EBITDA Multiples for Healthcare Businesses

What is an EBITDA multiple?

EBITDA is earnings before interest, tax, depreciation and amortisation: trading profit before the cost of debt, before tax, and before the accounting charges for consuming equipment, fitout and intangibles. It proxies operating cash generation, letting a buyer compare businesses whose funding, tax position and asset ages differ.

It is not a measure the accounting standards define or require: EBITDA is a subtotal the preparer constructs, so the same label can describe two different calculations. That is the first reason to treat a quoted multiple carefully.

An EBITDA multiple is the figure applied to that earnings measure to arrive at a value: what a buyer will pay today for each dollar of earnings the business is expected to keep producing.

A multiple is a capitalisation rate turned upside down

The formal method behind a multiple is capitalisation of future maintainable earnings. Maintainable earnings are the earnings the business can reasonably be expected to sustain, on a normalised basis, from the valuation date, the date the valuation speaks as at. Capitalisation divides that annual figure by a capitalisation rate, the return a buyer requires for accepting the risk that the earnings do not eventuate. A multiple is the arithmetic inverse of that rate, the same judgment expressed two ways.

A higher multiple says a buyer requires a lower return, and a buyer requires a lower return only when the earnings look dependable. The multiple is a risk conclusion, not a market convention.

The rate also carries a growth expectation: it is the return a buyer requires, less the growth the capitalised earnings are expected to sustain indefinitely. Two practices can carry the same risk and support different multiples if one has fundable headroom and the other is at the capacity of its rooms and roster.

The Australian Taxation Office describes the income approach as estimating market value "based on the income or cashflows that the asset can be expected to generate in the future", within which a valuer might apply capitalisation of earnings or discounted cash flow, which discounts each period of forecast cash flow back to present value. ASIC contemplates applying earnings multiples "appropriate to the business or industry in which the entity operates" to estimated future maintainable earnings, added to the realisable value of surplus assets. The multiple is an output of that analysis, not an input from a table. See healthcare business valuation methods.

Why a sector multiple tells you very little

Sector multiples circulate constantly in healthcare: one figure for general practice, another for pharmacy, another for allied health, another for NDIS providers. Owners treat them as market facts. They are usually anecdotes with a decimal point.

The earnings basis is unknown. A price divided by an unspecified earnings figure produces an unspecified multiple. Were the earnings reported or normalised? Was a market rate of remuneration deducted for the owner practitioner's clinical work? Was payroll tax on contracted practitioners included? Small differences in the denominator move the apparent multiple a long way.

The deal terms are unknown. Headline prices absorb earn-outs, deferred consideration, retained equity, restraint payments, stock at valuation, work in progress and the lease. An earn-out is not cash at completion.

The subject is unknown. A sale of a business and its assets is not the same transaction as a sale of shares in the company that owns it, with its history, tax position and liabilities.

The businesses are not comparable. Two practices with identical revenue in the same discipline can be entirely different assets.

The Australian Taxation Office's list of issues it commonly sees when reviewing valuations reads like a catalogue of multiple misuse: "lack of support for size, risk and other adjustments to the chosen discount rate or capitalisation multiple", "inappropriate choice of comparable assets on which to base valuation", and "insufficient market evidence for inputs and assumptions".

Price and value also differ. Market value is the price a knowledgeable, willing but not anxious buyer and an equally knowledgeable, willing but not anxious seller would agree at arm's length. A reported price is narrower: what one buyer paid in one negotiation, and it can carry special value open only to that buyer, such as the savings a group expects from absorbing another site into its own management. ASIC directs that special value of that kind be left out of the fairness comparison, so such a price is evidence to adjust, not a benchmark to copy.

Reported EBITDA is rarely the EBITDA you capitalise

Normalisation restates reported results to show what the business would earn under normal, arm's length operation. It matters more in healthcare because so much of the reported result reflects owner and tax decisions rather than commercial ones: see what is maintainable earnings. The adjustments that most often move a healthcare EBITDA figure are:

