constitution to survive in this environment. If you have a conscience, that will be a problem.
All things being equal (which they probably aren't), I would go for full partnership in 2 years.
ASC facility fees are great if the ASC is volume-optimized for pain management, and you get a full share of the facility income for your work. 10% only makes sense if you're generating 10% of the net income. You haven't said anything about the nature of this ASC. There's a big difference between an ASC that is 100% pain and run as efficiently as your office procedure suite would be, versus a multi-specialty ASC with minimum 15 minute turnover between cases, and nurses/MAs who are used to a slower pace and only loosely accountable to you.
There is always the possibility that the non-ASC group could build it's own ASC, or merge/lease to a hospital (more likely) putting you on better footing for the step up to higher billing. Having a strong practice in an area with minimal competition would be the key there.
Patient volume is going to matter a lot, so carefully examine each practice's catchment area and referral network. Are most of the referrals coming from a small number of sources such that losing one would be a big blow? Is there a large hospital system in the area that's buying up practices left and right? They could build their own pain practice and halt all outside referrals. That happened to our group, but because we're strong and have a diverse referral base, we're weathering it well.
By the way, the value in a physician practice or even ASC is heavily dependent on the reputation of each physician and the relationships he or she has developed with referring practices and patients. That is where the value is. The rest is the value of the capital equipment. For this reason it doesn't make sense to pay any kind of multiple on earnings for one of these businesses. Naturally the owners will try to extract that out of you, but you should seek to pay no more than the depreciated value of the bricks and mortar. There is some goodwill that you benefit from when joining any practice, as well as the sweat equity put in by the original founders of the practice. That's worth something, and the going rate seems to be around $200-250K for partnership in a mature practice. But don't listen to anyone who wants you to pay some ridiculous multiple on earnings of 2-3x or more. That's a very dirty way to value the ASC, and you're likely getting screwed. Paying a multiple on earnings makes the most sense for an investment that is purely financial, and isn't directly dependent on the value you personally generate in the business (ie, stocks). If you're basically buying a job, you should only be paying for capital equipment, stockholder's equity (at fair market value), and a reasonable premium for goodwill and sweat.
