Independent healthcare business valuations across Australia

Disclaimer

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To be confirmed: legal review required before publication

Everything published on this website is general information about how healthcare businesses are valued in Australia. It is not legal, taxation, accounting or financial advice, it is not a valuation of your business, and it is not written about your circumstances. A valuation of your business is a separate piece of work, done under a written engagement, and its conclusion depends on the purpose, the valuation date, the scope and the information available. This disclaimer explains those limits. It applies to material published by Beach Group Australia Pty Ltd (ABN 17 699 866 718), trading as HPNA, forms part of our website terms of use and should be read with them.

The content on this website is general information

The industry pages, the valuation services pages, the reasons for a valuation and every article in insights are written to explain how healthcare businesses are valued and what tends to move their value. They describe how things generally work. They are not written about your business, they do not take your circumstances into account, and they are not a substitute for an engagement.

We cite Australian government departments, regulators and legislation so you can check what we say at the source. Funding programs, price limits, registration requirements, tax rules and market conditions change, sometimes quickly. Each page carries a published and updated date, and its content is current only as at that date. We are not obliged to update a page after it is published, so confirm anything that matters to you against the current source before you act on it.

Nothing on this website is legal advice, taxation advice, accounting advice or financial product advice, and nothing on it is a recommendation to buy, sell, restructure or retain any business or any interest in one. The Australian Securities and Investments Commission states that a person who wants to run a financial services business generally needs to be authorised under an Australian financial services licence. This website is not provided as, and must not be treated as, financial product advice.

To be confirmed: confirm whether HPNA or any related entity holds an Australian financial services licence, a tax agent or BAS agent registration, or an Australian legal practising certificate, and adjust this section accordingly.

Your position depends on facts we do not know: your entity structure, your cost base, your funding arrangements, your agreements with other owners, your obligations to a regulator and your own objectives. Those matters should be confirmed with your accountant, your lawyer and any other adviser who acts for you before you make a decision. If a valuation is part of that decision, talk to us about what the engagement would need to cover.

A valuation conclusion depends on its purpose, date, scope and information

A valuation is an opinion of value formed for a stated purpose, at a stated date, on a stated scope and on the information available at the time. Change any one of those and the conclusion can change. That is not a weakness of valuation; it is what a valuation is.

  • Purpose and basis of value. The purpose sets the basis of value and the assumptions that go with it. Market value, the basis most often applied where value is assessed as though the business were exposed to the open market, is the price that would be agreed between a hypothetical willing but not anxious buyer and a hypothetical willing but not anxious seller, each properly informed and dealing at arm's length. That is not the same as a value assessed under a shareholders agreement or a company constitution that sets its own basis, for example a fair value determined without any discount for a minority holding. A conclusion reached on one basis cannot simply be transplanted to another.
  • Valuation date. The valuation date is the specific date at which the opinion is formed, and it is formed on what was knowable then. A practice valued before a senior practitioner resigns, before a funding change takes effect or before a competitor opens nearby is a different proposition from the same practice valued afterwards.
  • Scope. The scope sets what was examined, what was accepted without examination and what was excluded. A limited scope produces a limited conclusion. A conclusion cannot be lifted out of the scope it was formed under.
  • Information. A valuation is built on the financial and operational information supplied to us and on the enquiries we make of the people who run the business. Information that is incomplete, inaccurate or supplied after the report is finalised can change the outcome. See what information is needed for a business valuation.

What a conclusion covers, and what it does not

A valuation conclusion is stated for a defined interest, on a defined basis. The definition matters as much as the figure, and a number quoted without it can be read to mean something it does not.

  • Enterprise value and equity value are different figures. Capitalising earnings before interest and tax produces a value for the business operations as a whole, before borrowings, surplus and non-operating assets, and any shortfall or excess in working capital are taken into account. Working capital is the short-term funding a business needs to trade, mainly its debtors, stock and creditors: dispensary and front-of-shop stock in a pharmacy, unreconciled Medicare, DVA and health fund receipts in a practice, and delivered but unclaimed service in an NDIS provider. Equity value, the value of the shares or units, is what remains after those adjustments. A figure quoted without saying which of the two it is tells you very little.
  • A parcel is not simply a proportion of the whole. A minority parcel that carries no ability to control distributions, remuneration, the sale of the business or the appointment of directors is not necessarily worth the whole equity divided by the number of shares. Whether a discount for lack of control, or a discount for the absence of a ready market to sell into, applies at all depends on the purpose, on what the constitution and any shareholders agreement say, and on the terms under which the interest would actually change hands. See share and equity valuations.
  • A price is evidence of value, not a definition of it. A price actually paid reflects those particular parties, their negotiating positions, the deal structure (earn-outs, restraints of trade, transitional arrangements, vendor finance, what happens to the premises) and any advantage available to that buyer alone. Comparable transactions inform a valuation, but a headline price is rarely comparable until it is unpicked.

