Nursing homes and assisted living facilities offer living quarters and nursing services for people with illnesses and disabilities. These services are often provided for an extended period of time to individuals who need help with daily activities. IBIS World notes that the nursing and assisted living industry has seen healthy growth in recent years. We can expect this trend to continue due to factors such as the aging population as well as a rise in federal funding. However, the nursing and assisted living industry is extremely competitive. If you are looking to buy, expand, or sell a nursing home or assisted living facility, it is important to differentiate your facility from competitors. As such, it is beneficial to know the value of a nursing home or assisted living facility and what drives it. This may include learning about valuation multiples for a nursing home or assisted living facility.
Valuing a Nursing Home or Assisted Living Facility
If you are looking to buy or sell a nursing or assisted living facility, it is important to learn the principles of valuing a nursing home or assisted living facility. To do so, it is best to obtain a business appraisal. If you are looking to buy a nursing or assisted living facility, receiving a business appraisal can help you understand the cost of the facility. Additionally, a valuation expert may discuss the risks associated with purchasing a nursing home or assisted living facility. If you are selling a nursing home or assisted living facility, a business appraisal can help you determine a listing price. You can also understand how to improve your assisted living facility before selling.
When valuing a nursing home or assisted living facility, there are different valuation approaches a business appraiser can use. Often, they will use the market approach which works with valuation multiples. In this article, we discuss valuation multiples for a nursing home or assisted living facility. This information is only a guide and may not apply to your nursing or assisted living facility. As such, it is best to receive a business valuation for more specific information. Also, check out our articles Valuing a Nursing Home or Assisted Living Facility, Value Drivers for a Nursing Home or Assisted Living Facility, Business Valuation for Buying a Nursing Home, Business Valuation for Selling a Nursing Home, and How to Value a Nursing Home or Assisted Living Facility.
Peak Business Valuation is happy to help! As a professional business appraiser, we work with nursing homes and assisted living facilities on a regular basis. With Peak, you can receive a business valuation for a nursing home or assisted living facility. We can also answer any questions you have about valuing a nursing home or assisted living facility. Schedule a free consultation with Peak Business Valuation today!
Valuation Multiples for Nursing or Assisted Living Facilities
In the image below, we show the average market multiples for a nursing home or assisted living facility. Keep in mind, these values are only estimates. Applying these multiples to your facility may produce an inaccurate valuation. For multiples that are applicable to your facility, receive a business valuation for a nursing home or assisted living facility. Peak Business Valuation is here to help. Schedule a free consultation with Peak 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 numbers that help determine the value of a business. They are similar to ratios which compare the implied value of a nursing home or assisted living facility to a financial metric like cash flow, earnings, or sales. For instance, SDE multiples are common when determining the value of a nursing or assisted living facility. This valuation multiple compares the implied value of a nursing home or assisted living facility to its seller’s discretionary earnings. Valuation analysts assess the multiples of similar nursing or assisted living facilities that recently sold. Then, they apply a suitable multiple to your business to determine an accurate range of value.
For example, a nursing home has $190,000 in SDE. If it transacts at a 1.69x SDE multiple, the facility would have an implied value of $321,100 ($190,000 times 1.69x). On the other hand, a 2.79x multiple would suggest that the value of the facility is $530,100 ($190,000 times 2.79x).
As a business appraiser, Peak Business Valuation works with many nursing homes and assisted living facilities throughout the nation. When valuing a nursing home or assisted living facility, this often includes using valuation multiples for a nursing home or assisted living facility. The following sections give an average range of valuation multiples that nursing or assisted living facilities often transact at. The range of value can vary since each facility is different. Below, we highlight SDE, EBITDA, and REV multiples for nursing homes and assisted living facilities.
SDE Multiples for a Nursing Home or Assisted Living Facility
Average SDE multiple range: 1.30x – 3.09x
On average, nursing homes and assisted living facilities transact at an average SDE multiple of 1.30x – 3.09x. To derive an implied value of a nursing or assisted living facility, multiply the multiple by the seller’s discretionary earnings of the facility. The equation for valuing a nursing home or assisted living facility with an SDE multiple is as follows.
SDE X Multiple = Value of the Business
For example, an assisted living facility generates $210,000 in seller’s discretionary earnings. If it transacts at a 2.36x multiple the facility’s value is about $495,600.
$210,000 X 2.36x = $495,600
Business appraisers often use SDE multiples to value a nursing home or assisted living facility. Valuation experts take the nursing or assisted living facility’s profit and add back any expenses the new owner may not incur to determine its SDE. These add-backs may include the owner’s compensation, personal transactions, and non-related or non-recurring business expenses. This allows the analyst to determine the potential cash flow of the nursing or assisted living facility. Knowing the potential cash flow of a business can help you understand its value.
EBITDA Multiples for Nursing or Assisted Living Facilities
Average EBITDA Multiple range: 1.47x – 4.38x
According to our data, the average nursing or assisted living facility transacts at an EBITDA multiple range of 1.47x – 4.38x. To calculate an implied value of a nursing home or assisted living facility, apply this multiple to its EBITDA. Refer to the following equation.
EBITDA X Multiple = Value of the Business
For example, a nursing home has an EBITDA of $148,000 and receives an EBITDA multiple of 3.69x. In this case, the nursing or assisted living facility is worth about $546,120.
$148,000 X 3.69x = $546,120
EBITDA multiples are used to estimate a nursing or assisted living facility’s return on investment (ROI). Business appraisers may rely on the EBITDA multiple because it helps normalize differences. This allows the appraiser to make comparisons between similar nursing homes or assisted living facilities. EBITDA multiples also provide an accurate estimate of the future earnings that an investor can expect from a nursing home or assisted living facility.
REV Multiples for a Nursing or Assisted Living Facility
Average REV Multiple range: 0.31x – 0.88x
Nursing homes or assisted living facilities generally sell between 0.31x – 0.88x of revenue. Business appraisers can calculate the implied value of a nursing home or assisted living facility by applying the REV multiple to its revenue. See the following equation.
Revenue X Multiple = Value of the Business
For instance, an assisted living facility makes $930,000 in revenue. It then transacts at a 0.65x multiple. In this case, the business is worth approximately $604,500.
$930,000 X 0.65x = $604,500
Business appraisers generally do not rely on REV multiples for nursing homes or assisted living facilities. Typically, SDE and EBITDA multiples are most applicable. However, the valuation analyst will use their knowledge to determine the best method and multiple for your nursing or assisted living facility. This may include a combination of methods and multiples.
Summary
When valuing a nursing home or assisted living facility, business appraisers may utilize valuation multiples. Understanding valuation multiples for a nursing or assisted living facility can be an important step in building a successful facility. To know what valuation multiples are most suitable for your nursing home or assisted living facility, receive a business appraisal. This is beneficial whether you are buying, expanding, or selling a nursing or assisted living facility.
Peak Business Valuation, business appraiser, works with nursing homes and assisted living facilities across the country. We can provide you with a business appraisal for a nursing home or assisted living facility. Peak is also here to answer any questions you may have about valuation multiples for a nursing home or assisted living facility. Get started now by scheduling your free consultation with Peak Business Valuation below!
