Pharmacy Valuation Multiples
Pharmacies are essential healthcare facilities that provide access to medications and clinical services. With the right approach, running a pharmacy can be a profitable business venture. Whether you want to buy, grow, or sell a pharmacy, it is important to determine the business’s fair market value. Having this information allows business owners to make strategic, data-backed decisions. One of the easiest ways to estimate a pharmacy’s fair market value is to apply pharmacy valuation multiples.
In this article, we discuss the most frequently used pharmacy valuation multiples. It is essential to note that these tools can provide valuable insights, but they do not account for the unique aspects of every pharmacy. As such, valuation multiples can provide unreliable results. For an accurate estimate of a pharmacy’s fair market value, it is best to work with a certified valuation expert.
As a professional business appraiser, Peak Business Valuation often helps individuals looking to buy, grow, or sell pharmacies. We are happy to provide you with a professional business valuation or address any questions you may have. Start today by scheduling a free consultation below!
What Are Pharmacy Valuation Multiples?
Valuation multiples are financial ratios that help estimate the fair market value of a pharmacy. These tools are typically derived from recent pharmacy transactions and financial performance benchmarks. To select the appropriate multiples, business appraisers compare the pharmacy with similar businesses that have recently sold. To learn more, see Valuation Multiples for a Pharmacy.
Common Pharmacy Valuation Multiples
Peak Business Valuation applies SDE, EBITDA, and revenue multiples when valuing a pharmacy. Each multiple uses a different basis of valuation. To ensure a comprehensive analysis, business appraisers often apply a combination of these multiples. Below, we detail each metric and its typical range within the pharmacy industry.
SDE Multiples for a Pharmacy
First, Seller’s Discretionary Earnings (SDE) measures the financial benefit available to an owner-operator of a pharmacy. It is calculated by adding back discretionary and one-time expenses to the net income. This method is particularly useful when valuing smaller pharmacies where the owner is heavily involved in day-to-day operations.
Formula: Business Value = SDE × Multiple
Range: Pharmacies commonly sell at multiples ranging from 2.45x to 3.38x SDE.
EBITDA Multiples for a Pharmacy
EBITDA, or Earnings Before Interest, Taxes, Depreciation, and Amortization, is often used to assess the profitability and operational efficiency of a pharmacy. This multiple is useful for evaluating larger pharmacies and comparing performance across the industry.
Formula: Business Value = EBITDA × Multiple
Range: EBITDA multiples for pharmacies typically fall between 3.60x and 4.75x.
Revenue Multiples for a Pharmacy
Next, revenue multiples measure a pharmacy’s value based on its total annual sales. While revenue gives insight into a pharmacy’s scale, it does not measure profitability. As such, it is usually applied alongside earnings-based multiples such as SDE and EBITDA.
Formula: Business Value = Revenue × Multiple
Range: Pharmacies may transact between 0.16x and 0.49x revenue.
Peak Business Valuation regularly utilizes these metrics as part of a thorough valuation process. We can help you with a reliable pharmacy valuation and answer any questions you have about pharmacy valuation multiples. Schedule your free consultation with Peak Business Valuation to get started today!
How to Value a Pharmacy Using Multiples
Using pharmacy valuation multiples is a practical first step to gauge the value of a business. However, multiples are based on general trends and can overlook specific details that impact a pharmacy’s value. When valuing a pharmacy, a professional business appraiser reviews financial statements, market conditions, and the unique traits of the pharmacy. In many cases, the expert also applies weighted averages to account for financial fluctuations. For more insights, see How to Value a Pharmacy.
Rules of Thumb for Pharmacies
SDE, EBITDA, and revenue multiples are often used as rule-of-thumb methods to estimate the value of a pharmacy. These rough calculations can be useful for early planning. However, they should never replace a professional business appraisal since results can be misleading. If you need a precise pharmacy valuation, it is important to consult an experienced business appraiser. Reach out to Peak Business Valuation today!
Factors Affecting Pharmacy Valuation Multiples
Various internal and external factors can impact pharmacy valuation multiples. Understanding these value drivers can help owners identify ways to increase the value of their pharmacy. Below are a few key elements that influence pharmacy valuation multiples:
- Regulatory Compliance: Pharmacies that maintain strong adherence to industry regulations and accreditation requirements are more stable, promoting stronger valuation multiples.
- Strong Product Knowledge: Staff members with strong knowledge of medications, supplements, and health products are better equipped to guide customer purchases. This helps enhance the customer experience, improving the pharmacy’s performance and value.
- Reputation & Customer Relationships: Pharmacies with a strong reputation and loyal customer base often see repeat business and word-of-mouth referrals. These relationships enhance long-term stability and lead to higher valuation multiples.
- After-Sales Support: Providing high-quality after-sales service, such as medication counseling and follow-up care, boosts customer satisfaction and retention. This is a valuable trait for a pharmacy.
Read Value Drivers for a Pharmacy for more guidance.
Conclusion
Valuation multiples offer a rough estimate of a pharmacy’s fair market value. Although these insights can be helpful, they are based on industry averages. As such, pharmacy valuation multiples may not account for critical factors that impact a business’s value. The most reliable way to calculate a pharmacy’s worth is to obtain a professional business valuation. During a pharmacy valuation, business appraisers assess the business’s strengths, weaknesses, risks, and opportunities.
As a business appraiser, Peak Business Valuation values pharmacies across the United States. If you are buying, selling, or growing a pharmacy, we are happy to help you with a pharmacy valuation! In addition, we can address any questions about how to value a pharmacy. Schedule your free consultation to get started today!
For more insights, see Pharmacy Valuation and Valuing a Pharmacy.
