by John Clark, CEO Clark Health, LLC
Valuing an ASC depends on several factors, but typically corporate buyers will value your ASC by using its EBITDA, which is Earnings Before Interest, Taxes, Depreciation and Amortization. There are other valuation methods, but this is the method most widely used. A typical valuation will look at two prior years of EBITDA plus your EBITDA for the current trailing twelve months to provide the buyer with a 36-month trend. Once an EBITDA is determined, the buyer will place a multiple on the EBITDA, then apply the percent purchased, and subtract the same percentage of debt to arrive at the cash value of the purchase.
In the example below, the corporate buyer is paying a premium multiple because they are purchasing more than 50% which gives them certain rights and privileges (see post titled Majority versus Minority for more detail on majority interest sales).
MAJORITY SELL
EBITDA $1,500,000
Multiple 8
100% Value $12,000,000
Percent Sold 51%
Total Value $6,120,000
Less 51% debt $255,000
Cash Value $5,865,000
Debt $500,000
If you only want to sell a minority interest, which is usually 20% - 40%, then the multiple will be in the 4-5 range.
MINORITY SELL
EBITDA $1,500,000
Multiple 5
100% Value $7,500,000
Percent Sold 40%
Total Value $3,000,000
Less 40% debt $200,000
Cash Value $2,800,000
Debt $500,000
Although EBITDA should be a straightforward number using basic accounting principles, many factors play into calculating your correct EBITDA. A $100,000 change in EBITDA equals a $800,000 value change in the first example above. Therefore, it is important that market considerations, anomalies affecting the financials, physician changes, etc. be identified and accounted for when determining the EBITDA.
Let us help make sure your EBITDA is at its maximum value before bringing your ASC to market.
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