The Key Factors Shaping Hospice Multiples in 2023

Grasping the mix of objective and subjective forces fueling hospice valuations is key to maximizing a return on investment when considering a sale, according to dealmaking experts.

Hospice valuations have remained high, partly due to an influx of new investors entering the space. Generally, these buyers see a promising return on investment and sustainable business growth because of rising demand for end-of-life care in the United States.

The nuts and bolts in determining a hospice business’ worth, however, can be tricky to tighten and turn into place – both for sellers and buyers. That’s according to Steve Garbon, a certified valuation expert and managing director at M&A advisory firm The Braff Group.


Often, the “devil is in the details,” Garbon said.

“When you’re looking at hospice, you really have to be careful that the terminal value of the business and cash flow is not too aggressive,” Garbon told Hospice News during a recent webinar. “At the end of the day when we think about multiples, [it’s] boiling down to the sap to make the syrup. It’s really important to keep in mind that, yes, there’s a science [and] there’s a math behind it.”

But there’s certainly “some emotion behind it as well,” he continued.


“Looking at it from a multiples perspective and ‘how much do you adjust that multiple,’ that’s where it becomes more art than science,” Garbon explained.

On one side of the equation, historical hospice valuations and financial statements can present a baseline in terms of a buyer’s bang for their buck and a seller’s maximum potential sale earnings, Garbon said. On the other side, relying on past price tags and margins can be a slippery slope in knowing how far up or down to adjust a hospice multiple when it’s brought to the sellers’ table, he stated.

Getting to the bottom line of hospice figures has been a particularly challenging feat as valuations hover near record highs in recent years. Hospice multiples reached a record-high of 26 times EBITDA in 2020, according to PwC’s Health Research Institute.

Knowing the maximum valuation for their hospice business is “critical” for sellers, and it can involve an array of objective and subjective forces, according to Mark Kulik, senior managing director of home health, home care and hospice at The Braff Group.

The difficulty is understanding the external economic factors circulating around hospice M&A and balancing those with internal operating factors such as staffing, patient volumes and referral streams, Kulik explained.These combined factors create a “paradox” for determining hospice valuations, he said.

“You’ve got a situation where a buyer is saying, ‘Let me see the historical financials, let me see the EBITDA, and I’m going to use that number to go ahead and come up with a multiple for the future value of the company,’” Kulik said.

Interest rates, inflation and other global economic factors all can influence hospice deals, he added. Even distress in foreign countries can have indirect and direct impacts on hospice M&A in the United States, he noted.

Additional subjective factors can include hospice owners, founders and leaders tying emotional attachments from the business’ legacy of providing care to its price tag, he added.

Ultimately, at the heart of a hospice deal is whether there is sustainable growth potential in the asset, Kulik indicated.

“Does that sustainable growth rate continue going forward? Or is there a risk that it falls apart?” he said. “That’s how to dig in or peel the onion back relative to how they calculate risk, and, ultimately, that has bearing on the multiple.”

When considering a sale, hospices need to carefully navigate striking a balance in communicating their value to buyers, according to David Berman, principal of health care M&A at SimiTree Healthcare Consulting.

Not all hospice multiples are “created equal” when it comes to applying the science and math of value, Berman said. For instance, hospices of various sizes work with different operating cash flows and margins, which can paint a colorful picture around their debt-to-income ratios, he explained.

“One way or the other, cash has to be put into the business from Day 1, either through receivables or it’s through the buyer putting some more cash on the balance sheet,” Berman said. “You’ve got to pay your bills, and we’re definitely getting to a sore spot [there], It doesn’t even matter if it’s home health or hospice. There’s a lot of nuances when there’s a working capital. You really want to make sure as the seller that you understand those [accounting principles] and words so you don’t get surprised when something happens.”

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