Nursing Home Valuation Multiples
Valuation multiples are helpful tools if you need a quick estimate of a nursing home’s value. These financial metrics evaluate a facility’s financial performance and recent market activity to offer a general fair market value estimate. This insight can be useful during the early stages of planning to buy or sell a nursing home. However, when it comes to making final business decisions, relying on nursing home valuation multiples can be risky.
In this article, we outline the most common valuation multiples for a nursing home. We also highlight key risks to be aware of when using multiples. Please note that the ranges we discuss are based on general market data and may not reflect the true value of your specific nursing home. If you are looking for a precise and defensible nursing home valuation, it is best to work with a certified valuation expert.
Peak Business Valuation is a professional business appraisal firm that frequently helps individuals looking to buy, grow, or sell nursing homes. We are happy to provide you with a timely and accurate business valuation! Additionally, we can answer any questions about valuing a nursing home. You can start today by scheduling your free consultation below!
What Are Nursing Home Valuation Multiples?
Valuation multiples are financial ratios used to estimate fair market value based on key performance measures such as earnings or cash flow. They are derived by comparing similar nursing homes that have recently sold on the open market. Once an appropriate multiple is identified, it is applied to the facility’s financial data to produce a fair market value estimate. To learn more about this valuation method, see Valuation Multiples for a Nursing Home or Assisted Living Facility.
Common Nursing Home Valuation Multiples
Business appraisers at Peak Business Valuation often use SDE, EBITDA, and revenue multiples when valuing a nursing home. Each multiple offers a different perspective on the assisted living facility’s worth. To provide a balanced nursing home valuation, experts typically gather insights from various multiples. Below, we detail the most widely used valuation multiples for nursing homes.
SDE Multiples for a Nursing Home
Seller’s Discretionary Earnings (SDE) reflect the financial benefit a single nursing home owner can expect from business. SDE is calculated by adjusting net income to include items such as discretionary expenses, the owner’s salary, and one-time costs. When valuing a nursing home, you can apply a multiple to SDE to arrive at a rough valuation. SDE multiples are most often used for smaller, independently operated businesses.
Formula: Value = SDE × Multiple
Range: Nursing home SDE multiples typically range from 1.30x to 3.09x SDE.
EBITDA Multiples for a Nursing Home
Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) measures a nursing home’s operating profitability without considering financing or non-operational expenses. EBITDA multiples are often applied to larger or multi-location facilities. Moreover, these metrics allow for straightforward comparisons across different nursing homes.
Formula: Value = EBITDA × Multiple
Range: Nursing home EBITDA multiples generally fall between 1.47x and 4.38x EBITDA.
Revenue Multiples for a Nursing Home
Revenue refers to the total income generated by a nursing home over a 12-month period. While revenue-based multiples are considered less reliable since they overlook operating costs, they can still provide useful context when combined with other multiples (like SDE and EBITDA).
Formula: Value = Revenue × Multiple
Range: Nursing home revenue multiples typically range from 0.31x to 0.88x revenue.
As an experienced business appraiser, Peak Business Valuation uses multiples when conducting a full business appraisal. In addition, we account for unique aspects such as occupancy rates, payer mix, and staff qualifications to refine the nursing home valuation. If you have any questions about how to value a nursing home using multiples, schedule a free consultation with Peak Business Valuation below!
How to Value a Nursing Home Using Multiples
Conducting a nursing home valuation using multiples requires more than simply applying formulas. Business appraisers also consider the facility’s risks, strengths, growth potential, market trends, and more. Moreover, weighted averages are often used to adjust for unusual financial periods, ensuring a more accurate estimate. This comprehensive approach leads to a precise and defensible business valuation. To learn more, check out How to Value a Nursing Home or Assisted Living Facility.
Rules of Thumb for Nursing Homes
Valuation multiples can serve as rules of thumb when assessing nursing homes. While useful for preliminary planning, these measures may not account for the unique characteristics of each facility. Consequently, relying solely on nursing home valuation multiples can result in inaccurate conclusions. For major decisions such as buying, selling, or financing a nursing home, it is essential to work with a certified valuation professional. Contact Peak Business Valuation today if you have any inquiries.
Factors Affecting Nursing Home Valuation Multiples
There are a variety of elements that influence whether a nursing home commands higher or lower valuation multiples. Understanding these factors can help nursing home owners enhance their facility’s value. Some key value drivers for a nursing home include:
- Customer Relations: Building strong relationships with residents and their families leads to trust, loyalty, and higher client satisfaction. This can help reduce churn and improve financial stability at a nursing home, which supports higher valuation multiples.
- Skilled Workforce: Developing and retaining a highly skilled care team fosters superior service quality. As such, nursing homes with trained, experienced staff are more attractive to buyers and can achieve higher valuations due to reduced risk and stronger patient outcomes.
- Regulatory Compliance: Nursing homes that maintain excellent compliance with state and federal regulations maximize resident safety and avoid legal issues. This enhances buyer confidence and can command higher nursing home valuation multiples.
- Pricing Strategy: Facilities that balance high-quality care with competitive pricing can attract and retain residents while controlling profitability. As such, a sound pricing strategy can significantly raise the nursing home’s perceived value.
- Operational Technology: Investing in advanced technologies can boost efficiency, reduce costs, and improve patient care quality. As a result, facilities that leverage modern systems can expect higher valuation multiples.
For more information on enhancing the value of your assisted living facility, see Value Drivers for a Nursing Home or Assisted Living Facility.
Conclusion
Nursing home valuation multiples provide a broad fair market value estimate which can guide preliminary planning. However, valuation multiples alone do not account for the unique, valuable details of every nursing home. As such, these tools may misrepresent your nursing home’s true value. For a defensible business valuation, it is critical to work with a certified business appraisal. These experts take thorough measures to provide a reliable nursing home valuation.
Peak Business Valuation, trusted business appraiser, often works with individuals looking to understand the value of a nursing home. Whether you are buying, selling, or seeking financing for an assisted living facility, we can support you with a timely and accurate business valuation. We are also available to address any questions about the nursing home valuation process. Schedule your free consultation with Peak Business Valuation to get started today!
For more resources, see Nursing Home Valuations or Valuing a Nursing Home or Assisted Living Facility.
