Valuing your ABA company

I often get asked about valuing an ABA company. I’ll outline some thoughts on that here. 

It depends on a variety of factors. I’ve seen or heard between about 4 and 10 times EBITDA over the years but revenue may also be a big consideration to a buyer. Actual valuations can entirely vary within and even outside of this range. With expenses increasing faster and disproportionately as compared to rates from healthcare funders, and therefore margins are generally thinning, I suspect we are or will see average valuation come down. However, there is still good opportunity and it’s possible you can be taking a loss and still make money in a sale. 

Here is a list of some things to consider, but this is not meant to be exhaustive:

1. Revenue
2. EBITDA 
3. Cash flow
4. Diversification within and across funding sources. Example of “within” funder: If commercial, various commercial insurers. Example of “across” funder type: commercial, Medicaid, schools, waivers, private, grants, other?
5. Currently negotiated rates you have. This can actually be looked at in various ways. If your rates are lower than average and the buyer has other contracts in that region then maybe they can actually increase overall value with your clientele by shifting services to the better rates and contracts. If the rates are high that can obviously be valuable. On the other hand, there is a risk of the funder(s) doing a rate decrease which would yield an overall decrease in income and value.
6. Regions served. Is there adequate diversification particularly in different markets?
7. Employee retention and satisfaction
8. Client retention and satisfaction
9. Quality indicators such as client outcomes, among others. There are many KPIs/metrics that you may want to consider. Take a look here: https://partnersaba.com/blog/establishing-and-monitoring-kpis
10. Having solid processes and procedures that are well articulated and documented
11. Utilization – this may be framed in a couple of different ways. If low, there is significant potential for an increase in income, margins, client satisfaction, and therefore value. If high, then that could be an indicator operations in those respects are doing well.
12. Compliance program and record keeping – also consider if you been through prior audits and if so how you’ve done 
13. Org structure and other business efficiencies
14. Marketing success and strategies
15. Recruiting and retention success and strategies 
16. Overall business strategy and growth potential 
17. Reputation 
18. Any other special considerations
19. A major factor is of course who needs the sale more. Is the seller in a great position with multiple buyers trying to break into that market? Or, does the seller need or want to get out for some reason and being presented with few or only one interested buyer. Obviously there are in between scenarios too.
20. Future outlook

One of the things we help clients plan for from the initial business planning steps is an exit. Not that you ever need to exit if you don’t want, just that you plan for it if/when needed. Whether you are just starting out, or ready to sell, feel free to reach out if you feel we can help you. Good luck!

Brandon Herscovitch