Today’s urgent care center has become a highly regarded primary care delivery model, sought after by physicians, group practices, hospitals, and management companies because of its unique appeal to providers and patients and its prospects for continued profitability. With busy emergency rooms and longer wait times for primary care clinic appointments, the urgent care center (UCC) gives low-acuity patients a convenient option for affordable primary care. For physician groups, the UCC appeals to the suburban market segment and patients who prefer a no-appointment-necessary format and short wait time for minor injuries or illnesses. For hospitals, the UCC relieves expensive emergency departments and represents a primary care entry point into the system.
The UCC’s desirability isn’t lost on investors. The relatively low level of startup capital required to open the doors in a de novo venture is attractive, while the regulatory burden is relatively light compared to some alternatives. Likewise, the fairly limited scope of services makes the UCC less operationally complex. Moreover, given the high regard for UCCs, a wide range of investors, including corporate, individual, franchise, and PE investors; physicians and physician groups; and hospitals and health systems hold interests in UCCs. The acquisition market is active in many areas, and all-out consolidation is likely in others.
Given the prospects for high M&A volume, the inevitable question surrounding UCC valuation multiples is on the tip of the tongue for many stakeholders. While multiples based on earnings may be in the common market vernacular, these are generally based on historical data and focus less on local market conditions and specific rates negotiated with payers. The income approach, generally of prime consideration in the application of generally accepted business valuation methodology by valuation analysts, looks to anticipated future cash flows, discounted to today’s value with techniques that take into account the risk associated with the investment in the business enterprise.
Risk factors that have a bearing on value, particularly when the valuation is derived from the discounted future cash flows methodology, often include (but are not limited to) the following:
While not all of the above factors can be controlled by UCC owners and management, some factors are controllable and should be monitored. We advise UCC owners to contemporaneously document as many controllable factors as reasonably possible and make every effort to manage the facility in a way that optimizes the UCC’s value and marketability. We advise buyers to perform due diligence in these areas and in the areas of regulatory compliance to ensure that the facility is operating on sound footing. As always, we also advise one or both parties to engage healthcare legal counsel to give legal advice in transactions such as these. We also recommend that valuation analysts with experience in this unique niche market be brought in early in the process for financial guidance and a fair market value conclusion related to the transaction.
For weekly insights into healthcare, please sign up here: