Lab Valuation

sidesh0wb0b

sidesh0wb0b

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i know its been discussed here and there from time to time, but lets have another honest dialogue about how we valuate laboratories. for 2 main reasons....
first, anyone looking to buy out another lab will need to know these things!
and second, anyone looking to exit one day will need to know

now obviously there are many many varying factors, so lets put them all into play. size of the lab, type of lab (c/b, full service, ortho, etc),up to date/digital or analog, region of the country, competition in the area, and anything else. ive seen valuations that are up to 10x annual sales or more, and ive seen valuations that are equal to or just under annual sales. what are your thoughts and why?
 
CatamountRob

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The question can’t be answered as posed.
If you’re talking about a lab where a single person is responsible for everything that goes out the door, then it’s worth whatever it’s real assets are worth. That includes a lab with a couple people working in support of the owner.
If you’re talking about a lab that can produce work in your absence, then you’ve got a real business that has value beyond its assets.
 
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sidesh0wb0b

sidesh0wb0b

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The question can’t be answered as posed.
If you’re talking about a lab where a single person is responsible for everything that goes out the door, then it’s worth whatever it’s real assets are worth. That includes a lab with a couple people working in support of the owner.
If you’re talking about a lab that can produce work in your absence, then you’ve got a real business that has value beyond its assets.
im referring to both those situations. i realize that a small 1-6 person lab is highly dependent upon the owner and his/her relationships with the clients. im just adding information in one place for everyone. there IS a value to those small labs, albeit not much more than the tangible assets and real estate contained within the lab.
 
user name

user name

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I work alone, so my 'lab' has no value without me. I have cultivated relationships and provide a product and a service. Reliable.
I don't see someone stepping in and taking over if I just drop, but I could work someone in at some point. My building is paid for, so it could be rented out for a modest income boost to my daughter.

Leonardos work shop wasn't a business.
 
Jason D

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ok here are some basics:
Why is the owner selling?
- retiement
- growing and cannot afford the expansion costs
- tired of running the show and wants to be a tech with someone else having the business headaches

Why is the Buyer buying
- desire to be in the business space (first time lab buyers)
- expand market share or geography of a current lab business
- Capture key assets (IP, specific techs, systems)

These two have to be aligned, the right buyer for one lab is not the right buyer for another, and preparation needs to be made BEFORE an owner wants to put their lab on the market. It's NOT just calling around or hiring a consultant. proper sale of a business is something that should be prepared for at least 3 years in advance of an anticipated sale. Failing to do this drops the sale price considerably!

There are two very different animals as a buyer or a seller:
the 1-15 person lab
(note, 10 years ago this category might have been the 1-5 person lab, but average lab size has gone up dramatically - primarily because so many small labs have closed and technology makes scaling a lab easier than in the past.)
The value of this lab is the owner and a succession plan. If the owner still manages the primary customer relationships then it is expected that more than half the clients will leave when the owner does. Therefore it tends to be an asset purchase or tiny multiple like 1-3x EBITDA.

If the owner is a more passive participant, perhaps a technician that has a strong business manager and the owner likes to sit at the bench but not run the business, that improves the value, if they have good systems that also improves. Although the assumption is that if their systems are good they would not still be in this size category...soo there needs to be a story there....
If they have a strong number 2 & 3 employee who are remaining with the business and capable of running it after the owner leaves that can help.

Buyers of this kind of lab fall into 2 categories: large groups looking to fold the lab assets/clients into their own operations, and small investors who think they can buy a lab and run it better.

One of the most likely examples would be a local medium lab that wants to grow and would rather buy the business than spend the time marketing. So if you want to sell a solid 1 million dollar lab, the first place I would go is to talk to the local 4-10 million dollar labs.

Large groups without a local presence and venture capital firms will not touch a lab in this size category unless there is a very specific reason, usually they are buying 3-5 of them and putting them together to take over a small geography, as DSG has done in recent years.

next, the medium to large lab. more to come....
 
