"What is my healthcare company worth?"— is undoubtedly a question that echoes in the minds of business owners and potential sellers. Let's dive into the intricacies of business valuation and uncover the factors that determine the market value of your healthcare enterprise.
The Foundation: Transactional or Enterprise Value
In basic economic terms, the value of something is what a buyer is willing to pay for it. This principle underlies the derivation of transactional or enterprise value. Valuation is dictated by the market.
Starting Point: Industry Multiples
Begin your valuation journey by understanding the methodology of a "multiple range" in your healthcare segment. A multiple represents the years it takes for a buyer to recoup their investment from your business's current cash flow. This range is influenced by one of two things:
Comparative transactions in the market: By researching what other companies like yours have sold for in the market, a general understanding of the current market value of your business can be determined. It’s important to note that there is little to no reliable data in the market for privately held business transactions. We gather data from our firm's experience with numerous closed healthcare transactions over the years to inform our understanding of current market valuation dynamics.
Insights from our extensive buyer network: We gather information on buyer acquisition criteria and where they would value a company like yours, assuming it meets all or at least part of their investment criteria. Given the ever-changing healthcare industry, we are frequently updating this analysis by way of communication with our healthcare buyer network, both financial firms and strategic operators alike.
Key Metric: Adjusted EBITDA
The cornerstone of valuation is your Adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). This figure, derived from your income statement, reflects the true cash flow of your business. Personal and non-recurring expenses are added back to EBITDA for accuracy.
Multiplying the Value
With the multiple range established, the buyer calculates and proposes your business's value by multiplying the cash flow by their chosen multiple in a Letter of Intent. This straightforward equation demonstrates their perceived transactional value of the business.
Operational Considerations: Synergies
Operational factors and buyer synergies play a crucial role in valuation. Synergies related to geography, personnel, and cultural fit with the buyer contribute to the overall value. Misalignment in these aspects may result in a lower offer.
The Role of a Skilled M&A Advisor
To maximize the market value of your healthcare company, engaging an experienced and qualified M&A advisor is crucial. Their expertise not only enhances the presentation of your business to the buyer market, in turn, raising the chances of generating competing offers at the height of the market, but also increases the likelihood of a successful transaction.
Establishing Your Company's Worth
Successfully closing a transaction is the ultimate way to establish the worth of your company. For more information on your company's value or insights into the healthcare market, please contact our team of experts at M&A Advisors. We are determined to provide exceptional M&A advisory services tailored to your needs.