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Anesthesia groups are being acquired at a pace not seen before. In fact, the anesthesia sector is one of the most active deal sectors in healthcare. There are several large strategic acquirers operating in the marketplace with new buyers (often backed by investment funds) emerging with frequency. Valuations for anesthesiology practices have soared in recent years, due to a perfect-storm combination of factors. Buyers perceive the ability to increase the value of acquired practices through the cost savings and revenue growth associated with larger size and clout. Their primary focus is on enhanced payer contract relationships and the further expansion, where possible, of the care-team model (leveraging the ratio between physician-anesthesiologists and certified registered nursing anesthetists). In addition, buyers listed on the public markets are currently enjoying very strong multiples, so their ability to pay high multiples without dilution of their own equity is driving higher multiples in the acquisition marketplace. Lastly, supply and demand: there are more buyers than ever before, generating a greater interest level and more competition for any anesthesia practice interested in selling. Thus, it’s a seller’s market.

Most of these acquisitions have involved hospital-based groups, with some including affiliated pain management entities. Acquisitions include both anesthesiologist and certified registered nurse anesthetist (CRNA) practices. The nature and terms of the professional services contract with the hospital is, perhaps, the single most significant driver of both interest level and value. The term of the agreement, the absolute and relative magnitude of the stipend (if any), and the relationship between the anesthesia group and the hospital administration are critical factors to be considered.

Group-specific factors influencing the decision to sell

Several factors motivate anesthesia groups to consider a sale, including the desire to:

  • Monetize the value of the group practice and related businesses, such as pain management facilities, at a time when buyer interest is high and in a way that maximizes value and creates an attractive “take out” event for owners
  • Gain greater security in the market by aligning with an enterprise that is larger and more geographically, service menu, and practice location diverse than your practice group
  • Gain access to new patients, hospitals and facilities, services, and businesses
  • Achieve economies of scale
  • Have better access to capital, technology, management and administrative expertise, sales and marketing, and other infrastructure components
  • Obtain improved payer contracts
  • Obtain improved access to sub-specialty and enhanced cross-coverage

Healthcare industry factors influencing the reason to sell

There are additional factors specific to the healthcare industry (including anesthesiology) that can be seen as drivers of sales transactions.

Healthcare reform has accelerated the rate of consolidation. In the evolving healthcare industry, there is a focus on accountability. The subsidies and payments to physician groups that are not tied to measurable performance are rapidly disappearing. The trend is to link physician compensation to results (better patient outcomes and increased productivity) and to more closely align physician incentives with the fortunes and profits of the hospital or accountable care organization (ACO). This is especially true for anesthesiologists, who largely work in inpatient hospital settings. The process of aligning interests—and essentially changing the economic relationship between doctor and hospital—involves complex analytics and quality metrics to track performance. The shift is proving difficult for some groups. Groups may lack the infrastructure and management to do well in this type of system. Larger organizations that have greater critical mass will be able to compete more effectively, spread fixed costs over a broader revenue base, have better access to affordable capital, and develop sophisticated management/quality assurance systems that can measure quality and allow for sharing of best practices.

Additionally, payment rates will likely continue to decrease, indirectly encouraging consolidation by forcing healthcare providers (including anesthesiology groups) to find new ways to decrease costs and increase negotiating clout with both suppliers and payers. At the same time, the cost of doing business will increase as healthcare entities spend more on compliance and technology. The ACO model will encourage network formation and greater clinical integration by rewarding integrations that can reduce costs and improve quality.

From a buyer’s perspective, the healthcare industry has several extremely attractive qualities. Demographics remain the most compelling reason to stay in, or enter, this market. The U.S. population continues to age at an ever-accelerating rate. In 2009, there were 39.6 million people over the age of 65, representing 15 percent of the U.S. population and one-third of healthcare consumption. By 2030, those over 65-years-old will increase to 72 million.

With respect to the anesthesia segment of healthcare, anesthesia is critical to the surgical activities of a hospital, and often surgeries are the only profit center at a hospital. It is not uncommon for an anesthesia practice to actually run the daily operations of the hospital’s surgery department, taking responsibility for items such as schedules, protocols, and quality.

The transaction process

Selling an anesthesiology practice (or any business) involves a complex, time-consuming, and sometimes lengthy process. The selling process will include the following:

