As more high-acuity, high-reimbursing procedures transition to the outpatient setting, ASCs are slated to become the preferred low-cost option for surgical procedures.
In wake of the uptick in investor interest, it is pivotal for ASCs to understand how potential backers determine and measure value associated with a business and common terms used to communicate value effectively and accurately, according to a Sept. 28 post by financial advisory company VMG Health.
Here are two things ASCs should familiarize themselves with to effectively communicate with investors:
1. Multiples. The term "multiples" is used to convey value. A multiple is a company's enterprise value divided by an industry-specific metric; for example, the number of beds and revenue. ASCs are most often discussed in terms of EBITDA multiples, defined as earnings before interest, taxes, depreciation and amortization, the post said.
2. Why not net income? EBITDA generally approximates an ASC's cash flow, thus its profitability. Calculating earnings before non-cash charges represents earnings available to shareholders better than net income. Excluding interest expenses removes the effect of capital decisions and makes EBITDA a more comparable metric between industry members, the post said.
EBITDA multiples are often framed as "implied" multiples rather than "applied" multiples, which means the final transaction value is typically determined through a thorough analysis of the ASC's historical and projected financial performance. This value is then divided by EBITDA to determine an implied multiple, according to VMG Health.