Valuing Private Market Healthcare Companies
Valuing a private market healthcare business can be challenging due to the complex and dynamic nature of the healthcare industry. However, there are several methods commonly used to value private companies, including:
Income-based method: This method uses a company’s historical or projected financial performance, such as revenues, earnings, or cash flow, to estimate its value. The most common income-based method is the discounted cash flow (DCF) analysis, which estimates the present value of a company’s future cash flows using a discount rate.
Market-based method: This method uses market data, such as comparable sales or multiples of comparable public companies, to estimate a company’s value. The most common market-based method is the comparable company analysis (CCA), which compares a private company to public companies with similar characteristics.
- Difficulties arise in the market-based method being as though so many private company transaction terms are not made public. Additionally, it is difficult to make sure you are comparing apples to apples as so many private companies hold their org chart and internal workings close to the chest.
Asset-based method: This method values a company based on its tangible and intangible assets, such as property, equipment, patents, and trademarks. The most common asset-based method is the net asset value (NAV) analysis, which estimates a company’s value by subtracting its liabilities from its assets.
- This is typically not used in healthcare companies becuase they are very asset light. Distributors, manufacturinig, agriculture and various real estate companies are valued using this methodology more frequently than healthcare companies
It’s important to note that the value of a private healthcare business will depend on various factors such as the stage of development, the size of the company, its growth prospects, the industry trends, the economic climate and the company’s management team. It’s best to consult with a professional business valuator to evaluate the company and come up with an accurate valuation.
Valuing Your Healthcare Business
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Annual Growth
Average growth for the past 3 years
Client Base
Do you have recurring customers that makeup the majority of your business?
Over 20% of my business is long-term contracts
Over 75% of my business is long-term client contracts
Management Team
Do you have a tenured management team in place
The new owner will have to hire and train a management team
A portion of my business is run my managers.
My business is entirely run by my managers.
Healthcare Vertical
Which of the below most closely represents your business
Describe your business product/service
EBITDA Adjustments and Standard Multiples
EBITDA adjustments are items that are added or subtracted from a company’s earnings before interest, taxes, depreciation, and amortization (EBITDA) to arrive at a more accurate representation of its operating performance. Some common EBITDA adjustments include:
- One-time or non-recurring expenses, such as legal settlements or asset impairments
- Non-operating income or expenses, such as gains or losses from investments
- Stock-based compensation expenses
- Changes in the fair value of derivatives
- Changes in the fair value of contingencies
- Changes in the fair value of pensions
- Changes in the fair value of other post-employment benefits
- Changes in the fair value of other long-term liabilities
It’s important to note that EBITDA is not a measure of a company’s liquidity or profitability, and it should not be used as a substitute for net income or cash flow from operations.
Related
If you are considering selling your healthcare business and would like to know more about how the process works, have a look at our guide to selling a healthcare company article.
Healthcare Service Companies
Healthcare service companies are businesses that provide a wide range of services to patients, healthcare providers, and payers. These companies operate in various sectors of the healthcare industry, such as hospitals, clinics, nursing homes, and home health care. They may also provide specialized services such as diagnostic testing, medical equipment, and pharmaceuticals.
These companies often have lower overhead costs than traditional hospitals and clinics, which allows them to offer services at a lower price point. Additionally, many healthcare service companies offer specialized services that may not be available at traditional healthcare facilities. This can include advanced diagnostic testing, cutting-edge medical treatments, and innovative therapies.
The healthcare service industry is a rapidly growing sector, with new technologies and advances in medicine driving innovation in the industry. Telemedicine and remote patient monitoring are increasingly popular healthcare service companies, these technologies allow patients to receive care from the comfort of their own homes, while still providing access to high-quality care. Additionally, the aging population and the growing prevalence of chronic conditions are driving demand for healthcare services, particularly home health care and hospice services.
Life Science Companies and Healthcare R&D
Biotechnology is a rapidly growing field in healthcare that uses living organisms, cells, and biological systems to develop new medical treatments and therapies. Biotechnology companies develop drugs, medical devices, and diagnostic tools that can be used to treat a wide range of diseases and health conditions. Biotechnology is also used to develop vaccines and gene therapies, which have the potential to provide long-term or even permanent cures for some diseases.
One of the key advantages of biotechnology is its ability to target specific genes, proteins, or cells that are involved in a disease. This allows for more precise and effective treatments, which can have fewer side effects than traditional drugs. Biotechnology also enables the creation of personalized medicine, which is tailored to the specific genetic makeup of an individual patient. This can result in more effective treatments and better outcomes.
Biotechnology also has the potential to revolutionize the way diseases are prevented and treated. For example, gene editing techniques, such as CRISPR, have the potential to cure inherited genetic diseases by correcting mutations in an individual’s DNA. Biotechnology is also being used to develop new vaccines and immunotherapies that can prevent or treat cancer and other diseases.
Related
Learn more about what a valuation multiple is and why it is used to appraise healthcare companies in this article.
Investors in the Healthcare Industry
Private equity firms such as Minerva are investment companies that invest in private market companies. Many of them specialize in making investments in private healthcare companies. These firms focus on companies that are not publicly traded, such as hospitals, clinics, medical device manufacturers, and biotechnology companies. Private equity firms typically provide capital and operational expertise to these companies in order to help them grow and achieve their strategic goals.
One of the key advantages of private market healthcare private equity firms is their ability to provide significant capital to healthcare companies that may not have access to traditional forms of financing. This can help these companies to expand their operations, invest in new technologies, or make acquisitions. Additionally, we typically work to transition leadership of the company which allows the current owners to retire. Private equity firms also bring operational expertise to the companies they invest in, which can help to improve efficiency and profitability.
Private market healthcare private equity firms typically employ a variety of investment strategies, such as buyouts, growth capital, and venture capital. Buyout strategies like the ones we employ involve acquiring a controlling interest in a company, while growth capital strategies involve providing capital to companies that are already profitable but need additional funds to expand.