Five Risk Factors Affecting Multiples in Imaging-center Acquisitions

Published by ImagingBiz

The ongoing success of the imaging-center industry has resulted in the proliferation of operating and management companies; this, in turn, has resulted in the increased acquisition of controlling interests in the imaging centers by the operators. By gaining a controlling interest, the operating company is able to bring substantial experience and negotiating clout to the venture, typically enhancing value. The success of these partnerships, combined with this increased demand, has resulted in the willingness of these operating and management companies not only to acquire controlling interests in imaging centers, but to do so at a premium.

Through our experience in the industry, we have observed that imaging-center operators typically pay a multiple of approximately four to five times a normalized level of EBITDA for a controlling interest. As would be expected, these multiples vary according to the specific facts and circumstances surrounding the transaction. The marketplace typically relies much more heavily upon EBITDA value indications (as opposed to net revenue) because a center’s EBITDA serves as a more accurate proxy for future cash flows than does revenue.

There are five primary categories of risk factors that can drive the fair market value of an imaging center toward the lower or higher end of the range of acquisition multiples. They are market, operational, equipment, referring-physician, and reimbursement risk factors.

Market Risk Factors

There are certain market risk factors that make an imaging center more or less valuable to a willing buyer. Favorable market risk factors include the existence of a certificate of need, favorable patient demographics, and high historical population growth. Certain states require a certificate of need for the ownership and operation of diagnostic-imaging equipment; the process of obtaining one can be very time consuming, creating a barrier to entry for competitors in certain markets. Favorable patient demographics and high historical population growth tend to result in a more favorable reimbursement environment, as well as higher projections for volume growth, which (in turn) increase the value of a center.

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