A valuation is an opinion, not a prediction and not a promise. It is not a forecast of what a buyer will pay, what a financier will lend or what a dispute will resolve at.

Indicative figures and general market observations are not a valuation

Any calculator, worked example, rule of thumb, benchmark or general market observation published on this website, or given to you in conversation before an engagement begins, illustrates method. It is not a valuation of your business and it must not be relied on as one.

Shortcuts of that kind go wrong in predictable ways. A proportion applied to revenue ignores the cost structure that turns revenue into profit. A multiple applied to reported profit ignores normalisation, the process of adjusting reported results to what the business would earn on an arm's length and ongoing footing: the market rate of remuneration for the clinical and management hours the owner actually works, the related party rent, service fee or practitioner arrangement sitting behind the result, and items that will not recur. A single year treated as maintainable earnings, meaning the level of earnings a buyer could reasonably expect the business to sustain, ignores whether that year is in fact repeatable. And an earnings multiple produces an enterprise-level figure, not the amount an owner would receive. The glossary defines these terms, and what is maintainable earnings explains the normalisation step a rule of thumb skips.

A rule of thumb also assumes that one method fits every business. Capitalisation of future maintainable earnings, which applies a multiple to a maintainable earnings figure, suits an established practice with a settled trading history. Where earnings are expected to change materially over a defined period, for example a practice part way through a fit-out, a recruitment program or a change in its funding mix, discounting forecast cash flows to a present value may describe the business better. Where the value sits in the assets rather than the earnings, for example a diagnostic or imaging business carrying substantial equipment, or an early stage NDIS or allied health provider not yet trading profitably, a net asset basis may be the appropriate one. Market evidence from comparable transactions is used to test whichever method is applied rather than to replace it. Which method fits is part of the valuation, and a published figure cannot settle it in advance.

Indicative figures also ignore the facts that drive value in a real healthcare business: how much of the goodwill is personal goodwill, which leaves with the practitioner, as against transferable or commercial goodwill, which stays with the business and can be sold; how concentrated the patient, participant or referral base is; how the workforce is engaged and what it would cost to replace; what the lease says; and what the funding mix is and how exposed it is to a program or price change. HPNA does not publish industry multiples or market ranges as though they applied generally, because they do not. Business valuation versus business appraisal explains the difference between an indicative view and an independent valuation.

A valuation report is prepared under a separate engagement

An HPNA valuation is provided under a written engagement agreement made before the work starts. That agreement, and the report itself, set the terms on which the valuation may be used. How it works describes the process, from the first discussion to the final report.

A report is addressed to the party who engaged us and is prepared for the purpose stated in it. It should not be used for a different purpose, quoted in part, or provided to anyone else without our written consent. Where consent is given, it does not create a duty to that other party unless we say in writing that it does.

A report speaks as at its valuation date. We are not obliged to update it, or to consider events that happen after it is issued, unless we are engaged separately to do so. Where a report is prepared for a legal or dispute process, any additional requirements of that process are dealt with in the engagement agreement for that matter.

Information supplied by others

A valuation relies on financial statements, tax returns, management reports, registers, agreements and explanations supplied by the business and its advisers. Unless the engagement says otherwise, that material is not audited and we do not verify it independently. A valuation engagement is not an audit, a review or a due diligence engagement, and it is not designed to detect fraud, error or non-compliance. We do test what we are given for internal consistency and against the operational picture, and the report says what we relied on and what we did not examine.

Third party websites and sources

Links on this website to government, regulator and industry sources are provided so that you can read the original. We do not control those sites and are not responsible for their content, accuracy or availability. A link is not an endorsement.

Liability

Nothing in this disclaimer excludes, restricts or modifies any guarantee, right or remedy under the Australian Consumer Law that cannot lawfully be excluded, restricted or modified. The Australian Competition and Consumer Commission states that the basic rights covered by consumer guarantees cannot be taken away by anything a business says or does. Subject to that, and to the extent the law allows, HPNA is not liable for any loss or damage arising from your use of, or reliance on, the content of this website. The limits that apply to a valuation engagement are set out in the agreement for that engagement.

Contact

Beach Group Australia Pty Ltd (ABN 17 699 866 718), trading as HPNA. Enquiries go through the form on our contact page. If you want a valuation rather than general information, start at request a valuation.

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