The valuation model for healthcare businesses is evolving as quickly as the healthcare marketplace itself. While multiples of adjusted EBITDA (eaarnings before interest, taxes, depreciation and amortization) remain a standard for a quick-and-dirty analysis, this approach can't provide an accurate and complete picture of a company's potential value.

Owners of healthcare companies are accustomed to creating financial value by focusing on the traditional approaches of scope of services, client/patient capacity, and revenue streams via reimbursement yield and patient volume.

While revenue growth and operational efficiency are key value drivers, neither addresses a critical value factor known as Company Specific Risk (CSR). Differences in CSR are the primary reason that some healthcare firms get top dollar when sold, while others receive only a fraction of their potential sale price.

Have you ever wondered why two seemingly similar companies sell at significantly different multiples? What are buyers seeing in ostensibly comparable companies that causes sale price differences? The three secrets of market multiples are...

The financial value of a healthcare company is obviously based on its bottom line. However, great financial results mean little if other people, especially investors or potential purchasers of the business, aren't confident that they represent reality.

Here are four reasons why the quality of your financials is so important.

Business valuation should be based on qualitative and quantitative factors.  Unfortunately, some valuators don’t truly understand the qualitative nature of valuation.  A such, CEOs, investors, and business owners often unwittingly rely on erroneous valuations.  Any one of these five significant red flags should alert you to seek another opinion of value.

In this issue, we focus on how to enhance cash flow and how to reduce the cost of capital as strategies for maximizing value.

Though not focused on healthcare, he could easily have been talking about the challenges and opportunities available to the leaders of today’s healthcare companies. How do I build high quality, sustainable value in my company while delivering good services and/or products?

As with many organizations, healthcare business owners can create significant value in four fundamental ways

As we discussed in our last issue, much of the middle market valuation multiple data reported in financial publications is suspect for a variety of reasons, especially as it relates to healthcare companies. 

Recently, we had a chance to review published data on a variety of actual 2014 transaction values for “lower middle market” M+A purchase multiples, including healthcare companies.  In plain English, this means the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) of various companies multiplied by a number to achieve the actual selling price.  According to numerous external market sources like Axial, Pitchbook, and GF Data, their average multiple of EBITDA ranged from 6.5x to 11x. That’s quite a range and there is excitement because these are the highest multiples of the past decade.

A friend who was planning to transition from his business recently asked me how much it was worth. My response? “To whom?” After indicating that he wanted to know for “me,” I answered “are you buying it or are you looking for someone else to acquire it?”