Question
Is EBITDA usually the standard valuation for a hearing care practice? How does that number determine a selling price - is it that number or a multiple?
Answer
Craig Castelli: It will be a multiple. We will use the EBITDA, which will be the primary input in a variety of calculations. There is no hard-and-fast rule, but you will see a general range; three to five times EBITDA is standard for smaller businesses, especially in sales to independent companies. We are looking at more than just applying the multiple to it.
There is more than one year’s worth of EBITDA. That would be a steep discount. It is usually at least three times the EBITDA as a safe floor for a price.
Ron Gleitman: You will want to have concurrent validity about a price. You should do multiple methods of evaluation, and there should be overlap in those prices. That overlap is likely the realistic price. If you are doing an EBITDA and the multiplier and then you apply your discounted cash flow, for example one price is $500,000 and the next is $475,000. The price should be traditionally between $475,000 and $500,000. The person should then analyze the risk involved along with the other opportunity costs or risk.
Craig Castelli: Yes, it’s always a range.
This Ask the Expert was taken from the course, Advanced Transaction Strategies, by Craig Castelli and Ron Gleitman, presented in partnership with the Academy of Doctors of Audiology.
