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Is EBITDA Used for Valuation of a Hearing Care Practice?

Craig A. Castelli, Ronald Gleitman, PhD

April 20, 2015

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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.


craig a castelli

Craig A. Castelli

Founder, Caber Hill Advisors

Craig Castelli is the Founder of Caber Hill Advisors and serves as the company's CEO.  He has over 10 years of audiology industry experience and has worked with hundreds of private practices.  He launched Caber Hill because he wanted to transform the business brokerage industry by bringing a higher level of service and professionalism that would produce above average results for his clients.  Caber Hill was formerly the Chicago office of Bridge Ventures, which Mr. Castelli founded in 2010 and rebranded as Caber Hill at the end of 2013. 

At Caber Hill, our mission is simple: to share our expertise with current and future business owners who want to buy, sell, or grow a private practice.  Contact Craig at craig@caberhill.com.


ronald gleitman

Ronald Gleitman, PhD

Vice President of Business Development and Practice Management, Siemens Hearing Instruments

Dr. Ronald Gleitman brings more than 20 years of hearing industry experience to Siemens Hearing Instruments, Inc. 
In his role as Vice President of Business Development and Practice Management, Ron is responsible for increasing market penetration in the Independent sales channel while overseeing the development and growth of SHI’s world-class preferred customer program. 
Ron is an industry veteran with an extensive background in both a corporate and clinical environment. Before joining Siemens, he served as CEO and Executive Vice President of Right Hear, LLC, providing vision and oversight for the company. Prior to that, he worked for Phonak as the Director of Practice Development. Ron also spent many years working as an Audiologist in a clinical setting, including owning his own private practice. 
 
In 1992, Ron earned his Ph.D. in Audiology from Purdue University. He has published numerous articles on 
hearing care and has taught at both Northwestern and Purdue University.


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