Surgery Partners' Bold Rejection: Growth Gambit or Overvalued Hurdle?

On June 6, 2025, Surgery Partners (NASDAQ: SPR) defied conventional wisdom by rejecting a $25.75-per-share take-private offer from Bain Capital, choosing instead to remain a publicly traded company. The decision, driven by an independent board committee, ignited debate: Is this a calculated move to unlock long-term value, or a risky gamble that overestimates the company's standalone potential? Let's dissect the strategic calculus and financial realities.

The Case for Growth: A Bullish Play on Outpatient Care

Surgery Partners is betting on the secular shift toward cost-efficient outpatient surgical care. With over 200 facilities in 30 states—including ambulatory surgery centers (ASCs), surgical hospitals, and urgent care clinics—the company is a leader in a sector projected to grow as patients and insurers seek alternatives to expensive hospital care.

Key Growth Levers:
- M&A Pipeline: The company has historically fueled growth through acquisitions, integrating facilities into its network. CFO David Doherty emphasized a “robust pipeline” to expand market share.
- Operational Efficiency: First-quarter 2025 results showed 8.2% revenue growth to $776 million, driven by a 6.5% rise in surgical cases. Same-facility revenue grew 5.2%, signaling pricing discipline.
- Industry Tailwinds: Regulatory trends, such as reduced Certificate of Need laws and expanded Medicare reimbursement codes, are easing entry barriers for ASCs. Surgery Partners also benefits from aging demographics, as seniors increasingly opt for outpatient procedures.

The company reaffirmed 2025 revenue guidance of $3.3–3.45 billion and EBITDA of $555–565 million, reflecting confidence in its ability to scale. Its upcoming Investor Day in late 2025 will likely detail plans to optimize its portfolio and leverage its scale.

The Risks: Debt, Cash Flow, and Competitive Pressures

While the strategy is compelling, Surgery Partners faces significant hurdles.

Debt Burden:
The company's debt-to-EBITDA ratio stood at 4.1x as of Q1 2025, a moderate level but one that leaves little room for error.
While liquidity remains strong ($229 million cash + $388 million borrowing capacity), a prolonged slowdown in EBITDA growth or rising interest rates could strain its balance sheet.

Cash Flow Concerns:
Despite revenue growth, operating cash flow plummeted to $6 million in Q1 2025 from $40.7 million a year earlier, blamed on “working capital timing.” This raises questions about execution and management of receivables.

Competitive Landscape:
The ASC market is fragmented, with 11,500+ facilities nationwide, but Surgery Partners faces fierce competition for physicians, contracts, and prime locations. Smaller rivals may struggle, but dominant players like Tenet Healthcare or HCA Healthcare could undercut margins.

Valuation: A Premium Price for Growth?

Bain's $25.75-per-share offer implied a valuation of 12.7x EBITDA—above the 11.76x median for historical ASC platform deals. This premium reflects Surgery Partners' growth profile (projected EBITDA CAGR of 10–12% vs. peers' 5% average) and its pure-play focus on high-margin outpatient care.

However, the stock's post-rejection drop to $20.10 suggests investors are skeptical.
Critics argue the company is overvalued relative to its cash flow volatility and leverage. Bulls counter that the stock's 82-basis-point WACC advantage over peers justifies the premium.

The Bottom Line: A Hold with Upside Potential

Surgery Partners' decision to reject Bain is neither a slam-dunk win nor a reckless move. The company has the scale and strategy to capitalize on outpatient care's growth, but its execution hinges on:
1. Debt Management: Maintaining a manageable leverage ratio amid rising interest rates.
2. Cash Flow Improvement: Resolving working capital issues to sustain liquidity.
3. M&A Execution: Delivering synergies from acquisitions without overextending.

Investment Take:
- Hold for Now: The stock trades at a premium, and risks around cash flow and competition remain unresolved.
- Buy if: The company demonstrates consistent EBITDA growth, improves operating cash flow, and executes its Investor Day roadmap.
Backtest the performance of Surgery Partners (SPR) when 'buy condition' is triggered by positive quarterly earnings surprises, and 'hold for 30 trading days', from 2020 to 2025.
Historically, such triggers have not translated into reliable short-term gains. A backtest over the past five years revealed that a strategy buying after positive earnings surprises yielded an average return of just 2.46% with a maximum drawdown of 56.39%, underscoring the need for rigorous execution.
- Avoid: If leverage rises above 4.5x or EBITDA guidance slips.

The outpatient care sector's long-term appeal is undeniable, but Surgery Partners' success depends on turning today's risks into tomorrow's rewards.