Valuation Multiples for a Medical Supply Company
The medical supply industry provides medical supplies and equipment to healthcare entities. This includes selling medical products to physicians and dental practices, clinics, hospitals, etc… According to IBIS World, the medical supply industry has benefited from mounting demand in recent years. As such, this industry has generated over $353 billion dollars in revenue. Moving forward, we can expect industry revenue to exceed $400 billion dollars due to increasing demand for medical supplies. However, many medical supply companies struggle to maximize profits. This is a result of various factors, especially the competitive nature of the medical supply industry. If you are looking to buy, expand, or sell a medical supply company, understanding the value of a medical supply company can help you find success in the industry. You can start by learning about valuation multiples for a medical supply company.
Valuing a Medical Supply Company
Whether you are buying or selling a medical supply company, it is beneficial to learn about valuing a medical supply company. This can help you understand how to maximize the value of a medical supply company. You can start by receiving a business valuation from a reputable business appraiser. As part of a business valuation, an expert can help a buyer identify a reasonable purchase price. Buyers can also learn about effective negotiation strategies for purchasing a medical supply company. If you are selling a medical supply company, a business appraiser can help you understand how to improve your company before the transaction. The appraiser can also help you set a reasonable listing price.
When a business appraiser values a medical supply company, there are many valuation approaches they may use. The market approach is a popular method that involves using valuation multiples. In this article, we discuss valuation multiples for a medical supply company. Please note this article only provides averages and examples. For information that is applicable to your medical supply company, receive a business valuation. In addition, check out our articles Value Drivers for a Medical Supply Business, How to Value a Medical Supply Company, and Valuing a Medical Supply Business.
Peak Business Valuation is a professional business appraiser. We often work with individuals looking to buy, expand, or sell a medical supply company. Peak can provide you with a business valuation and answer any questions you have about valuing a medical supply company. Start today by scheduling a free consultation with Peak Business Valuation, business appraiser!
Valuation Multiples for Medical Supply Companies
The image below displays average valuation multiples for a medical supply company. These are only a general range of value and may not be suitable for a medical supply company you are buying or selling. To learn what multiples are best for your company, receive a business valuation. Peak Business Valuation is happy to work with you! Schedule your free consultation with Peak Business Valuation today!
Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.
What is a Valuation Multiple?
Valuation multiples are ratios that help estimate the fair market value of a business. These ratios compare the implied value of a business to financial metrics like earnings, cash flow, and sales revenue. For instance, SDE multiples are common when valuing a medical supply company. The SDE multiple compares the implied value of a medical supply company to its seller’s discretionary earnings. When valuing a medical supply company, business appraisers assess the multiples of comparable companies that recently sold. They then apply an appropriate multiple to your medical supply company to derive a range of value.
For example, a medical supply company has $483,000 in seller’s discretionary earnings. If the company receives a 2.83x SDE multiple, the medical supply company has an estimated value of $1,366,890 ($483,000 times 2.83x). Contrarily, if it receives a 3.25x multiple, the medical supply company would be worth $1,569,750 ($483,000 times 3.25x).
As a professional business appraiser, Peak Business Valuation works with medical supply companies often. In many instances, this involves using valuation multiples to value a medical supply company. The following sections give an average range of valuation multiples for a medical supply company. Keep in mind, the range of value may vary because each medical supply company is unique. Below, we discuss SDE, EBITDA, and REV multiples for medical supply companies.
SDE Multiples for a Medical Supply Company
Average SDE Multiple range: 2.78x – 3.33x
According to Peak’s database, medical supply companies transact between an SDE multiple range of 2.78x – 3.33x. Business appraisers apply the multiple to a medical supply company’s SDE to determine an implied value. The equation is as follows.
SDE X Multiple = Value of the Business
For example, a medical supply company generates $645,000 in seller’s discretionary earnings and transacts at a 3.13x multiple. In this case, the value of the medical supply company is approximately $2,018,850.
$645,000 X 3.13x = $2,018,850
Business appraisers at Peak Business Valuation often use SDE multiples when valuing a medical supply company. To determine a medical supply company’s SDE, valuation analysts add back any expenses that may not be incurred by the new owner to the operating profit of the medical supply company. Some common adjustments include non-recurring or non-related business expenses, a fair owner’s compensation, and personal expenses. This helps valuation experts determine the cash flow potential of the medical supply company. This is vital when valuing a medical supply company.
EBITDA Multiples for Medical Supply Companies
Average EBITDA Multiple range: 3.70x – 4.46x
The average EBITDA multiples for a medical supply company generally fall between 3.70x – 4.46x. Business appraisers apply the multiple to the company’s EBITDA to determine its fair market value. The equation for valuing a medical supply business using an EBITDA multiple is as follows.
EBITDA X Multiple = Value of the Business
For example, a medical supply company receives $533,000 of EBITDA. The company transacts at an EBITDA multiple of 4.11x. Here, the medical supply company is worth $2,190,630.
$533,000 X 4.11x = $2,190,630
EBITDA multiples help calculate a medical supply company’s return on investment (ROI). Valuation experts may use an EBITDA multiple for medical supply companies since they help normalize differences. EBITDA multiples allow valuation analysts to compare your medical supply company to similar businesses. Normalized ratios also provide an accurate projection of the future earnings an investor can expect from a medical supply company.
REV Multiples for a Medical Supply Company
Average REV Multiple range: 0.44x – 1.38x
Generally, medical supply companies transact at an average revenue multiple within the range of 0.44x – 1.38x. Business appraisers can derive the implied value of a medical supply company by multiplying the company’s revenue by the multiple. Refer to the calculation below.
Revenue X Multiple = Value of the Business
For example, a medical supply company generates $2,500,000 in revenue. If it transacts at a 0.89x multiple, the medical supply company is worth about $2,225,000.
$2,500,000 X 0.89x = $2,225,000
REV multiples reflect the total amount of revenue a medical supply company generates. Typically, REV multiples are less reliable when valuing a medical supply company. At Peak, our valuation experts often rely on the cash flow multiples – SDE and EBITDA. However, the expert will determine which methods and multiples are suitable for your medical supply company during the valuation process.
Summary
Valuation experts can use market multiples for medical supply companies to determine the fair market value of a medical supply company. However, there are a variety of valuation methods that a business appraiser may use when valuing a medical supply company. To know which methods and multiples are most suitable for your business, receive a business valuation for a medical supply company. Doing so can help you prepare to buy, expand, or sell a medical supply company.
Peak Business Valuation, business appraiser, works with many medical supply companies throughout the nation. We are happy to help you find success in the medical supply industry! Peak can provide you with a business appraisal for a medical supply company. Additionally, we welcome any questions you may have about valuation multiples for a medical supply business. Start now by scheduling your free consultation with Peak Business Valuation below!
