Your Primer to Healthcare Mergers and Acquisitions
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Thinking of Selling Your Urgent Care Center?

Mar 3, 2020

by David E. Coit, Jr.

Volume 7 Issue 5, March 3, 2020

By David Coit, DBA, CVA, CVGA, CM&AA and Hilsman Knight, CM&AA

The healthcare industry is continually in flux. Business owners and operators of urgent care centers (UCCs) are constantly experiencing changing regulatory guidelines and suppressing reimbursement from payors. These unpreventable changes and a demanding environment may lead owners to seek monetization of their assets. For those UCC owners considering selling, there's good news: The marketplace is currently hungry for your companies and buyers are eagerly gobbling up well-performing UCCs.

Owners of a UCC have the advantage of running businesses that are relied upon by other companies in the healthcare sector. Buyers see the advantage of owning and operating multiple locations and leveraging their current relationships to further extract value. As such, this is an excellent time to sell if you're looking to receive a premium price.

Recent Market Developments

Over the past several years, UCCs have rapidly emerged as an efficient way for patients to access specific healthcare needs. This has caused their popularity to grow, with centers emerging across the country in urban and rural areas. Furthermore, UCCs with multiple locations have developed synergistic value with other regional emergency healthcare providers. This has created a spoke-and-wheel-like model to help manage the continuum of care. Patients with minor, non-emergency services are taken care of quickly in UCCs, while more severe cases can be transferred out to freestanding emergency rooms (ERs), micro hospitals, and hospital emergency departments. In a relatively short amount of time, UCCs made themselves an integral part of the healthcare system.

Moreover, during the past five years, a shortage of primary care physicians (PCPs) coupled with rising costs and ER wait times stimulated even greater demand for UCCs to provide noncritical care. As such, the UCC industry has enjoyed 6.1% annual growth over this period, according to IBISWorld.

Industry at a Glance

There are about 4,700 UCCs in the United States. They generate combined annual revenues of $27.8 billion and profits of $5.7 billion. Referrals to UCCs come from hospitals, PCPs, orthopedic surgery providers, and otolaryngology (ENT) physicians, among others. A UCC's average payor mix is approximately 55% private insurance, 17% Medicare, 10% out-of-pocket payments, 5% Medicaid, 5% workers' compensation, 4% other government, and 4% other. The 10 largest UCC chains only own 10% of the total number of UCCs. As such, the industry remains highly fragmented.

Industry Outlook

The industry will continue growing over the next several years as a result of:

  • The continued shortage of PCPs
  • Aging population
  • The rising number of insured individuals
  • Greater acceptance of non-hospital urgent care by consumers
  • Increasing wait times at ERs and with PCPs
  • Cost-containment measures
  • Continued expansion of UCC service lines beyond illness and injury treatments that now include vaccinations, blood tests, lab tests, digital X-rays, and annual physicals

Overall, revenue is expected to grow an annualized 2.5% over the next 4-5 years to reach $31.4 billion in combined annual revenues.

Market Factors to Consider

If you're thinking of selling your UCC, you should know the following:

  • The market is strong now because of the vast amount of money/capital searching for well-performing UCCs. It's unclear how long this will last and when it will (inevitably) slow down. The market can change quickly, and you may lose your opportunity to sell at a favorable price.
  • As acquisitions and consolidations continue, you'll likely be competing against larger, better-capitalized companies. The competitive landscape is changing. Larger competitors are likely to offer a broad range of medical services, a strong marketing campaign built around an established brand, and efficient business processes.
  • Owners of UCCs are aging. One estimate is that 60% of UCCs owners are over the age of 55. As such, we expect an increasing number of UCCs seeking buyers in the market during the next few years.

Buyers' Concerns

Smart buyers weigh risks versus rewards when considering the purchase of a company. Some of the perceived risks in the UCC industry are as follows:

  • Downward pressure on Medicare reimbursement rates
  • Private insurance payors increasingly limiting out-of-network reimbursement
  • Increasing regulatory requirements
  • Rapid expansion in the number of UCCs due to low barriers of entry
  • Escalating enforcement of Stark and anti-kickback laws
  • Non-traditional firms entering retail healthcare
  • Shortage of skilled healthcare professionals to fill UCC clinical positions

Buyers' Rewards

Buyers are looking for rewards or upsides from their purchase of UCCs. Much of the upside will come from industry market conditions, such as:

  • Expanded Medicaid coverage
  • Increasing client demand for UCC services that will drive strong annual growth
  • Average number of annual visits per patient greater than PCPs and hospital visits
  • Client services demand unrelated to economic cycles
  • Highly fragmented and cottage industry

What Buyers Are Looking For

In our experience, the most important feature buyers are looking for when pursuing UCCs is profitable growth. Buyers want to know that they can take what you have created and build on it. In their risk/reward analysis, buyers want to see that your strengths far outweigh your weaknesses. Most buyers have a checklist mentality, where they'll be looking to see that you have at least some of the following attributes:

  • Geographical proximity to underserved healthcare areas
  • Multiple service delivery locations and regional density
  • Solid in-network relations with payors, and with long-term payor contracts
  • Multiple treatment/service options
  • 30-plus patient visits per day, per location
  • Strong, diverse physician and non-physician referral network
  • Diversified payor mix
  • Low uncollectable accounts receivables
  • Low revenue seasonality
  • Certificate of Need (CON) for CON states
  • Tenured, experienced workforce with low employee turnover
  • Well-preforming revenue cycle
  • Good revenue growth at or above the industry average, and positive growth outlook
  • Earnings before interest, taxes, depreciation, and amortization (EBITDA) margins in the 10%-20% range

How Much Will Buyers Pay (Market Multiples)?

