CON Valuation: Where's the Market Data?

One potential data source we’ve spent some time reviewing recently is the 10-Ks and Qs filed by publicly-traded surgery center companies with the SEC. We found some useful tidbits of information in Surgical Care Affiliates’ filings for 2015 and 2016 (SCA was acquired in early 2017). SEC filings are often a great source of information, but sometimes you need to squint to find what you’re looking for.

During this time period, SCA disclosed the enterprise value for each acquisition they made. They also reported an intangible asset on their balance for the acquired CON for each center that was acquired in a CON state. These values reflect an appraiser’s opinion of the contributory “fair value” of the CON to the overall acquired enterprise, not necessarily the value of the CON on a stand-alone basis. When market data is scarce, sometimes you have to be creative.

Unfortunately, SCA didn’t disclose the CON value for each deal, they disclosed the aggregate amount for the year-to-date period each quarter, so you can only calculate the aggregate amount recognized in each quarter. For many quarters, SCA only made one acquisition in a CON state, which makes things easy. For quarters where multiple ASCs with CONs were acquired, we think it’s reasonable to allocate the CON value recognized for the quarter to each center based on enterprise value.

Using this methodology, the fair value attributed to the CONs ranged from $514k to $925k at the 25th and 75th percentiles, respectively. When stated as a percentage of each ASCs enterprise value, the CON value measurements ranged from 3.01% to 7.01% of the total enterprise at the 25th and 75th percentiles.