A laboratory may refer to one of several types of facilities, including clinical laboratories, anatomic pathology laboratories, as well as genomic and other laboratory facilities. Testing segments may include routine tests, anatomic pathology, cytology, toxicology, genomic, and other esoteric tests. Labs are operated by large national operators, hospitals and health systems, independent facilities, as well as within medical group practices.

Transactions involving clinical and outreach lab services typically include joint ventures between market participants, divestitures of lab service lines by hospitals and health systems, as well as acquisitions by national or regional operators. Anatomic pathology lab transactions, which also involve physician-pathologists, often include practice mergers, or larger pathology group acquisitions of smaller groups. Financial sponsors have also gotten involved in larger pathology group transactions.

Important Value Drivers

Selected key variables for laboratories include, but are not limited to:

  • Customer base: Understanding the concentration of revenue by customer for large lab operations is imperative, as concentration of test volume and therefore revenue among customer may imply a higher risk profile for the lab business.
  • Competitive environment: Each local market a lab operates in carries with it its own competitive dynamics. As healthcare services businesses, the customers of any lab business, acquire or affiliate with one another, a once stable market may become volatile, impacting the risk profile of the lab business.
  • Professional Services by Pathologists: For path groups, a control-level transaction may involve the restructuring of compensation, which is one of the largest expense items for the business. In addition, changing and aligning incentives may also change the risk profile of the business. In any case, compensation issues may have significant implications for the valuation of lab business.

There are many unique items to consider in the valuation of a laboratory that necessitate a depth of knowledge and experience. VMG Health’s detailed experience with laboratory transactions and valuation gives you the confidence you need to complete your transaction.