Buyers typically go through their risk/reward analysis and come up with an offering purchase price. The offering price is usually based on a multiple of normalized or adjusted EBITDA.

EBITDA adjustments include non-recurring expenses, such as one-time legal fees; discretionary expenses, such as charitable contributions; and owner-related personal expenses, such as excess owners' salaries and auto leases.

Market multiples refer to the estimated purchase price relative to EBITDA. The typical range of market multiples for small- and medium-sized UCCs is 3.5x-8.5x EBITDA, while large-sized UCCs may see 9.0x-12.0x multiples. Where a particular provider falls within the range is based on quantitative factors, such as historical and projected financial performance, and qualitative factors as highlighted above in the "What Buyers Are Looking For" section. Moreover, size matters, as larger revenue UCCs tend to attract more buyers than smaller providers.

The following are estimated market multiples for UCCs by revenue, assuming positive qualities related to the "What Buyers Are Looking For" section above:

  • < $1 million in annual revenue: 3.5x-4.0x EBITDA
  • $1 million to $3 million in annual revenue: 4.0x-5.0x EBITDA
  • $3 million to $5 million in annual revenue: 4.5x-6.0x EBITDA
  • $5 million to $20 million in annual revenue: 5.5x-8.5x EBITDA
  • > $20 million in annual revenue: 7.5x-10.0x EBITDA

Note that there are outlier market multiples in unique merger and acquisition transactions where optimal buyer/seller synergies push valuations above the norm. Moreover, market multiples change over time depending on the overall economy, regulatory and reimbursement modifications, and industry trends.

Using market multiples is a good way to estimate the value of a company. It is most often accompanied by the use of a discounted cash flow approach. The discounted cash flow approach estimates the value of a company by calculating the future cash flows expected from the company and putting the future cash flows into today's dollars. However, the market multiples approach provides a reasonable shortcut for estimating the value of a company.

What About My Company's Debt?

The market multiples above are used to determine the equity value of companies, not the enterprise value. Most small businesses are sold debt-free, which means buyers assume that all of the company's debts (not to be confused with non-debt current liabilities) will be paid off by the seller at the time of closing. There are occasions, however, where a buyer wishes to assume the debt of the company as a way to finance part of the purchase price.


VERTESS is the advisor of choice for many UCC business owners because of our track record of success and deep industry expertise. You should be speaking with an advisor at least annually to understand the market and your options.

VERTESS was formed by a visionary group of results-oriented professionals as an alternative to traditional merger and acquisition firms and investment banks. We focus primarily on your personal and professional goals, and we help facilitate transactions that make sense to you for the long term. Every owner of every company has different motivating factors for why they want to sell. Some owners decide to sell for liquidity purposes, especially when most of their net worth is tied up in their company, while others sell because they are increasingly concerned about the future viability of their company. Another reason owners might decide to sell is they feel it's time for a change, so they seek outside partnerships with investors and industry experts. All reasons have their own validity, and VERTESS takes them into consideration. We guarantee integrity, confidentiality, and a commitment to the best outcome for you, your company, and your family.

David E. Coit, Jr.

David E. Coit, Jr. DBA, CVA, CVGA, CM&AA, CBEC

Director, Finance + Valuation/Partner

David is a seasoned commercial and corporate finance professional with over 30 years’ experience. As part of the VERTESS team, he provides clients with valuation, financial analysis, and consulting support. He has completed over 150 business valuations. Most of the valuation work he does at VERTESS is for healthcare companies such as behavioral healthcare, home healthcare, hospice care, substance use disorder treatment providers, physical therapy, physician practices, durable medical equipment companies, outpatient surgical centers, dental offices, and home sleep testing providers.

David holds certifications as a Certified Valuation Analyst (CVA), issued by the National Association of Certified Valuators and Analysts, Certified Value Growth Advisor (CVGA), issued by Corporate Value Metrics, Certified Merger & Acquisition Advisor (CM&AA), issued by the Alliance of Merger & Acquisition Advisors, and Certified Business Exit Consultant (CBEC), issued by Pinnacle Equity Solutions. Moreover, the topic of his doctoral dissertation was business valuation.

David earned a Doctorate in Business Administration from Walden University with a specialization in Corporate Finance (4.0 GPA), an MBA from Keller Graduate School of Management, and a BS in Economics from Northern Illinois University. He is a member of the Golden Key International Honor Society and Delta Mu Delta Honor Society.

Before joining Vertess, David spent approximately 20 years in commercial finance, having worked in senior-level management positions at two Fortune 500 companies. During his commercial finance career, he analyzed the financial condition of thousands of companies and had successfully sold over $2 billion in corporate debt to institutional buyers.

He is a former adjunct professor with 15 years' experience teaching corporate finance, securities analysis, business economics, and business planning to MBA candidates at two nationally recognized universities.

We can help you with more information on this and related topics. Contact us today!

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