What do you see as the typical types of pricing deals today?

In the words of one of our previous presidents, it depends on what the definition of is, is. There is no typical deal.

So when we look at pricing in today’s market we typically separate it into a few buckets.

One bucket is minority purchase and another is majority purchase. Additionally, we separate physicians and corporate buyers because typically corporate buyers end up with a management agreement and physicians do not, thus you can justify the difference in minority purchase prices for those two.

For physician syndication – which is typically minority without a management contract – we are seeing 2.5 to 3x trailing EBITDA for in-network centers, which is really nothing new.

When physicians buy in, they typically do the multiple of Trailing Twelve Month EBITDA valuation. There are also cases where the operating documents state that the fair market valuation will be done no more than every 12 months, thus a center that was valued about 6 months ago and added cases over the last six months is really below the stated multiples because it is not the Trailing Twelve months.

The valuation professional understands that from your standpoint a discount cash flow, Gordon Growth Model should be employed and then the value is represented as a multiple of EBITDA.

Minority purchase pricing for corporate buyers is more along the 3 to 5 multiple of EBITDA range. For majority buyers we have seen as high as double digit multiple for deals, but the typical range is 5-8. The higher multiples-double digits-for deals are where there have been some doctors added recently. The reason is because the DCF is completed, then the multiple of EBITDA is higher because the cash flow from the added cases are entered into the discount cash flow model.

Some of the buyers are becoming more creative. Some are paying higher purchase prices but getting a higher management agreement, more pass through cost or increased billing and collection agreements. Some are doing away with the management fees but increasing the pass through and the billing and collection rates compared to what they have gotten in the past with a management agreement. This sometimes is acceptable to the seller because the standalone billing and collection companies charge as high as 6 percent.

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Category: Valuating My ASC

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