Independent valuations for selling or buying a healthcare business

Maintainable earnings and normalisation

Maintainable earnings are the profit the business can sustain under a new owner, measured before interest, tax, depreciation and amortisation (EBITDA), or after depreciation (EBIT) where clinical or dispensing equipment is a large recurring cost. Historical profit is normalised, meaning adjusted to remove what will not continue: owner remuneration that is not at a market rate, related-party rent, private expenses, one-off items, and income from programs, contracts or referrers that are ending.

The largest adjustment is usually the owner's own clinical work, recast at what it would cost to employ or contract someone to do it: the vendor's Medicare, DVA and private billings in a practice, the owner-pharmacist's dispensing hours in a pharmacy, the owner's own service delivery or support coordination in an NDIS provider. See What Is Maintainable Earnings?.

Choosing the method

Capitalisation of future maintainable earnings is the usual primary method for an established practice with a settled earnings pattern: maintainable earnings are capitalised at a multiple, the inverse of the return a buyer requires, reflecting the risk, growth prospects and transferability of those earnings. A discounted cash flow values forecast cash flows in present-day terms using a discount rate that reflects the risk of achieving them, and suits a business whose earnings are changing materially, such as a practice part-way through adding rooms or a provider scaling a new support type. A net asset approach, which values identifiable assets less liabilities, sets the floor where earnings do not support goodwill. Market evidence from comparable sales is a cross-check rather than a primary method: terms are rarely disclosed in full, and a headline price can include stock, plant, an earn-out or an unpaid transition that the multiple quoted beside it ignores.

Basis matters as well as method. A sale of the whole business, or of a controlling shareholding, is valued on a control basis. A partial exit that leaves you holding a minority interest, one that cannot direct dividends, remuneration or a future sale, may be worth less per share than the same proportion of the whole. See Share and Equity Valuations.

Goodwill and transition dependence

Goodwill is the value of the business above its identifiable net assets. Transferable (commercial) goodwill attaches to the location, systems, contracts, brand and workforce and survives a change of owner; personal goodwill attaches to a practitioner and leaves with them. A purchaser pays only for what transfers, so the report separates the two and measures key-person risk: how much of the billing is the vendor's own, how patients and referrers came to the practice, how long the vendor must stay to hand them over, and whether that time is paid at a market rate. See transferable goodwill and practitioner dependence.

Asset sale or share sale

In an asset sale the purchaser buys goodwill, plant, stock, contracts and usually the lease, and the vendor keeps the entity, its debtors and its liabilities. In a share sale the purchaser buys the entity with everything in it, including historical liabilities, accrued employee entitlements, any contractor and payroll tax exposure, and registrations held in the entity's name.

The routes are also taxed differently. At the time of writing the ATO states that a sale of a going concern is GST-free where the sale includes everything necessary for the continued operation of the business, the business is carried on until the day of sale, the sale is for payment, the purchaser is registered or required to be registered for GST, and the parties have agreed in writing that the sale is of a going concern. Where a company's shares are sold instead, the ATO treats the sale as a financial supply. Capital gains tax may arise on either route, the small business CGT concessions may apply where the eligibility conditions are met, and earn-out rights have their own treatment. Which route suits you is a matter for your accountant and lawyer.

What the price includes

Price and value only match once the parties agree what is transferred. The report states its assumption on each item:

• Working capital. The short-term operating items the business needs to keep running: debtors, work in progress (WIP), stock and creditors. In an asset sale they usually stay with the vendor; in a share sale they pass with the entity and are adjusted to an agreed target level at completion.
• Stock and equipment. Pharmacy stock is usually counted at settlement and paid for separately from goodwill. Plant is assessed on condition, age and finance status, and equipment under a chattel mortgage or lease is traced to the loan it secures.
• Premises. An assignable lease with adequate term supports value; a lease near expiry, a lease requiring landlord consent that has not been sought, or a related-party lease that will not continue on the same terms reduces it. See premises and lease terms.
• Employee entitlements. The Fair Work Ombudsman states that on a transfer of business a new employer must recognise a transferring employee's earlier service for most entitlements, but might not have to for redundancy, annual leave, long service leave, unfair dismissal and notice of termination. Where the businesses are not associated entities the new employer can decide not to recognise that service for annual leave and redundancy, and the old employer then pays those out. Who carries accrued entitlements is a price adjustment, usually a larger one in a share sale.
• Earn-outs, retentions, restraints and warranties. An earn-out ties part of the price to future earnings, a retention holds part of the price back until a condition is met, a restraint limits the vendor from competing nearby for a period, and warranties are contractual statements about the business the purchaser can claim on if they prove untrue. Each shifts risk between the parties, and the report supplies the earnings baseline an earn-out is measured against.

Registrations and approvals that do or do not transfer

Buying a healthcare business does not automatically buy the right to bill for it, and the delay differs by sector:

• Ahpra registers health practitioners as individuals, so registration belongs to the person rather than the business. Services Australia states that a practitioner needs an additional Medicare provider number to work at a new practice location, so the purchaser's practitioners need their own numbers for those premises.
• Under section 90 of the National Health Act 1953, a pharmacist who intends to become the new owner of an existing approved pharmacy must apply for approval to supply PBS medicines, and must provide evidence that the requirements of the relevant state or territory regulatory authority have been met.
• The NDIS Quality and Safeguards Commission states that a registration is linked to a single ABN and is not transferable to a different ABN, so a purchaser who buys the assets into its own entity lodges a new registration application.
• Under the Aged Care Act 2024, all providers of Australian Government-funded aged care services must be registered by the Aged Care Quality and Safety Commission.

Where an approval cannot pass to the purchaser, the timing of the new application, and who bills in the meantime, becomes a price and completion-condition question rather than a formality. Requirements differ across the sectors HPNA values: see the pharmacy, NDIS, medical practice and aged care pages.

Buy-side valuation

A purchaser asks the same questions from the other side. Are the earnings maintainable once the vendor's own billings are removed, and what does replacing that clinical capacity cost? How much of the revenue depends on one referrer, one funded program, one contract or a small group of participants, and when do those arrangements end? What does a share purchaser inherit in accrued entitlements, contractor arrangements, warranty exposure and the entity's compliance history? Is the lease assignable, and has the landlord been asked?

A group offer is assessed as a package: the cash, any scrip (shares or units in the acquiring group offered in place of cash), and the transition, earn-out and restraint terms attached to it. A buy-side valuation is a reference point and a list of questions for due diligence to answer, not a due diligence report.