subject: Surgery Center Valuation: Why Market Value Is Better For Your Asc Than Fair Market Value [print this page] I have many conversations each week with physician-owners of ambulatory surgery centers, and they always ask me what their center is worth. In most instances, they want to know the highest and best value possible in an actual sale of their center. My typical response is: "Something is only worth what someone is willing to pay, and it is not worth a penny less."
While some surgeons believe I am not saying much when I give that answer, I am actually telling them a lot. At any given moment in time, your ASC has many definitions of "worth," and they all depend on the purpose of the valuation, i.e., which "value world" in which the valuation is taking place. For the purpose of this article, we are only exploring two: fair market value (FMV) and market value.
To make a contrast against the hypothetical world of FMV, market value is the real world value of your surgery center. Market value, simply put, is the highest purchase price and best terms available for this particular ASC in the open and competitive marketplace. FMV is a value world defined by federal law and administrative rulings and controlled by the business valuation professionals, whereas the market value world is defined by the actual market place and controlled by the investment bankers (financial intermediaries).
When two value worlds collide
If you want to sell your surgery center for peak price and terms, or to know what the value of your surgery center would be in such a situation, then you must look in the market value world. In essence, you are searching for the most motivated buyer at a specific point in time, which has the compulsion to buy.
To get to this, you must conduct a broad auction. Compulsion to engage in a transaction usually works against that party's interests. A "motivated buyer" is likely to pay more than a rational price to acquire an asset.
All the valuation professionals will tell you a hospital can only pay FMV for a physician's interest in an ASC. This also goes for ASC management companies looking to partner with you and the hospitals. While that is true, what they never tell you is that a bona fide offer is FMV. In other words, if you have bona fide offers (conservative or not) and present them to the valuation professional, they should use that data in their fair market valuation. The valuation community has defined a hypothetical willing buyer as any likely buyer. It's to your benefit to hunt down "any" likely buyer prior to the hospital engaging a fair market valuation professional.
Choosing the right world
It should come as no surprise that the hypothetical world of FMV and the real world of market value are sometimes in conflict about what a particular ASC is worth. The only way to truly know what ASC's worth is to shift your paradigm from the hypothetical world of valuation professionals to the real world of investment bankers. FMV likely won't reflect the highest price that could be obtained if you sold your surgery center. On the other hand, market value will reflect that, and it can also influence the FMV. In other words, let the buyers of your surgery center determine the value not the valuation experts.
