Mergers & Acquisitions

Fed Insiders Signal That the Time to Deal is Now.

December 20, 2021

If you’ve been following both financial and healthcare industry news, you know that recent developments are putting significant downward pressure on healthcare facility valuation. There’s little reason to expect that healthcare services deals won’t be similarly impacted.

USPI’s second large tranche of surgery center acquisition from SurgCenter Development, 92 facilities plus other acquired interests deal announced in November, was valued by parent company Tenet Healthcare at an all-in 7.x times EBITDA multiple. 

Translation: Those expecting high single-digit multiples for single facilities are dreaming.

Current lending caps imposed by commercial lenders for single facility deals are at multiples ranging from 2.5 times to 3.x times EBITDA. That’s at the current near-zero Fed rate.

Although the announcement by Federal Reserve Bank Chair Jerome Powell on December 15, 2021, revealed no immediate interest-rate hike, the indication announced was that interest rates will increase in 2022. Subsequently, The Wall Street Journal reported that Fed insiders state they are looking at 3 timed hikes in 2022.

Any increase in the Fed rate will further impact valuations because it will lead to a decrease in lender-supported debt to EBITDA multiples, meaning valuations will further decline.

Translation: If you are interested in selling an interest in a facility or in any other asset, a physician practice, for example, the time to deal is now. The flip side is true, too, as buyers won’t likely see near-zero interest rates again in their lifetime. If you are motivated to move quickly, please contact me to set up a time to talk.

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