Inside the ASC Deal Process: From LOI to Close

Ep. 140 – Stephanie Tarry: Inside the ASC Deal Process: From LOI to Close

Here’s what to expect on this week’s episode. 🎙️

Stephanie Tarry brings more than three decades of experience in the ASC industry. Now with Physician Transaction Advisors, she works closely with physician groups to evaluate partnership opportunities and guide them through the transaction process from start to finish. In this episode, she breaks down how ASC transactions actually unfold, from early readiness and confidential information memorandums to letters of intent, quality of earnings, and closing.

In our data segment, we’re breaking down Case Share by Age Group from HST’s demographic benchmarking report. If you’re not tracking your age mix, you may be missing a key component of what is truly driving demand and financial performance at your ASC. There is a direct correlation between age and specialty, which means there is a secondary correlation between your patient’s age and potential revenue.

Episode Transcript

[00:00:00]
Grant Duncan: Hey everyone. Here’s what you can expect on today’s episode, Stephanie. Terry brings more than three decades of experience in the A SC industry, which spans development, operations, and equity ownership. Now she works for physician transaction advisors and she works closely with physician groups to evaluate partnership opportunities and guide them through a transaction process.
In today’s episode, she breaks down how a SE transactions really unfold from early readiness to [00:01:00] the confidential information memorandum, sim to letters of intent, quality of earnings closing, et cetera, and she also shares how to evaluate competing offers and choosing the right partner that would really be a good fit long term.
After. In the data segment, we’re breaking down case share by age group from hsts demographic benchmarking report. If you’re not tracking your age mix, you may be missing a key component of what’s really driving demand and financial performance at your A SC. There’s a direct correlation between age and specialty.
Which means there’s a secondary correlation between your patient’s age and potential revenue. Hope everyone enjoys the episode and hears what’s going on this week in surgery centers.
[00:02:00]

Grant Duncan: Stephanie, it’s great to have you on today. Can you give a brief overview about yourself for our listeners? I certainly can. Thanks, grant. Thanks for having me. Stephanie, Terry with Physician Transaction Advisors. I’ve been in the healthcare industry, which will certainly age me for probably 35 years, and primarily in the ambulatory surgery center space of development management.
And equity ownership in, in surgery centers with a, a fairly large corporate company specializing in, in a SC management. I semi-retired in 2020 and upon that I came back and joined up with Jim Frond with Physician Transaction Advisors. And we are focused primarily on helping physicians monetize on the success that they’ve had.
With their surgery centers, their practice and or imaging centers. [00:03:00] And it certainly is a shift from helping them develop and going through that process, but certainly gives me a very good understanding of the entire operational process. I spend some time as a, an interim CEOO for a hospital. So it gave me a lot of insight to the operational.
Side, even the clinical, although my cl, I’m not a clinical background. Finance and accounting is my background by degree. So thanks for that overview. So we’re going to chat about transactions and acquisitions and. Before we dive in there, can you walk us through what the overall transaction process looks like at a high level for folks?
Certainly can. Typically grant, we, we certainly, we get a phone call or these are relationships we’ve had for a long time with physician groups and they approach us and basically sharing their. They’re [00:04:00] thinking about or want to explore the opportunity to seek a corporate partner numerous times. It’s for various different reasons.
Maybe it is they do want to have some help on the management side. Maybe it is that they do feel like they’re at their peak and it’s a good time to monetize on their operations, but from there we evaluate the business. That’s part of what physician transaction advisors will do, is help them evaluate their.
Business where they are today. That’s primarily looking at the financials at a high level. From there, we proceed into gathering due diligence information, and preparing what is a very important piece of this. Our confidential information memorandum. Which allows us to take this to market to the qualified eligible buyers for these particular centers or practices.
The sim of course in encompasses many things, of course, financials. But again, this gives us an [00:05:00] opportunity to share a lot more. The backgrounds on the physicians, the staffing, the demographics, the. Market that they’re in and an opportunity to share the growth opportunities for the center. All of that is combined in this confidential information memorandum.
It is a moving target. ’cause six months later the financials look different. So we’re always refreshing. As you can imagine the data room allows all of the potential eligible buyers to. Definitely dig into the financial information, statistical data more of that side of the review of revenue cycle management, et cetera.
