On December 10th, Tenet Health announced it was purchasing a portfolio of up to 45 ambulatory surgery centers from SurgCenter Development for $1.1b in cash plus the assumption of $18m in debt. The 45 centers are geographically diversified with locations in Arizona, Florida, Indiana, Louisiana, Maryland, Ohio, New Hampshire, Texas and Wisconsin. Tenet published an investor presentation indicating that SCD's centers generate annual revenue of ~$430m, adjusted EBITDA of ~$210m, and EBITDA less NCI of ~$130m, representing a multiple of approximately 8.6x.
Tenet also estimates that it will be able to realize annual synergies of $40m to $50m, resulting in a ~5x effective multiple. Even excluding synergies, the 8.6x multiple is on the low end for a multi-center acquisition representing the lowest since 2013.
The relatively low multiple may be related to the fact that Tenet, according to the press release, is buying interests in individual centers and not the development company. This would imply that SCD's development team and related growth prospects are not factored into the valuation. Further, the financial figures included in the investor presentation indicate center-level margins of close to 50%, which is very high for the industry. This may be a clue that the centers have significant exposure to out-of-network payers, which is a significant risk factor that can lead to much lower valuations.