Image by websubs from PixabayFollowing a go-private proposal from Bain Capital Private Equity and other sales-process rumors that began last year, ambulatory surgery center (ASC) industry insiders have been following Surgery Partners Inc. (Nasdaq: SGRY) very closely.
Amid the noise, the Surgery Partners leadership team is sticking to its playbook: organic growth, margin improvement and strategic M&A. It’s a strategy that drove the Brentwood, Tennessee-based company to cross $3 billion in revenue for the first time in 2024.
“We continue to invest in Surgery Partners’ growth through acquisitions, facility expansions, de novos and service lines expansions as well as better, more efficient operations,” CEO Eric Evans said during a March 3 conference call going over fourth-quarter and year-end financial results. “The investments we made in 2024 will contribute to reliable and consistent growth as we enter 2025.”
Founded two decades ago, Surgery Partners is an outpatient-focused health care services company with more than 200 locations in 31 states. Its network includes ASCs, surgical hospitals, multi-specialty physician practices and urgent care facilities.
In January, the company confirmed receiving a non-binding acquisition proposal from Bain Capital, where the PE giant – one of Surgery Partners’ largest investors – would take it private by buying out all of the outstanding shares it doesn’t already own.
“Bain has been a long-standing investor in Surgery Partners and a valued partner to us over the years, with representation on our board,” Evans said on the call.
A special committee of independent directors is reviewing that proposal, the CEO explained, and Surgery Partners will not comment further on the matter unless “there is a material update.” As that plays out, Executive Chairman Wayne DeVeydt – who also serves as managing director at Bain – has removed himself from many of his normal activities with Surgery Partners.
Before Bain stepped up with its takeover bid, TPG Inc. (Nasdaq: TPG) and UnitedHealth Group (NYSE: UNH) were identified as possible Surgery Partners suitors.
Surgery Partners leaders did not offer any specifics on sales-related conversations that took place in 2024 during the company’s March 3 earnings call, but CFO Dave Doherty did confirm a sales process was, indeed, underway.
“It’s obviously very visible that we have incurred more expense in 2024 than what is typical for transactions,” Doherty said. “I would provide just perhaps a little bit more color on what happened inside 2024. And we couldn’t talk about this before, but, clearly, with Bain’s letter that came in, you could see that there was a process that we went through last year that did burden … the [bottom] line.”
Surgery Partners saw its revenues for the fourth quarter of 2024 reach $864.4 million, a 17.5% jump compared to $735.4 million for the fourth quarter of 2023.
Full-year revenues for 2024 increased 13.5% to $3.1 billion, as compared to $2.7 billion for the full year of 2023.
“This is the first time Surgery Partners has recorded revenue over $3 billion and adjusted EBITDA over half a billion,” Evans said.
Organic growth drivers
When it comes to organic growth, Surgery Partners performed more than 656,000 surgical cases in 2024. That’s compared to 605,000 cases in 2023.
The company experienced gains across each of its core specialties, according to Evans.
Orthopedics was a particular bright spot. Surgery Partners performed more than 117,000 orthopedic cases last year – 11% more than in 2023. The uptick was tied to the company’s strategic push toward higher-acuity cases.
Most of the growth in orthopedic procedures was driven by total joint procedures, Evans explained. Total joints grew 50% in 2024, with more than 70% of Surgery Partners’ surgical facilities having the capability to perform higher-acuity orthopedic procedures.
About 41% of its ASCs currently perform total joint procedures.
“This capability provides significant additional growth opportunities as we continue to position our assets to meet the expanding orthopedic demand,” Evans said. “We have been [leveraging] targeted recruitment and investments in additional equipment, including robotics.”
Surgery Partners added 14 surgical robots to its portfolio in 2024.
The company recruited more than 750 new physicians as well.
Unlocking margin improvements
Along with organic growth, Surgery Partners’ growth strategy banks on margin improvement.
The company’s 2024 adjusted EBITDA margins improved by 30 basis points over the prior year to 16.3%, according to the company.
“This improvement reflects our procurement and operating efficiency initiatives that continue to improve from our increasing scale, along with synergies achieved on our previously acquired facilities,” Evans said.
On the payer front, most of Surgery Partners’ revenue comes from commercial payers. In fact, about 90% of its revenue came from commercial and Medicare payers in 2024.
The Surgery Partners managed care team has already secured over 99% of its expected contractual rates for 2025, Evans said.
“When combined with Medicare rate increases, which were approximately 3% for 2025, we have high confidence in and significant visibility to our expected 2025 rate growth,” he continued.
Identifying M&A opportunities
In many ways, Surgery Partners’ 2024 was defined by M&A.
The company added seven surgical facilities in 2024, with a focus on physician-owned specialty surgical care and affiliated services. In doing so, Surgery Partners deployed just under $400 million of capital, primarily on facilities that specialized in higher-acuity specialties like orthopedics and spine.
“This level of acquisition activity was higher than normal but reflects our disciplined approach to managing our pipeline,” Evans said.
This year, in contrast, will likely be a tale of de novos.
In 2024, Surgery Partners opened eight de novo facilities. The company currently has 12 facilities in various development stages in its pipeline, many of which are expected to open in 2025.
“As we have said before, we expect to have at least 10 de novos in development or under construction annually,” Evans detailed. “These de novo investments are syndicated with well-established and high-quality physician partners that specialize in high-growth areas such as total joint spine and other high acuity services.”
While the focus will be on de novos, Surgery Partners still expects to deploy around $200 million on M&A in 2025.
“So far in 2025, we have deployed $53 million, buying three ASCs in California and Texas with an average purchase price multiple of approximately 8 times,” Evans said. “The pipeline of attractive assets is robust and supportive of our 2025 guidance.”