Great. And when you first get connected to a center and you look under the hood, what are some of the readiness gaps that you find before they should go to market for a transaction? Yeah, from a high level. Many times we’ll find a [00:06:00] successful surgery center that is a majority owned by one physician primarily.
And many times we’ll need to make a suggestion just from that first glance of bringing in some additional physician partners. ’cause most of our buyers like to see. Physicians that have an equity stake in the surgery center to know that, that that volume is going to maintain after a potential transaction.
So that’s one thing that we’ll take a look at. Where are they are in their growth patterns? Are they looking to recruit physicians? Are they in process of bringing on new partners? Many times we’ll advise, let’s get the new partners on board first. Or maybe it is the look that. We need new partners.
We’re not at critical mass to go to market. We also wanna take a, a good look at their revenue cycle management and how they’re handling that, the process they use and just a thorough review of their [00:07:00] financials to help position them better if we can do so before we go to market. And therefore, we do advise many times that let’s wait a year or.
Or longer. If they’re in the process of recruiting docs or expansion, that’s another reason why we’ll maybe ask them to pause until they complete their expansion. Yeah, that makes a lot of sense. You, you mentioned earlier the confidential information memorandum or sim. Or you know, sometimes goes by their names, like the marketing packet as well.
Can you share with listeners what that is and what should be included in it to help attract serious buyers? Certainly can. So the confidential information memorandum certainly shares a couple of things. The process and timeline that we’re gonna follow, that’s typically in there as we go to market.
But also we wanna start by describing the [00:08:00] practice or the surgery center to the best of our ability from size and. And, and space to a number of ORs, procedure rooms, number of physicians. This is our opportunity. It’s, it’s a, it’s our playbook. It, it describes the ownership makeup, the physicians, and their certain specialties.
If it’s an orthopedic group, we have joint surgeons, spine surgeons. We wanna make sure our prospective buyers know. The pool of physicians that are partners. We also look at the market demographics. Are they in a growth market? And, and if not, what makes the market unique and a, a good opportunity for a buyer?
And then we also in, in that packet and include the staffing of, of the facility. We take a look at their case volume data over a period of time, the financials over a period of time. It, it really does encompass a lot about the facility or the [00:09:00] practice, but from there, I think this is the one thing I do have to share.
It helps our prospective buyers formulate their questions. It certainly isn’t providing everything and if, if nothing else, it helps spur those appropriate questions they need to ask about the surgery center. Right. And so you’re distributing the, the sim to potential buyers. Can you talk through the next stages such as iis?
Management meetings, Lois and such, right. As I mentioned in the confidential information memorandum, the sim, we do have a process timeline that’s associated with that. And if a potential buyer is engaged, they are aware of this timeframe, which is very important I think, to help have a formal process that within 45 [00:10:00] days we expect to have the initial.
Letter of intents for the physicians to review. We wanna schedule meetings with a potential buyer and the partners of the surgery center or practice. So those are key elements. And at at 45 days, we typically gonna expect to see those letter of intents come in from those that are serious buyers for the facilities or serious partners.
Once those letter of intents come in, it is our opportunity to set down in front of the physician partners and share with them each and every one of the letter of intent. They’re gonna be unique in their own way. They differ. I think we’ll always say physicians go to market with an assumption of what they want.
How they, their goal. But sometimes that goal changes as they start to see the different letter of intent presented with the different terms and structures. And what we’re really hoping to [00:11:00] do through even the initial letter of intent is marry up the physicians with the right partner culture, same strategic goals, et cetera.
So, so we get through, you know, that process of. Now we’re going to select if we choose, however, this is a, we approach this as a risk-free transaction for the physicians. If none of these letter of intents meet with what the physicians were seeking. You know, we certainly don’t encourage them to move forward.
So, but in this process, if we choose to move forward with one of the letter of intents, that’s usually based on the, the price and some of the main terms and structure of the deal. In a letter of intent, I think it’s important to note that it is a non-binding document outside of confidentiality. The other part being exclusivity.
[00:12:00] Most of the buyers are gonna want you to not continue to go out to market over a period of 90 days, 120 days, while they complete their formal due diligence of the surgery center. So I think that’s key. That’s there’s always. Subject to renegotiation of those, we don’t wanna see that because that we go into this in good faith that these will be our terms.
And, and from there we do start the process of due diligence, take some time, legal documents, and usually we can expect that to be another three months after signing the letter of intent three to four. It’s a great overview. In the LOI, you talked about how there can be different terms and structures depending on who the buyer is and what they’ve put forward.
