Decreasing Multiples

In the last year, corporate buyers’ willingness to pay exceptional multiples for practices has diminished. Two years ago, offers were nearly 100% cash at closing. Now it is common for offers to include multiple earnouts based on future growth and requirements for sellers to hold stock in the parent company until recapitalization occurs.

Why is this happening? Most corporate buyers see a severe problem replacing the seller’s income stream. Most sellers commit their lives to operating their practice and working 40-60 hour work weeks. It is not easy to find a new graduate with this work ethic; many graduates consider a 30-hour work week full-time. 

Many private equity buyers are still willing to pay well for exceptional practices, but the multiples they are willing to pay and the structure of their deals are changing. As a result, sellers should anticipate offers to include joint ventures, earnouts, and requirements to hold stock. 

Bill Crank, DVM

TPSG – East Coast