Archive for September, 2012

Physical therapy services are a large part of the health care industry. In fact, there are some 34,300 physical therapy clinics in the US classified under SIC 8049 and NAICS 62134. Together these businesses generate over $24.5B in annual sales. There are just over 309,000 professional therapists and staff employed in this health care sector.

The average physical therapy clinic does about $715,000 in annual receipts and employs a staff of 9.

Professionally managed physical therapy centers with strong relationships with the referring doctors are attractive acquisition targets. The typical buyers are competitive clinics or investors looking to expand their holdings in the growing health care industry.

Business value by market comparison

Selling prices of physical therapy clinics give you a strong indicator of what such a business is worth on the market. You can develop a set of valuation multiples from sold clinics for direct comparison to a physical therapy practice you want to value.

Here are the typical valuation multiples used to appraise physical therapy businesses:

  • Business sale price to annual revenues plus inventory.
  • Business sales price to SDCF
  • Sale price to EBITDA

Example: valuing a small physical therapy clinic

To see how other practice sales can shed light on your clinic value, let’s consider a typical practice with $600,000 in annual sales and inventory of $150,000.

We apply a set of valuation multiples based on revenues to calculate the clinic value as follows:

Multiple Multiple value Business value
Low 0.42 $402,060
High 0.94 $712,500
Average 0.64 $535,200
Median 0.63 $529,140
Average Business Value $544,725

While the average of all the figures above is one way to report the physical practice value, you can also consider the range of values in the above calculation. In this case, our sample clinic value would value somewhere between $402,060 and $712,500.

This range reflects the market uncertainty such as the conditions of the business sale, access to acquisition capital, and specific objectives of the buyer and seller that may well affect the ultimate business selling price.

Valuing an advertising agency? Here are some key industry statistics to consider:

There are over 14,300 such businesses in the US alone, classified under SIC code 7311 and NAICS 54181. The companies generate a combined annual revenue of $30.6B and employ just under 160,000 people. The average advertising agency has $2,136,000 in annual sales with a staff of 11. During the 2002 – 2007 period the annual sales per firm grew 26.4% while staff increased by just 3.9%.

Advertising agency valuation

Successful advertising firms are frequent acquisition targets. The typical buyers are competitors and financial investors, especially for larger companies. This offers you a basis for valuing your firm by comparison to recent sales of similar businesses.

Consider using completed business sale prices in relation to the sold companies financials. The ratios are known as valuation multiples that you can use to calculate your company’s value.

Business sale price to gross revenue or net sales is the typical basis to develop such valuation multiples in the advertising industry sector.

Example: Valuation of advertising agency based on its gross revenue

Let’s take a look at a typical private advertising company with annual revenues of $2,130,000.

We now select a set of valuation multiples and apply them to our sample business sales figure:

Multiple Multiple value Business value
Low 0.24 $502,680
High 10.76 $22,924,125
Average 2.61 $5,562,069
Median 0.68 $1,442,649
Average Business Value $7,607,881

Note that the range of values is quite wide. This may be due to synergistic buyers entering the market to acquire highly desirable companies at premium prices.

More on advertising agency valuation

As we have shown, recent advertising business sales give you an excellent basis to come up with a value for your firm. In addition to annual revenues, you can value the business based on net profits, EBITDA, cash flow and assets.