Can you talk about what common terms and structures are and how they differ from each other? Certainly [00:13:00] can. I think one of the key elements in the terms and structure, as I mentioned, is of course price, but also we typically will see that these groups want to come forth with a management of the facility.
Something the partners are most likely looking for is that management expertise. So we will evaluate the, the management component and the fees associated with that. I think from our experience of a number of transactions, we’re pretty propositioned to share with the doctors what we feel is fair market value and assist in negotiating that if we need to.
The other is the non-competes or the tails that will come with a transaction. Many of these buyers are paying large dollars to be a partner in these surgery centers and therefore, you know that non-compete to ensure that these. Physicians we are gonna maintain as a committed partner is very important.
So there’s always gonna be non-competes and a tail. But we also want those to [00:14:00] be reasonable. So that’s a key component of, of the term sheet. We also as I mentioned, we’ll see that the terms associated with the management agreement, billing and collection agreements, you know, are those five years, are they evergreen?
All of those are key components to the future or post-transaction of, of partnering with one of these groups truly understanding it, it, it ends up most likely being a marriage and many times a marriage without the opportunity for divorce. And they need to understand that going into it. So, yeah.
And let’s assume that an A SC is getting multiple lois. How do they evaluate? These different buyers. And before we were recording, you shared about how, hey, we don’t always suggest just choosing the premium priced bidder. There [00:15:00] are may be some circumstances where you want to optimize for other parts of the the terms and structure.
So can you share about how you suggest they evaluate these offers? Absolutely, and, and you are correct. We, we certainly don’t want it to be primarily focused on price. However, as you can imagine, as a letter of intents come forward and we’re doing a comparison. That’s usually your, your, your first glance is what is someone willing to pay?
And then you work through all those other terms. But, you know, as I mentioned the length and the. Percentage that’s being placed on the management fee. Our billing and collections can make a a big difference in the future of the surgery center. The other thing is so often from a revenue cycle management or top line revenue, the other is maybe we’re seeking to help improve the [00:16:00] contracts, the payer contracts, many of our independent surgery centers or practices.
Do not share in the same contracts that you might see with a joint venture with a large corporation or with a health system. So that’s another thing that we’re evaluating is post-transaction. What will this proma look like going forward in five years? A big, big part of their decision making because it’s not about just the money upfront, but what do we look like post transaction?
I think that’s important. It’s also can come down to a, a. Know just how they, they communicate with the executive team of the new partnership. Is there similarities? Is there a bond? Do they feel like they’re mutually aligned? I think those are very key in evaluating the various companies. Thus, why we want them to come in and meet with physicians, have the opportunity to set face-to-face with them seems to be key.
So if I [00:17:00] swayed off there, bring me back and I can wrap up with the question. Yeah, that’s great. And, and as you’re talking about the payer contracts that may be able to be improved given the volume of larger buyers, that makes me think it’s a similar concept for supplies and volume discounts there, which especially if you’re running an AC with.
Specialties requiring a lot of supplies that can also directly impact profit as well. Grant, you’re absolutely correct and thanks for bringing that up. ’cause it’s a very good point. Having been in the ambulatory surgery center industry for so long, independent facilities do not have the volume discounts and, and access to supplies that we see from these large organizations.
And I, I’m recently working with a a spine center and even though they have great volume and doing very [00:18:00] well, that is their one. That they struggle with because they, you know, they’re doing maybe a thousand cases a year, but they’re highly productive cases. But the cost of supplies are probably, you know, 30 to 40% more than what they could get with a partner.
So. Good point. Yeah. And that really changes the proforma, as you were saying. It does. It does top line revenue. You know the, I think we always say the three to four elements that really impact these operations is top line revenue. Then we have our staffing, which is another area that we try to target and manage to make sure we have appropriate staffing at the facilities.
And then our, of course, our supply. Chain that’s very important. And last but not least, and we shouldn’t forget about it, is the lease payments for these surgery centers and making sure we do a review because it’s usually a very large, their fourth largest expense on their income [00:19:00] statement. Yeah, great call out.
Okay, so let’s, let’s imagine we’re, we’re working with an A SC, they’ve reviewed the lois and there’s a clear front runner and you’re saying, Hey, it is time to move forward to a quality of earnings analysis. Can you share with the listeners what that is and ways they can reduce friction during that process?
