The Affordable Care Act has been the primary driver of transaction activity in healthcare, which is having its effects on hospital price multiples.
Speaking during a recent BVR webinar, “Valuing Hospitals,” Don Barbo (Deloitte Financial Advisory Services LLP) and Robert Mundy (Pershing Yoakley & Associates PC) gave their observations on the hospital transaction multiples recently published in the Health Care Services Acquisition Report, 20th Edition, 2014 (Irving Levin Associates).
The median price-to-revenue multiple has declined to a level now of around 0.56 of net revenue. Mundy points out that some of the decline from 2011 could be the result of more financially stable hospitals buying up some smaller or financially distressed hospitals. “Healthcare reform pressures affecting smaller rural hospitals could be putting downward pressure on the price-to-revenue multiple,” he says. Barbo agrees: “Yes, some hospitals could now be feeling the ‘teeth of health reform’ and experiencing a deterioration of performance, so they may be selling now at a lower price.”
The median price-to-EBITDA multiple has been on a roller coaster ride on its way to a current level of 9.2. Barbo observes that one of the reasons for this is that the Levin data use the last one to two years of historic EBITDA, while buyers are using more current information. In some cases, they may be using pro forma information to drive the deal price.
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