By: Dexter Braff
In mergers & acquisitions, you probably think that buyers rigorously work-up factors such as weighted average cost of capital, discount rates, projected net free cash flows, terminal values, and more to determine the value of an acquisition candidate.
Now private equity sponsors? Check. They do all this and still conduct a séance with the spirit of JP Morgan to bless their deals.
But for many buyers, while they likely conduct rigorous financial due diligence to nail down an EBITDA figure (that’s Earnings Before Inventive Theories of Deceptive Accounting for you non-CPAs out there), the multiples of EBITDA they are willing to pay are determined in a more nuanced manner.
They often begin with whatever they deem to be the then, industry average multiple, and then tweak it up or down based on impressions of risk and go-forward growth.
For those of you that are valuation wonks, you’ll recognize that this approach is a facsimile of the calculation of a capitalization rate: r – g where r is a determinant of risk and g represents long term growth.
Those r’s and g’s, however, are subject to a buyer’s individual judgment, and here’s where those prime words come into play.
In today’s health care economy, if your “elevator pitch” includes any of the following words or phrases and you’re in a value-unlocking, competitive auction process, you may realize an up-tweak of your multiple.
So, tongue depressor drumroll…
The Braff Group’s Too 10 Health Care Valuation Prime Words:
| Alternative payment models | Opioid treatment |
| Coordinated care | Patient experience (or engagement) |
| Interoperability | Population health management |
| Meaningful use | Predictive data analytics |
| mHealth (mobile health) | Revenue cycle management |
OK, maybe we’re being a bit waggish here.
But, less than you might think.