Todd J. Mello, MBA, AVA, Principal

1
How Do the ASC Companies Assess Value?
A Presentation by HealthCare Appraisers, Inc.
based upon its 4th Annual ASC Valuation
Survey Presented June 23, 2006

• Presented by
• Todd J. Mello, MBA, AVA, Principal

2
Presentation Outline

• Participating Companies
• Why do we care?
• Company Profiles
• Factors Impacting Value
• Valuation Trends and Multiples

3
Participating Companies

• Affiliated Surgery Center Group, LLC
• AmSurg Corporation
• Blue Chip Surgical Center Partners
• Health Inventures, LLC
• HealthMark Partners, Inc.
• HealthSouth Corporation
• Meridian Surgical Partners
• National Surgical Care
• NovaMed, Inc.
• Pinnacle III
• Regent Surgical Health, LLC
• Surgis Inc.
• Symbion Healthcare
• Titan Health Corporation
• United Surgical Partners International
  Publicly Traded

4
Why Do We Care?

• Detail to actual transactions occurring in
  marketplace provides valuable insight in the
  private company valuation process (i.e., sanity
  check to Income Approach)
• Provides mechanism for ASC owners to readily
  estimate value
• Provides mechanism for ASC owners to monitor
  reasonableness of formula-driven buy/sell
  provisions in governing documents

5
Company Profiles

• Public 5 Private 10
• ASCs under ownership/management
• 10 or fewer 4
• 11-30 5
• 31-50 2
• 51 4

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Company Profiles

• Preferred number of physician owners
• Fewer than 10 13
• 11-20 60
• The more, the better 27
• Most desired specialties orthopedics ENT GI
  pain management podiatry, ophthalmology and
  general surgery
• Preferred equity ownership percentage

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Company Profiles

• Management Fees Charged
• None 1
• Less than 4 1
• 4 to 4.9 0
• 5 to 5.9 9
• 6 to 6.9 3
• 7 or higher 1
• Acquisition Strategy

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Company Profiles

• Determining Value for Recurring Transactions
  (i.e., investments and divestitures)
• Independent appraisal 14
• Formula set forth in governing documents 72
• Other 14
• Periods incorporated in valuation/purchase offer
• Trailing 12 months 75
• YTD, annualized 12.5
• Other 12.5
• Primary earnings measure relied upon in valuation
• EBITDA less i-bearing debt 79
• Net Income 7
• Other 14

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Factors Impacting Value
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Factors Impacting Value

• MedPAC rate freezes
• 2004 54 No Impact 38 generally lowered
  valuation multiples
• 2005 100 No Impact
• Existence of barriers to entry (e.g. CON)
• 92 report paying a premium for an ASC in a CON
  state
• Value of premium 20 - less than a 0.25
  multiple 30 - 0.26 to 0.50 multiple 40 - 0.51
  to 0.75 multiple 10 - greater than a 0.75
  multiple
• Out-of-Network benefits
• 64 report that the existence detracts from value
• 36 report that it depends upon the extent of
  out-of-network contracts

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Valuation Trends Multiples

• In the past year, what best describes your
  observations related to the following
• Acquisition activity 57 report no change form
  previous year 43 report increasing activity
• Competition for acquisitions

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Valuation Trends Multiples

• What valuation multiples are you most typically
  observing in the marketplace during the past 12
  months for controlling interests?
• In the past year, what best describes the
  multiples paid or considered by your company?
• 67 report no change form previous year
• 33 report increasing multiples (i.e., higher
  valuations)

13
Valuation Trends Multiples

• Discounts involved in the purchase/sale of
  minority interests

14
Valuation Trends Multiples

• By comparison, publicly traded pure play ASC
  companies were valued in the market during their
  2005 fiscal year as follows

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HealthCare Appraisers, Inc.Florida Office75
N.W. 1st Avenue, Suite 201Delray Beach, FL
33444phone [phone]fax (561)
330-3266Colorado Office858 Happy Canyon Road,
Suite 240Castle Rock, CO 80108phone (303)
688-0700fax [phone]tmello_at_hcfmv.com