Valuation Multiples for a Pharmacy
Pharmacies give consumers access to necessary medical products like prescriptions, medications, and consumable goods. These businesses also provide beauty products, vitamins, etc… As such, pharmacies play an important role in our communities. In addition, running a pharmacy can be very rewarding. If you are looking to buy, grow, or sell a pharmacy, it is important to receive a business valuation. During a business valuation for a pharmacy, business appraisers calculate its fair market value, risks, opportunities, strengths, and weaknesses. To do so, they often utilize valuation multiples for a pharmacy.
In this article, we discuss the importance of pharmacy valuation multiples. Understanding these can help you better understand the fair market value of a pharmacy you are buying, growing, or selling. Please note that these are only general suggestions. For extensive guidance, receive a pharmacy valuation.
Peak Business Valuation is a professional business appraiser that works with pharmacies throughout the nation. As such, we are happy to provide you with a business valuation for a pharmacy. In addition, we can address your questions on valuation multiples for a pharmacy and how to value a pharmacy. Start now by scheduling a free consultation with Peak Business Valuation below!
Valuing a Pharmacy
When a business appraiser conducts a pharmacy valuation, they often use the market approach. This is a common valuation method that involves using various valuation multiples. In this article, we dive into SDE, EBITDA, and REV multiples for a pharmacy. However, the values discussed in this article are only averages. To learn more, check out Valuing a Pharmacy or reach out to Peak Business Valuation!
Valuation Multiples for Pharmacies
The image below displays the average valuation multiples for a pharmacy. In addition, it shows a range of value pharmacies transact at. To learn what valuation 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 business appraisers determine 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 pharmacy. The SDE multiple compares the implied value of a pharmacy to its seller’s discretionary earnings. When valuing a pharmacy, business appraisers assess the multiples of similar pharmacies that recently sold. Then, they apply an appropriate valuation multiple to your pharmacy to determine its value.
For instance, a pharmacy has $545,000 in seller’s discretionary earnings. If the company receives a 2.53x SDE multiple, the pharmacy has an estimated value of $1,379,850 ($545,000 times 2.53x). In contrast, if it receives a 3.85x multiple, the pharmacy would be valued at $2,098,250 ($545,000 times 3.85x).
As a professional business appraiser, Peak Business Valuation works with pharmacies throughout the United States. This often involves using pharmacy valuation multiples. The following sections give an average range of SDE, EBITDA, and REV multiples for a pharmacy. Keep in mind, the range of value may vary because each pharmacy is unique.
SDE Multiples for a Pharmacy
Average SDE Multiple Range: 2.45x – 3.38x
According to Peak’s database, pharmacies transact at an SDE multiple range of 2.45x – 3.38x. Valuation analysts apply the multiple to a pharmacy’s SDE to estimate its value. The equation is as follows:
SDE X Multiple = Value of the Business
For example, a pharmacy generates $520,000 in seller’s discretionary earnings and transacts at a 2.82x multiple. In this instance, the value of the pharmacy is approximately $1,466,400.
$520,000 X 2.82x = $1,466,400
Business appraisers at Peak Business Valuation often use SDE multiples when valuing a pharmacy with the market approach. To determine a pharmacy’s SDE, valuation experts add back any expenses that may not be incurred by the new owner to the operating profit of the pharmacy. Some common adjustments are non-recurring or non-related business expenses, fair owner’s compensation, and personal expenses. This helps business appraisers determine the cash flow potential of the pharmacy.
EBITDA Multiples for Pharmacies
Average EBITDA Multiple Range: 3.60x – 4.75x
Next, the average EBITDA multiples for a pharmacy typically fall between 3.60x and 4.75x. Business appraisers will apply the multiple to the pharmacy’s EBITDA to determine its fair market value. The equation for valuing a pharmacy using an EBITDA multiple is as follows:
EBITDA X Multiple = Value of the Business
For example, a pharmacy generates $400,000 in EBITDA and transacts at an EBITDA multiple of 3.94x. In this case, the pharmacy is worth approximately $1,576,000.
$400,000 X 3.94x = $1,576,000
EBITDA multiples help determine a pharmacy’s return on investment (ROI). Valuation experts often use EBITDA multiples for pharmacies since they help normalize differences. Normalized ratios provide a more accurate projection of the future earnings an investor can expect from a pharmacy. In addition, this allows business appraisers to compare the pharmacy to similar companies on the market.
REV Multiples for a Pharmacy
Average REV Multiple Range: 0.16x – 0.49x
Finally, pharmacies typically transact at an average revenue multiple within the range of 0.16x – 0.49x. Business valuation experts can calculate the implied value of a pharmacy by multiplying the company’s revenue by the multiple. Refer to the calculation below.
Revenue X Multiple = Value of the Business
For example, if a pharmacy generates $6,000,000 in revenue and transacts at a 0.26x multiple, the pharmacy is worth approximately $1,560,000.
$6,000,000 X 0.26x = $1,560,000
REV multiples reflect the total amount of revenue a pharmacy generates. Keep in mind, that REV multiples are less reliable when valuing a pharmacy. At Peak, our valuation experts often rely on the cash flow multiples—SDE and EBITDA. However, the valuation expert will determine which methods and multiples are most suitable for your pharmacy as part of the pharmacy valuation process.
Summary
If you are buying, expanding, or selling a pharmacy, it is important to receive a business valuation. This can help you make strategic decisions to find success in this industry. In addition, it’s beneficial to learn about the valuation multiples for a pharmacy. These values give more insight into the value of a pharmacy based on its financial performance. Obtain a pharmacy valuation to know which methods and multiples are most suitable for your business.
Peak Business Valuation, professional business appraiser, works with many pharmacies throughout the United States. We are happy to help you with a business valuation for a pharmacy. Additionally, we can answer any questions you have on valuation multiples for a pharmacy. Start now by scheduling your free consultation with Peak Business Valuation below!