  • Transaction strategy development/preparation for sale
  • Early assembly of “deal team,” including key members of senior management team, financial advisors/investment bankers, attorneys, and accountants/tax advisors
  • Development of potential buyer list. This will usually occur in one of two ways:
    1. Limited buyer list – A seller may approach a narrow list of potential buyers based upon knowledge of the best matches for the seller in the market, or may in fact receive an unsolicited approach from a buyer trying to pre-empt a broader sale process.
    2. Auction – Under this approach, a much broader list of potential buyers is identified and solicited through an auction process. The field of potential buyers is narrowed down to one through a process often run by the investment banker. The auction process usually consists of the following:
      1. Distribution of an Offering Memorandum to interested parties (under protection of a Confidentiality Agreement)
      2. Setting of bid deadlines
      3. Delivery of preliminary “Expressions of Interest” (with “range” of value)
      4. Selection of a smaller set of bidders to receive additional information
      5. Additional round(s) of bidding/letter of intent proposals
      6. Selection of buyer
      The principal advantage of an auction process is that a larger number of “bidders” may result in a higher deal price. The disadvantages are greater difficulty in controlling confidentiality and the time and costs associated with a more complex process.
  • Development of a confidentiality agreement—sellers should not disclose confidential information without an executed agreement, and the information disclosed should be staged—disclosing the most sensitive information only as deal becomes more certain   
  • Development of an information exchange coordination and process
  • Proposal evaluation and negotiation
  • Selection of a buyer
  • Negotiation and execution of a non-binding Letter of Intent (LOI). An LOI will generally address the following items:
    1. Price/payment terms
    2. What is being bought? (included and excluded assets)
    3. Liabilities to be assumed
    4. Deal structure (asset sale v. stock sale)
    5. Conditions to closing
    6. Timing/process for the deal
    7. Ancillary agreements needed
    8. Exclusivity/no-shop
    9. Sunset/termination date
  • Due diligence
  • Negotiation of definitive purchase agreements and ancillary agreements
  • Obtaining commitments from hospital(s) to contract with buyer
  • Closing

The process described above typically takes anywhere from four to nine months to complete.

Types of buyers

Generally speaking, there are two types of buyers of anesthesia practices: strategic and financial. Strategic buyers are typically entities that are either involved in the anesthesiology sector already or healthcare providers looking to expand the scope of their service offerings. Strategic buyers typically are in a position to pay a higher price based on synergies, economies of scale, and industry familiarity/knowledge. Financial buyers, often private equity firms, are investors looking to enter into the anesthesiology sector. Financial buyers typically pay a slightly lower price, especially if the target represents the buyer’s initial foray into an industry space, but may be more open to a transaction in which the current owners retain an equity interest in the enterprise going forward, enabling the current owners to share in the continued growth in the value of the practice.

Types of transactions

A transaction could involve either the assets of an entity or the stock/equity of the same entity. An asset deal, in which only certain identified assets change hands, allows the buyer to protect itself from the liabilities of the seller and potentially allows the buyer to “write-up” certain of the assets to fair market value, thus allowing for greater depreciation expense going forward, which results in tax savings to the business. A stock deal, in which the actual equity changes hands and therefore, all assets and liabilities—whether identified or not and whether on the balance sheet or not—change hands, typically provides the seller with better tax treatment, but requires greater due diligence efforts on the part of the buyer due to potential liability concerns. A stock deal inherently allows for the transfer of contracts, licenses, accreditations, and other similar assets, subject to certain approvals and notifications, whereas many such assets are not automatically transferable in an asset deal.

Prior to beginning the process, a seller should conduct a thorough analysis of its tax situation to determine its tax profile for a future transaction. Indeed, tax planning for a potential deal should start as early as possible, as tax advisors may be able to dramatically improve a seller’s tax situation if given enough time before the sale occurs.

Planning for sale

There are certain elements which need to be present prior to going to market to enhance the likelihood of a successful transaction:

  • Consensus within the group regarding benefits and basic elements of the transaction
  • A good understanding of the transaction and its complexity
  • Understanding buyer expectations
  • A commitment of the time and resources necessary to complete the transaction
  • A willingness to be open and honest about issues and concerns and to address them in a timely fashion
  • A willingness to compromise
  • Recognition that the transaction’s success is materially determined by what happens after closing

Every anesthesia practice has problem areas—some modest and some more severe. These problems can impact whether one ultimately receives offers, the deal value, completion of the deal, deal timing, and cost. Not all potential problems may be known by the owners or be readily identifiable. An anesthesia practice that is contemplating a sale should conduct an audit, using internal means or an independent auditor, in order to identify and solve problems prior to any potential buyer identifying such issues. A thoughtful, timely audit and correction of a problem are less onerous on and disruptive for both management and staff than an audit under the pressure of due diligence and a deal closure deadline. Audits of coding and billing practices can result in certain disclosure and repayment obligations, which should be discussed with legal counsel in advance of undertaking the audit.

A seller should be prepared for extensive and thorough due diligence by a potential buyer. Due diligence will focus on the following areas:

  • Ownership/governance
  • Financial statements, underlying financial/accounting records and financial trends
  • Billing and coding compliance (critically important)
  • Legal (tax compliance, fraud and abuse, HIPAA and data security, licensure and accreditation, litigation, employee vs. independent contractor issues, other current, threatened, or anticipated third party actions including government actions, etc.)
  • Operations
  • Clinicians/management/employees
  • Payer relationships and contracts
  • Referral source relationships
  • Customer relationships and profile


Changes in the healthcare industry and medicine and, in particular, the practice of anesthesiology, are driving a wave of transactions, as larger players emerge and small groups consider their options for the future. Groups which are considering a sale, or which are approached about a sale, should have a thorough understanding of the sale process and consult with well-qualified advisors before moving forward.

For more information, please contact:

Richard S. Cooper
McDonald Hopkins LLC

Kirk A. Rebane
Haverford Healthcare Advisors

Healthcare Practice

McDonald Hopkins has a large and diverse healthcare practice, which is national in scope. The firm represents a wide variety of healthcare providers, facilities, vendors, technology companies and associations. Our diverse experience enables us to give our clients a unique perspective on the issues that may confront them in the rapidly evolving healthcare environment.