One of the questions we get asked a lot is how valuations have changed over time. While we usually answer this question with only anecdotal evidence, here we’ve tried to answer it with data.
There are a couple of issues with doing this type of analysis:
Finding a large enough sample for each year
Ensuring the relative comparability of the sample used from year to year
Where possible, adjusting for other key factors that influence the valuation multiples, such as size
In order to address issues 1 and 2, we put together a broad sample of transactions involving capital-light outpatient healthcare service providers. These consist of providers of home-based services (home health and hospice), office-base professional services (physician practices, physical therapy, DSOs), and the more capital-light specialty outpatient facilities (ASCs, endoscopy, dialysis - excluding imaging and radiation therapy). To address issue 3, we also “size-adjusted” the multiples from each year using a regression equation, as explained here.
Using the regression equation from the sample for each year, the corresponding multiples at different sizes (in terms of EBITDA) are presented below.
The valuation multiples from larger platform deals increased significantly between 2012 and 2015, corresponding with an increase in private equity interest in the sector.
On the low end of the spectrum, the size-adjusted multiples remained relatively consistent with some random year-to-year fluctuation likely due to sample size, before increasing significantly so far in 2018, which may be early evidence of the impact of tax reform.