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sidesh0wb0b

sidesh0wb0b

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ok here are some basics:
Why is the owner selling?
- retiement
- growing and cannot afford the expansion costs
- tired of running the show and wants to be a tech with someone else having the business headaches

Why is the Buyer buying
- desire to be in the business space (first time lab buyers)
- expand market share or geography of a current lab business
- Capture key assets (IP, specific techs, systems)

These two have to be aligned, the right buyer for one lab is not the right buyer for another, and preparation needs to be made BEFORE an owner wants to put their lab on the market. It's NOT just calling around or hiring a consultant. proper sale of a business is something that should be prepared for at least 3 years in advance of an anticipated sale. Failing to do this drops the sale price considerably!

There are two very different animals as a buyer or a seller:
the 1-15 person lab
(note, 10 years ago this category might have been the 1-5 person lab, but average lab size has gone up dramatically - primarily because so many small labs have closed and technology makes scaling a lab easier than in the past.)
The value of this lab is the owner and a succession plan. If the owner still manages the primary customer relationships then it is expected that more than half the clients will leave when the owner does. Therefore it tends to be an asset purchase or tiny multiple like 1-3x EBITDA.

If the owner is a more passive participant, perhaps a technician that has a strong business manager and the owner likes to sit at the bench but not run the business, that improves the value, if they have good systems that also improves. Although the assumption is that if their systems are good they would not still be in this size category...soo there needs to be a story there....
If they have a strong number 2 & 3 employee who are remaining with the business and capable of running it after the owner leaves that can help.

Buyers of this kind of lab fall into 2 categories: large groups looking to fold the lab assets/clients into their own operations, and small investors who think they can buy a lab and run it better.

One of the most likely examples would be a local medium lab that wants to grow and would rather buy the business than spend the time marketing. So if you want to sell a solid 1 million dollar lab, the first place I would go is to talk to the local 4-10 million dollar labs.

Large groups without a local presence and venture capital firms will not touch a lab in this size category unless there is a very specific reason, usually they are buying 3-5 of them and putting them together to take over a small geography, as DSG has done in recent years.

next, the medium to large lab. more to come....
thats some good info right there, jason. thank you!
i would like to add as mentioned above...there are some additional unique factors for small labs... such as c/b strictly versus being full service. while that doesnt add a bunch to the valuation numbers, it become more attractive to potential buyers.
 
CatamountRob

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thats some good info right there, jason. thank you!
i would like to add as mentioned above...there are some additional unique factors for small labs... such as c/b strictly versus being full service. while that doesnt add a bunch to the valuation numbers, it become more attractive to potential buyers.
That’s not necessarily true, some buyers might look at it as a negative if they lack expertise in that particular discipline.
 
OP
sidesh0wb0b

sidesh0wb0b

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That’s not necessarily true, some buyers might look at it as a negative if they lack expertise in that particular discipline.
ok, fair assertion. im going on the basis that the labs we are discussing are at least experienced in the field they are practicing hahaha! there are less and less half-assed labs annually. what are we down to 7000 or less labs in the country? from like 15-18k a few years ago? the ones not keeping up with technology and the changes we all face are the ones closing up shop, generally speaking of course
 
BlakeHarting

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I have a powerpoint for a class Chuck Yenker did on lab valuation. I don't know if I should post it publicly or not... probably not.

If someone wants it PM me and I can send it to em :cool:
 
rkm rdt

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The question can’t be answered as posed.
If you’re talking about a lab where a single person is responsible for everything that goes out the door, then it’s worth whatever it’s real assets are worth. That includes a lab with a couple people working in support of the owner.
If you’re talking about a lab that can produce work in your absence, then you’ve got a real business that has value beyond its assets.
Unless your lab can be converted back to a strip club someday.
 
P

Pacgnathsteve

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I have a powerpoint for a class Chuck Yenker did on lab valuation. I don't know if I should post it publicly or not... probably not.

If someone wants it PM me and I can send it to em :cool:
I have a powerpoint for a class Chuck Yenker did on lab valuation. I don't know if I should post it publicly or not... probably not.

If someone wants it PM me and I can send it to em :cool:
Hey Blake, I would like to see the info regarding valuation.
You can send it [email protected]
Thanks so much
 
M

MintsD

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I have a powerpoint for a class Chuck Yenker did on lab valuation. I don't know if I should post it publicly or not... probably not.

If someone wants it PM me and I can send it to em :cool:
Hi Blake, can you please send me the PowerPoint presentation to [email protected]
Thanks
 
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