• Owner practitioner remuneration. A doctor, dentist, pharmacist, physiotherapist or psychologist who owns the practice and also treats patients fills two roles. The clinical role is costed at a commercial rate before the remainder is a return on the business, so practices where the owner takes drawings rather than a salary overstate EBITDA.
• Payroll tax on practitioner arrangements. Payroll tax treatment of payments to contracted practitioners differs between states, and whether a liability is provided for changes both the earnings and the risk. In New South Wales the Bulk Billing Support Initiative, available since 4 September 2024, rebates payroll tax on payments to general practitioner contractors, but only where the medical centre bulk bills at least 80% of its general practitioner services in metropolitan Sydney, or at least 70% in other areas. Revenue NSW states the rebate "only applies to payments to GP contractors", not to general practitioners engaged as employees or to other staff. See payroll tax and medical practice value.
• Related party rent. Where the premises are owned by the practitioner or a family trust, rent may sit well above or below market. A market rent is substituted and the property dealt with separately.
• Funding program changes. Department of Health, Disability and Ageing guidelines for the Bulk Billing Practice Incentive Program, which opened on 1 November 2025, state that participating practices receive an additional 12.5% incentive payment on every dollar of MBS benefits paid from eligible services, split evenly between the general practitioner and the practice, and must bulk bill every eligible MBS service for all Medicare-eligible patients. A practice that changed billing model mid-year shows a result reflecting neither.
• One-off and non-business items. Grants, insurance recoveries, incentive payments that have ceased, a fitout expensed rather than capitalised, private motor vehicle and travel costs, and family members on the payroll who do not work in the business.

EBITDA, EBIT, or EBITDA less sustaining capital expenditure?

Depreciation is not a fiction in a healthcare business. Dental chairs and imaging units wear out, dispensing automation must be replaced, fitouts date, and in-home care providers run vehicle fleets. A multiple applied to EBITDA prices earnings before any of that.

There are three common responses. EBIT, earnings before interest and tax, captures asset consumption through the depreciation charge, although that charge is an accounting allocation and may bear little relation to the real replacement cycle. EBITDA less sustaining capital expenditure, the spend needed to keep the asset base producing the assessed earnings, is often the more honest measure for equipment heavy practices. The third is to stay with EBITDA and carry the capital burden in the multiple.

All three can be defensible. Mixing them is not: an EBITDA multiple and an EBIT multiple are different numbers describing the same business, so a multiple observed on one basis cannot be applied to earnings measured on another.

What moves the multiple for a healthcare business

The multiple is built from the risks attaching to these particular earnings. The drivers below do most of the work in healthcare, and several are covered further in what drives value.

Scale, earnings quality and the buyer pool

Larger earnings streams are generally less volatile, less dependent on any one person and better systematised, and open a wider pool of buyers, including consolidating groups in general practice, dental, veterinary and allied health. The pool narrows where the asset is tied to a place: the Pharmacy Location Rules, made under the National Health Act 1953, set location based criteria that must be met before the Australian Community Pharmacy Authority can recommend approval of a new pharmacy or a relocation. A thin buyer pool raises the required return whatever the earnings look like.

Practitioner dependence and the transferability of goodwill

This is the central question in most healthcare valuations. Goodwill is the value attaching to the business beyond its identifiable assets. Personal goodwill belongs to the practitioner and walks out the door with them. Transferable, or commercial, goodwill attaches to the location, brand, systems, referral relationships and the patient or participant base, and survives a change of owner. Key-person risk, the dependence of earnings on one individual, compresses the multiple sharply. See practitioner dependence.

Funding exposure

The more a business depends on a funded price it does not set, the more its earnings can be changed by a decision it cannot influence. NDIS supports are delivered against price limits set by the National Disability Insurance Agency and tested through its Annual Pricing Review, with the 2026-27 price limits and pricing arrangements due to be implemented on 1 July 2026. Medicare benefits and practice incentives are set and varied by the Commonwealth. In-home aged care changed structure entirely when the Support at Home program replaced the Home Care Packages Program and the Short-Term Restorative Care Programme on 1 November 2025.

Funded revenue is not poor revenue and can be steadier than private demand, but a buyer prices the exposure. A provider whose income sits almost entirely inside one program prices worse than one spreading private billing, funded work and Department of Veterans' Affairs services: see government funding exposure.

Workforce

Healthcare labour is not substitutable. Ahpra works in partnership with the National Boards to implement the National Registration and Accreditation Scheme under the Health Practitioner Regulation National Law, so a thinning roster cannot be refilled from outside the profession. A practice that cannot recruit cannot grow, and one whose senior clinicians are near retirement carries an earnings cliff.