Correct. And I think having an advisor or assistance in this area is extremely helpful. And we’ll have either QV will be done one of two ways, either in-house by the potential buyer, or they’ll seek a third party that will go through the, and this is very typical, they’ll have a third party that helps them with the quality of earnings.
And the buyer, as you know, is doing this to assure that they have. Quoted a fair market value price, that they’re in fair market value range. The [00:20:00] other is that the EBITDA supports continues to support the EBITDA that they put their pricing base, their pricing on, right. Those are probably the two key factors of why we go through quality of earnings, and what I certainly like to see happen is to stay involved in that process to ensure that we don’t get any, you know, we’re close to close and we get it.
Well, wait a minute. We can’t support the price that was put forth. We wanna avoid any price adjustments for our clients or for the physician partners. So from that perspective, I think this is where it’s imp. Important that we can assist in helping maintain that purchase price and providing some insight of do we need to do some one-time adjustments out of the financials?
Can we take a look at the top line revenue? Are we missing something related to the growth of the facility going forward? So there’s a lot of factors that go [00:21:00] into it. A very key component of assuring the buyers that they are in fair market value for the purchase, but also. Letting the docs know that their, their facility supports the EBITDA that was put forth.
So that data is shared with, with everyone as we move through this process. Yeah. And so after, after they finish QOE, the Lois is gonna maybe remain the same or maybe slightly renegotiated, although as you’re saying, try to avoid that. Right. What? What comes next after that? Yes, and Grant. In the process of quality of earnings, there’s so many things going on.
Quality of earnings has taken place. Additional due diligence from onsite meetings to review it. To review billing and collections, to review clinical processes, HR processes. All of [00:22:00] that is happening maybe in this 90 days. So we’ve got a lot happening in the due diligence. We’ve got quality of earnings going on, but in addition, we have the, the drafting of the legal documents, the definitive documents, whether that’s the member interest purchase agreement.
Always gonna see one of those in these transactions. As apa many times we’ll also see a new reinstated amended operating agreement for the facility. And then if there’s management agreements and billing and collection agreements, they’ll also be put forth as drafts to be negotiated and work through.
I’ll honestly tell you, grant, that the legal documents are, are the last piece in our final weeks that we’re working on, and, you know, where the lawyers get the time, their chance to, you know, nit pit back and forth. And we try to avoid as much of that as possible. But once we get through Q of UE, [00:23:00] we finish up our, our legal documents and we are set for a close.
It sounds simple, but it is a long process and post close. What do you see as common steps after that? After post close in, in this process also of due diligence such the initial buyer is, is working through a transition plan. They’re establishing what this next 60 days will look like at the facility, the next six months, the next year.
And what stages will they be implementing their different processes and procedures. So. Post transaction. You know, I think that the key is that payroll is functioning and benefits are established for the staff, and then they move towards it. And is there a change in the IT systems? As well as if we’re changing billing and [00:24:00] collections from in-house to outsourcing, but they, they don’t, they don’t just flip a switch and that happens overnight.
It’s a transition process and it’s very well laid out for the facilities. This is a, a really great overview. Anything else you would add for our listeners to understand the transaction process? Oh. Having just got through a close and as we get to the close, I, I would just wanna mention, I think there are potentials for three or four hurdles that we wanna avoid.
And one of ’em we mentioned was quality of earnings and to share that, that, that certainly evaluates out to our, our needs. And then second of all is. Anything in those legal documents that’s still going back and forth. We can get into some pretty intense negotiations on final negotiations there. The other is, we didn’t [00:25:00] talk a lot about it, but it’s, it’s hard to believe, but a lease agreements with an outside third party can provide some hiccups for us, or even maybe it’s a lease agreement.
Many times these physicians own the real estate as well. It is a little easier to negotiate with the physician partners than it is with a third party, but we wanna make sure that happens earlier and not be a, oh, we need to look at the lease in the last week of our transaction. So we try to avoid some of those hiccups.
But outside of that, staying on task, having a process and a timeline is extremely important to. To getting through this process. We’ve covered a lot of actionable advice today, so thanks so much for sharing. To last question here. To wrap us up, we ask this to each guest each week, what’s one thing our listeners can do this week to improve [00:26:00] their surgery centers?
This week, I just went through this as from an administrator standpoint, overseeing a surgery center or even the doctors overseeing it. As, you know, probably know there are so many aspects of overseeing a surgery center, but I, I do think each week, if we can look at those areas that maybe need expert review, do we need to bring in outside.
