This is the first article in a 3-part series on fair market value and ASC transactions.
Hospitals are increasingly pursuing ownership in ambulatory surgery centers (ASCs) as part of broader ambulatory strategies to expand their outpatient access, deliver needed procedures in lower-cost settings, and support physician alignment.
At the same time, ASC operators are facing increasing financial pressures from reimbursement compression, rising labor costs and more aggressive payer behavior. In that environment, the margin for error in transaction assumptions is smaller than it has been in years, making it even more important that deals are grounded in a clear understanding of underlying economics.
Most of the issues we see are not the result of a flawed strategy. They stem from seemingly reasonable assumptions that haven’t been fully vetted, or from deal momentum that outpaces careful evaluation. From our perspective, advising hospitals and health systems (often alongside legal counsel), these missteps tend to surface after closing, when expectations around cash flow and performance don’t align with reality.
A common thread across many of these challenges is an overreliance on simplified metrics, particularly headline multiples, without fully understanding what those metrics represent.
Headline Multiples Are a Reasonableness Check – Not the Answer
ASC transactions are often discussed in terms of EBITDA multiples. While multiples can be a useful reference point, they are frequently treated as a shortcut rather than a rule of thumb.
Even two ASCs that are seemingly similar on the surface can warrant very different multiples depending on case mix, physician concentration, growth expectations, and capital needs. These attributes can all meaningfully impact both risk and expected cash flow. A center with stable, diversified volume and limited capital requirements may support a very different valuation than one that is dependent on a small number of physicians or facing near-term investment needs, even if recent financial performance looks comparable.
Without understanding what is driving multiples and whether those drivers are sustainable, hospitals risk anchoring to benchmarks that may not reflect the realities of the specific center.
In practice, this can lead to a disconnect between price and long-term performance. It can be tempting to use EBITDA multiples as a shortcut, but similar-looking ASCs often merit different multiples based on case mix, physician/specialty concentration, payer contracts, growth and future capital expenditures.
Economic Reality Requires Normalization – Not Just Historical Results
One of the most common gaps we see is incomplete normalization of financial performance.
While one of the first things we look at is historical financial results, those rarely tell the whole story. A disciplined approach requires evaluating not just reported earnings and cash flows, but what those would look like on a forward-looking, supportable basis.
This includes consideration of:
- Known or knowable physician changes (retirements, recruitments, departures)
- Planned service line expansions or reductions
- Upcoming capital investments or equipment needs
- Shifts in case mix or scheduling dynamics
- Non-recurring or non-operational expenses
In today’s environment, where margins are already under pressure, even modest differences between projected and actual performance can have an outsized impact. Without careful normalization, valuation conclusions may rely on unsustainable earnings, creating a gap between them and post-close performance.
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A More Reliable Approach: Build from the Economics, Then Pressure-Test Against the Market
A more grounded approach starts with the underlying economics rather than the multiple.
In practice, that often means developing an income approach that reflects the ASC’s normalized, forward-looking performance. The specific method may vary depending on the circumstances, but the objective is consistent: to translate expected cash flows and risk into a supportable indication of value.
From there, implied valuation metrics, such as EBITDA multiples, can be compared with available market data. In context, this often serves as a reasonableness check rather than the primary driver of value.
This distinction matters. Many of the multiples cited in the market are, at their core, based on income-driven assumptions about growth and sustainability. Relying solely on multiples, without understanding the underlying drivers and specific attributes of the subject companies, can obscure important differences between transactions.
Transaction data can provide helpful context, but it is important to ensure a sufficient sample size and comparability before weighing it heavily in a valuation conclusion. A disciplined approach considers market data alongside a thorough understanding of the specific economics and risk profile of the ASC being valued.
A Grounded Starting Point
For hospitals evaluating ASC investments, the goal is not to slow down decision-making but to ensure that decisions are grounded in economic reality.
That starts with moving beyond headline multiples and developing a clear understanding of the drivers of performance: how the ASC operates today, how it is expected to operate going forward, and what risks may impact the trajectory.
From our perspective, this is where valuation can provide meaningful insight, not just in determining price, but in helping hospitals understand what they are actually buying.
In Part 2, we will build on this foundation by exploring how governance, control, and transaction-specific assumptions can further shape risk and value in ASC transactions.
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If you’re evaluating an ASC transaction or need help assessing fair market value, our team is here to help.
Frequently Asked Questions
Fair market value in ambulatory surgery center (ASC) transactions requires consideration of the income, market, and cost approaches. Typically, valuation conclusions are driven by analyzing the center’s normalized, forward-looking cash flow, risk profile, growth expectations, and capital needs. The market approach, including EBITDA multiples, provides helpful context and is often used to corroborate value. A reliable valuation usually starts with the ASC’s underlying economics rather than relying only on headline transaction benchmarks.
EBITDA multiples can be misleading in ASC valuations because they do not always reflect the specific operational, financial, and strategic factors that influence value. Two ambulatory surgery centers may appear similar on the surface but warrant very different values based on physician concentration, case mix, payer dynamics, growth opportunities, and future capital expenditure requirements.
Before investing in an ambulatory surgery center, hospitals should evaluate the ASC’s historical and normalized financial performance, physician alignment, case mix, payer contracts, growth outlook, governance structure, and future capital needs. Looking closely at these factors can help hospitals better understand fair market value and avoid overreliance on simplified valuation metrics, such as headline multiples.