How practitioners are engaged matters as much as how many: restraints, notice periods, whether service fees are documented, and whether the terms survive a change of owner. See the clinical workforce.

Compliance and regulatory obligations

Healthcare sectors answer to different regulators: a treating practitioner to Ahpra and the relevant National Board, and a registered NDIS provider to the NDIS Quality and Safeguards Commission, which shares stewardship of the disability support market with the National Disability Insurance Agency and the Department of Health, Disability and Ageing. Conditions on a registration, an approaching audit or an unresolved revenue office position all change how confidently a buyer can assume the earnings continue.

Premises and lease

For location dependent businesses the lease is close to the asset. Short remaining terms, no options, demolition clauses or a landlord related to the vendor all reduce the certainty of the earnings, and so the multiple. See premises and lease terms.

Growth and capacity

Demonstrated, funded growth a buyer can continue supports a higher multiple. Growth needing capital the buyer must supply, or capacity the premises cannot hold, does not. Aspiration is not growth.

What a multiple produces, and what it does not

Applying a multiple to normalised maintainable EBITDA produces enterprise value: the value of the operating business, before the way it is funded. That holds only if the multiple was derived on the same basis, from whole-of-business evidence. It is not the amount an owner receives.

Equity value, the value of the owners' interests, follows after deducting interest bearing debt, adding the realisable value of surplus assets that do not contribute to the earnings, and adjusting where working capital (stock, debtors and creditors) differs from the level needed to sustain the assessed earnings. ASIC makes the surplus asset step explicit. Working capital usually passes to the buyer in a share sale, but is often settled separately when the business and its assets are sold.

The result also implies a goodwill figure. Where enterprise value exceeds the value of the identifiable assets the buyer receives, being plant, equipment, fitout and stock, the difference is goodwill. Where it does not, the net assets basis, assets less liabilities, may give the better conclusion, common where earnings barely cover a commercial wage for the working owner.

Control interests and minority interests

Multiples observed in whole-of-business sales are control multiples: the buyer acquires the ability to set strategy, appoint practitioners, fix remuneration, decide distributions and sell the business. A minority shareholding carries none of that. Multiples from trading in listed healthcare shares sit at the other end, reflecting small parcels bought and sold freely, and are not interchangeable with the multiple for an unlisted practice.

The earnings base has to match. Normalisation adjustments such as resetting owner remuneration or related party rent assume someone can change those arrangements. A minority holder cannot, so applying a control multiple to fully normalised earnings and calling the result the value of a minority parcel counts the same benefit twice.

ASIC notes that "Some valuation methodologies include a premium for control while others do not", and that the methodology must suit the transaction. In regulated control transactions it directs that the comparison be made "assuming 100% ownership of the target", so a discount on the basis that the shares are "a minority or portfolio parcel of shares" is inappropriate there.

Outside that context the basis is not automatic. It turns on the purpose, the shareholders agreement or constitution, any pre-agreed valuation mechanism, and the rights the parcel carries: see share and equity valuations, a shareholder exit or a family law matter.

How HPNA derives a multiple

We build a multiple. We do not look one up.

1. Define the engagement. The subject (business, shares or an interest), the valuation date, the purpose and the basis of value are settled first, because they decide which evidence is relevant.
2. Normalise the results. Several reporting periods are restated for owner remuneration, related party rent, practitioner engagement costs, funding changes and one-off items, and the trend is examined rather than averaged. The Australian Taxation Office lists inappropriate use of averaging among the issues it sees.
3. Assess maintainable earnings. We form a view of the earnings the business can sustain from the valuation date, given its capacity, workforce, funding and premises.
4. Assess the risk. Each driver above is worked through for this business, using the practitioner agreements, the lease, the payer mix, the registration position and the roster.
5. Test against market evidence. Transaction and, where available, listed evidence is adjusted for the differences that make it non-comparable.
6. Cross-check and explain. For tax purposes the Australian Taxation Office says it is highly recommended that a secondary or cross-check methodology is provided where possible, so a capitalisation conclusion is tested against net assets and, where forecasts are reliable, against discounted cash flow. The report then sets out how the multiple was reached, so an accountant, a lawyer or a revenue authority can test it.

This is general information, not advice on your position, and any adjustment should be confirmed with your accountant or lawyer. For a view of what your practice is worth, request a valuation, read the valuation methods library, or see the pages for medical practices, pharmacies, NDIS providers and allied health.