Evaluation for our billing and collections. Do we need a revenue cycle management audit? Should we have a financial audit? Always staying on top of that, but they wear so many hats of making sure staffing is there on time, maybe covering an OR that from a day-to-day basis, this might be one reason why they’re seeking a partner to help lift some of those.
Daunting day-to-day tasks that [00:27:00] are needed in a surgery center, have that assistance, that’ll help. But I would say, you know, this week it’s always good to assure your, your overlooking your financial status. Timely reporting. It certainly helps evaluate where you’re going and how your facility is doing.
If there’s not a lag in looking at the, the financial side. Great. Thanks so much, Stephanie. Wow. Well this was, this was fun. Thank you, grant. Appreciate it. And hopefully it was helpful to some. I’m sure many.
Thank you.

Grant Duncan: Okay, so HST Pathways analyzed more than 5.3 million cases across over 600 surgery centers from Q1 [00:28:00] 2020 to Q2 2025. And we took a deeper look at demographic trends and benchmarks within that. So we’re gonna spend time today focusing on age mix because. This is one of those simple data points that can tell you a lot about what’s really happening in your A SC.
Now, you might just be able to look in your waiting room and have some sense for the age of patients, but being able to look at the data is going to help take it just from visual anecdotal views to data-backed view. So when you look at case share by age group, the headline is clear. Patients who are in the 61 to 80 range make up 48% of total cases, which is the largest portion of any age group, and in many centers they’re followed by the 41 to 60 [00:29:00] age group, which accounts for 28% of total cases.
Now when we look at both ends of the spectrum, patients under 21, they’re representing about 6% to total cases, one of the smallest slices. And then when you look at patients 91 plus, they are less than 1% of total volume. Total volume.
So what does all this mean operationally? First, this age distribution explains why older patients dominate both or minutes and revenue in most surgery centers. Patients in the 61 to 80 range are more likely to need ortho procedures, ophthalmology, or other interventions. That are probably higher acuity and longer induration.
Longer cases is gonna mean that they’re taking more block time and [00:30:00] oftentimes higher reimbursement for case as well.
That’s why even if younger patients show up on your schedule consistently, they’re gonna be less likely to drive the bulk of your financial performance if you’re a multi-specialty. That core economic engine is probably that 60 plus population for most ASCs. Second, this age distribution tends to mirror your specialty mix.
So if your center is heavy in ortho or ophthalmology, your patient population is gonna skew older. If you’re more focused on ENT or dental, you’re naturally gonna see a younger demographic and probably even pediatrics as well. Neither of these models are better, but they do mean you need to operate a bit differently.
Older skewing centers are gonna need to think about anesthesia resourcing more, [00:31:00] maybe comorbidities the recovery time, whereas those that skew to a younger population, they’re probably gonna see faster turnovers and shorter cases, which may be impacting or utilization or reimbursement per case. And of course, understanding what model you’re working with is gonna impact things like staffing, scheduling, how you plan for growth and whatnot.
There’s also another strategic layer here. As the population continues to age, the 61 to 80 group is only gonna continue to age too. So that means demand for high quality a SC care is gonna continue to rise as more age into that category, and as that category continues to age. So if your center’s already serving that kind of population you’re probably in a good position.
If not, this might be a [00:32:00] signal to evaluate, do you have the right service lines, specialties, block allocation, physician recruitment? And consider how that is gonna play into your growth. When you think about day-to-day management, this data can also give you a gut check. A couple questions to consider asking yourself.
One, what percentage of your patients are aged 61 to 80, and is it over 40%? Also look at the case count there, not just patient count and then look at the younger end. Are patients under 21 making up more than 10% of your cases? These two numbers alone can tell you a lot about your center’s identity and whether you’re being more Medicare driven or there’s gonna be more commercial or pediatric type cases. [00:33:00] So if you haven’t looked at your case distribution by age recently, it’s a pretty simple report to pull and one that gives you a surprisingly clear picture of where the ASCs today is and where you might head in the future.
That wraps up this week’s podcast. Thanks as always for spending a few minutes with us. If you enjoyed this, please send it to a friend or a colleague in the A SC industry. We’d really appreciate you doing that ’cause that’s gonna help us grow and hopefully help others improve their surgery centers as well.
Have a great day and we’ll see you next time.