Surgery Partners (SRGY): A Buy as ASC Consolidation and Valuation Catalysts Ignite Growth

The ambulatory surgery center (ASC) sector is on the cusp of a valuation renaissance, and Surgery Partners (SRGY) stands at the epicenter of this transformation. With its robust financial performance, strategic M&A pipeline, and tailwinds from sector consolidation, SRGY is primed for a rerating. A critical catalyst? The potential sale of AMSURG at mid-teens multiples, which validates SRGY’s undervalued $25.75/Bain bid—and sets the stage for upside to UBS’s $34 price target. Here’s why investors should act now.

AMSURG’s Sale Process: A Validation of SRGY’s Value

The ASC sector is heating up, with AMSURG—a major player with 250+ centers—reportedly in play. While specifics are opaque, historical transactions and industry benchmarks suggest its valuation could hit mid-teens EBITDA multiples, a stark contrast to Bain Capital’s $10x EBITDA offer for SRGY. Consider this:
- Tenet Healthcare’s 2020 ASC acquisitions averaged 8.8x–12.6x pre-synergies, with controlling stakes fetching premiums.
- Surgery Partners’ 2022 deals averaged under 8x, but divestitures often traded north of 7x–8x, reflecting buyer competition.

If AMSURG’s sale indeed commands high teens, it would underscore that SRGY’s $25.75/Bain bid is conservative. At current shares of $23.64, SRGY trades at a 10% discount to the offer—and a 31% discount to UBS’s $34 price target. This gap is unsustainable as the sector’s valuation narrative evolves.

SRGY’s Financial Engine: Growth, Acuity, and M&A Momentum

SRGY isn’t waiting for a rerating—it’s delivering results that warrant one:
1. Q3 2024 EBITDA Growth of 22%: Driven by a 53% surge in total joint replacement cases, a high-acuity, high-margin specialty. This growth reflects SRGY’s focus on ASCs specializing in complex procedures, which command premium pricing.
2. M&A Pipeline Strength: With $3.4B in liquidity post-Bain refinancing, SRGY is positioned to capitalize on consolidation. The sector’s PE-driven M&A wave—driven by TPG, UnitedHealth, and others—creates opportunities to acquire high-margin ASCs at 8x–10x EBITDA, fueling accretive growth.

Secular Tailwinds: CMS, CON Laws, and the PE Tsunami

Three macro trends are supercharging ASC valuations:
1. CMS’s CPL Expansion: The 2025 Covered Procedures List added dental and regenerative therapies, broadening ASC revenue streams. With 2.9% Medicare reimbursement hikes, operators like SRGY can scale margins.
2. CON Law Repeals: States like North Carolina and Tennessee are dismantling Certificate of Need laws, slashing barriers to entry. This accelerates ASC growth and reduces competition for SRGY’s prime facilities.
3. PE Consolidation Surge: Private equity firms are targeting ASC platforms to capitalize on outpatient care’s $1.2T market shift from hospitals. SRGY’s scale (320+ centers) and acuity mix make it a prime target—or acquirer—in this M&A frenzy.

Why Buy Now?

The math is clear:
- Undervalued at $23.64: SRGY’s shares lag 10x EBITDA multiples even as peers and targets trade higher.
- Upside to $34+: UBS’s target reflects a sector rerating, but catalysts like AMSURG’s sale, Q3 2024 results, and M&A wins could push it higher.
- Risk/Reward: With a 43% upside to $34 and 22% EBITDA growth momentum, the risk is asymmetrically tilted toward reward.

Conclusion: Act Before the Rerating

The ASC sector is on fire, and SRGY is the best way to play it. A mid-teens multiple for AMSURG, SRGY’s acuity-driven growth, and the PE-driven M&A tsunami all point to a valuation re-rating. At $23.64, shares are a steal—especially with UBS’s $34 target in sight. This is a buy now, hold for years opportunity. Don’t miss it.