While consideration of the individual facts, circumstances, and local competitive position of each subject imaging center is integral to an accurate business-valuation analysis, a thorough understanding of the state of the imaging industry—particularly the acquisition environment—is crucial to performing an accurate and complete valuation. Radiology Business Journal recently published the results of its third annual survey¹ related to the top 20 imaging-center chains and the larger economic environment in which they operate. These data can be used to gain a better understanding of how the valuation of imaging centers will trend in 2013 (and beyond).
Industry data, such as those in the imaging-center–chain survey, are very important to valuation analysis. Properly incorporating such industry data into the key assumptions and components of the valuation transforms the valuation analysis from a mathematical exercise into a meaningful and useful assessment of the market value of the subject imaging center. As the trend toward consolidation in the marketplace continues, it will be critical for owners of imaging centers to understand the value of their organizations fully—the better to assess their options as the marketplace evolves.
Key Valuation Takeaways
Many trends identified in the survey are positive, from a valuation perspective. As in the past nine out of 10 years, the number of total imaging centers increased in 2012. This increase in total imaging capacity is interesting, given the challenging reimbursement environment, and might be attributable to an anticipated increase in total patient volume following the implementation of the individual mandate of the Patient Protection and Affordable Care Act in 2014.
The imaging-center chains that made it into the top 20 remained stable, signifying that large industry players are maintaining and/or growing their strength in the marketplace. In total, the top 20 companies increased the number of centers owned by over 100 centers. It is interesting that a large number of the additions were acquisitions, indicating that there is clearly an active market for imaging centers. This active market is a hallmark of a healthy industry. The data in surveys such as this can provide assistance to the valuation analyst in formulating a basis for both growth assumptions and acquisition-market conditions.
Growth Assumptions
Income-approach factors such as profit margins, volume, revenue per study, equipment age and competitiveness, and staffing ratios can only be derived through data due diligence and management interviews at the local subject-company level. The results of the top 20 survey indicate that expectations for future exam volumes are strong, as evidenced by the increase in total imaging centers (which can be interpreted as a collective bet on future exam growth).
These data can be interpreted as the belief, on the part of strong operators, that they will be able to take advantage of the volume increase, despite being paid less for each unit. Any valuation of an imaging center, therefore, must assume that future operations will require increased efficiencies, and that the subject center must be structured to adapt to an environment in which reimbursements will continue to decline.
State of the Acquisition Market
These adjustments can be seen in the actions of leading imaging-center chains. For instance, Howard Berger, CEO of RadNet, notes that over the past several years, assets have been bought and sold for historically depressed multiples (typically three to four times trailing EBITDA) for some smaller operators. He adds that merger/acquisition activities remain robust for RadNet.
Based on the data in the survey, there was significant activity by the top 20 imaging-center companies in 2012. They constitute a robust, well-capitalized group of elective buyers of imaging centers. This fact provides analytical support for optimistic estimates of future performance in the imaging-center marketplace. Buyers might be acquiring imaging centers at reduced prices, but the fact that they continue to acquire them, all the same, signifies confidence in the future of the industry. Potential sellers can capitalize on this confidence, with the right strategy.
Summary
Valuation experts use imaging-industry data to add market-specific analysis to mathematical formulas, and projections based on these data can be used by imaging-center owners to gain a better understanding of their positions in the marketplace. Our analysis of the most recent top 20 imaging-center–chain data generates significant insight into the state of the imaging industry, going into 2013.
It is clear that the strong players in the field are stable, are well capitalized, and are actively taking advantage of the struggles of weaker players to expand and strengthen their companies for anticipated future volume increases. This industry activity signals a healthy market segment—one in which companies that can demonstrate strength, stability, and management skills not only can survive, but can thrive.
Elliott Jeter, CFA, CPA/ABV, is a partner with VMG Health; Colin McDermott, CPA/ABV, is a manager with the company.