Valuation = Strategic Fit + Timing®!
As merger and acquisition (M&A) advisors, we’re often asked questions about a company’s potential valuation if the stakeholders were to sell their business now.
While there are many potential formulas for potential business valuations, there’s only one accurate measurement – the market place. What a buyer is willing to pay for your business is always the true reflection of its actual worth at any moment in time. At MedWorld Advisors, we simply understand Value = Strategic Fit + Timing! This means the better the strategic fit with the buyer that’s also aligned with the timing of their acquisition creates the best possible sale price for your company.
Not everyone wants to sell their company to understand its potential market value so it’s helpful to understand some of the current healthcare M&A trends (medtech, life sciences, digital health, service providers, etc.) to grasp the worth of your business in the 2022 market.
If you want a specific detailed analysis for your business, you’ll need to consult with an M&A advisor or business valuation professional. However, at a high level, these are some of the trends currently being observed:
Digital health information technology (IT) businesses with growth and a software as a service (SaaS) model:
• These are highly sought-after companies and are going for multiples of revenue between 10x and 20x (depending upon the specifics of the actual market segment).
Middle market life science/medtech companies with growth and earnings before interest, taxes, depreciation, and amortization (EBITDA) greater than $1 million:
• It depends upon the buyer.
Large public strategic industry buyers can pay up to the amount of their current EBITDA trading range on the stock market and still make your deal accretive. This means that if a potential buyer is trading at 15x EBITDA, they’ll likely start at 10x to 12x but have flexibility to go to 15x EBITDA. (Of course, they can always go higher but then you’ll need to be very special to them).
Private financial equity buyers are very formulaic buyers. They often like to start in the 5x to 7x (EBITDA) range. However, they have money to spend so they’ll likely go higher if your business is a great strategic fit and/or it’s a competitive M&A process. Unless there’s something extremely unusual in your assets or growth potential, they’ll likely not go much higher than 10x to 12x EBITDA.
Medical practices/service providers with growth will likely see similar valuations to what’s stated for the middle market medtech/life science companies above. However, it’s important to note that these businesses are in very high demand from buyers right now so it’s a seller’s market, and there are many variations of types of medical practices/services providers which can lead to a wide range of EBITDA multiples and sometimes even revenue multiples.
In 2022 for a healthcare seller, it remains a seller’s market. It’s also important to state that size does matter, so the larger the business, the more likely it’ll receive the higher end of the multiples (assuming the margins and growth rates are heathy). Whether you’re selling now or just curious, we hope the above information gives you some guidance. At the end of the day, always remember Value = Strategic Fit + Timing!
About the Authors: CEO Florence Joffroy-Black is a long-time MedTech M&A and marketing expert. She can be reached at florencejblack@medworldadvisors.com. Managing Director Dave Sheppard is a former medical OEM Fortune 500 executive and an experienced MedTech M&A professional. He can be reached at davesheppard@medworldadvisors.com.
Value = Strategic Fit + Timing! is a registered trademark of MedWorld Advisors.
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