Hospital Valuation: Analyzing the Correlation of
Hospital Size and Deal Multiple
By Elliott Jeter CFA, CPA/ABV and Corey Palasota, CFA
How Size Influences Hospital Valuation
Intuitively, large hospitals are more attractive as acquisition candidates compared to smaller hospitals due to certain structural advantages. Larger hospitals can
take advantage of economies of scale, attract skilled workers, access capital markets and create integrated provider networks. Due to these advantages, one
might expect to observe higher transaction multiples for larger hospital valuations. Using VMG Health’s proprietary hospital database, we tested the theory that
size and deal multiples are directly correlated.
VMG Health’s proprietary hospital transaction database includes acquisition multiples of closed transactions. Sources of information include Irving Levin, Capital
IQ, American Hospital Directory, Electronic Municipal Market Access, U.S. Securities & Exchange Commission, attorney general offices, online/general research
and VMG Health proprietary information. The sample set primarily consists of independent acute care acute care hospitals, but also includes physician-owned
hospitals, bankrupt & distressed entities and large health systems. VMG Health has omitted transactions where insufficient data was publicly available or where
the valuation multiples calculated were unreliable. Lastly, VMG incorporated excess capital commitments into the purchase price consideration where appropriate.
The sections below display a scatterplot of hospital transaction revenue multiples and a chart showing the size of each hospital based on annual revenue in our
database from 2012 to present. Based on an analysis of VMG’s hospital transaction database, the median revenue multiple for hospitals with less than $100
million in revenue was approximately 0.62x compared to 0.79x for hospitals with $250-650 million in revenue. While there appears to a relationship between
hospital size and the revenue multiple from the medians; the variance and range inside each category around the median is wide.
© Copyright VMG Health 2016.
Overall, we observe limited evidence of a correlation between revenue size and revenue multiple. Based on our hospital valuation experience, specific factors tend
to drive acute-care hospital transaction multiples more than macro-economic factors. Valuation analysts should recognize that while the data may indicate a slight
correlation between revenue size and deal multiple at the medians, the variation and range of the deal multiples are evidence that other hospital target specific
factors should be considered in the valuation analysis.
For more articles like this, please visit our page on hospital valuation and transaction publications.
If you have any questions, please contact one of the authors listed below.
Elliott Jeter, CFA, CPA/ABV
Direct: 214.545.5887
Email: [email protected]
Corey Palasota, CFA
Direct: 972.616.7806
Email: [email protected]
© Copyright VMG Health 2016.
© Copyright VMG Health 2016.