Our extensive experience in healthcare business sales, acquisition, exit planning and valuation helps our clients achieve their financial goals.

To arrive an offer price, large companies generally use a formula based on a multiple of “adjusted” EBITDA. From the small company perspective, it’s not as complicated as its sounds and your accountant should be able to approximate for you how your own profit & loss profile will be measured by this standard. Simply put, EBITDA itself is nothing more than the earnings shown on your income statement before interest, income tax, depreciation and amortization, which is a way of measuring actual cash generated from operations for the period of the report. The “adjusted” part involves the elimination of those expenses representing monies paid to the owner(s) over and above what would normally be paid to a non-affiliated manager plus related expenses such as for cars, memberships, subscriptions, travel & entertainment and other perks. The measuring period is usually the most four recent calendar quarters. After this calculation is made, a multiple is applied to arrive at a valuation by the acquiring company.  Depending upon many factors, this multiple can be anywhere from 3.5X to 5.5 X adjusted EBITDA, or outside this range in certain situations. As should be obvious, this is the area offering the greatest opportunity to negotiate a Purchase Price that works for both parties.

In addition to the Purchase Price, the parties must reach agreement on Payment Terms: what percent of the Purchase Price will be paid at Closing, what amount will be held back as a reserve against breaches of representations and warranties and unassumed liabilities that materialize after Closing, what contingent amounts may be subsequently paid if certain milestones are reached. If the selling company does not have a reasonably reliable method for obtaining new clients, the buyer may only be willing to purchase the existing accounts on a percentage of client retention basis, a purchase price based on a percentage of revenues collected out over an agreed period of time While your attorney and accountant will advise you with respect to all aspects of the proposed transaction, we can offer general guidance with respect to what might be reasonably expected to be the position of the other party with whom you are dealing as these issues arise.