Are multiples going up or down?

For solid centers there are more buyers than sellers, thus supply and demand and the story that supports the center’s growth drives up the prices. Even for centers that 5 years ago would be considered risky, prices are going up as long as the risk is considered acceptable. Now you might not get someone to buy a majority interest in a center with a few risks, but we are getting a higher multiple as long as the profits are there and there are some mitigating factors to those risks.

For example, we sold a center that had one doctor owner and a couple of other physicians that were doing cases in the center and their EBITDA was about 1.2. The reimbursements were par with Medicare. The one physician wanted to sell 50% of the center. Other than the risk associated with the possibility of that one doc getting run over by a truck, the risk to that revenue is low. So we increased the insurance on that doc, the buyer purchased 35% at around 5X and the other 15% at 3x to hold for new docs coming in and the buyer took a management agreement with billing and collections at 5% with minimal pass through. This was obtainable because we had multiple buyers interested and because of the story/profile of the center.

Most people will tell you that the majority range is 5-7, some might say 7.5, but with many more buyers than sellers you can push the multiple up a ½ turn to a turn and get better terms. You can get multiple buyers to go higher together thus conforming to the tenants of Fair Market Value. Now there are centers where the multiples are not going up, but that is because there is little interest in those centers and that has not changed other than those owners realizing that they cannot turn it around by themselves.

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Category: Valuating My ASC

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