Business Valuation

Do you know your price ?

When a PE Fund Came Knocking, I Did Not Know If the Price Was Right.

“A PE fund puts a valuation on the table. I don’t know whether to feel pleased or suspicious” – my client called me on Sunday morning.  Both instincts turn out to be correct.

The Situation

One of my clients came to me after a private equity fund had approached them. It is a 100-bed oncology hospital in a Tier 2 city — one of the pioneers of cancer care in that region. The two founders, both oncologists, had built it over 14 years. The hospital was running well. Monthly revenue was healthy. EBITDA margin was 30%. No debt. No outside investors. The founders had never thought about selling a stake. Then a PE fund called and put a number on the table. My client did not know what to do with it.

The Problem Underneath

My client thought the question was: is this a good offer? Not really. The real question was different — is this number based on what my hospital is actually worth, or is it based on what the fund feels comfortable paying? Those are two very different things. A PE fund’s opening valuation is built on their model, using assumptions they are comfortable with, assumptions that protect their return. My client had no independent number to hold against it. That is a very difficult place to be — when someone is sitting in front of you with a lucrative-looking offer, and you cannot tell whether it is truly lucrative or not. Not just financially. In every way that matters.

What We Found

The fund had offered a 9x multiple on their version of normalised EBITDA. When we rebuilt the financials properly, the normalised EBITDA itself looked very different. The gap came from two places.

First, the founders had been drawing their own salaries inconsistently. In good months they took more. In lean months they took less. The fund had used the higher-draw months which inflate the apparent cost, and  pushed EBITDA down. Second, we were already working on clear operational improvements with the hospital — better pharmacy management, tighter billing controls, and a few department-level changes — that would add meaningfully to profitability within the first year.

This hospital had something that numbers alone do not show. It was built on the reputation of its founders — doctors who patients travelled distances to reach. That kind of brand, built over 14 years, and the position of being a pioneer in their field, is real value. It does not belong in the fund’s column.

Numbers don’t lie. But numbers in isolation are never the full story. Value includes what the numbers cannot capture — the brand a founder has built, the trust patients carry across districts, and the growth that is already visible but not yet on any balance sheet.

What We Did

We built an independent valuation using three methods: an EBITDA multiple, a discounted cash flow, and a review of comparable oncology hospital transactions over the past two years. All three pointed to a range meaningfully higher than the fund’s opening offer. We prepared a clean financial summary — segmental revenue, physician contribution margins, occupancy trends, and a clear bridge showing exactly where our number differed from the fund’s and why. My client’s legal advisor used this to reopen the commercial discussion. The fund did not walk away but set across the table to close the deal with revised assumption.  

Beyond the valuation, we helped my client understand what the deal actually meant in practice. What would change in their day-to-day working life — with patients, with the clinical team, with decisions that had always been theirs alone. The doctor’s own remuneration was benchmarked to market rate. The exit price formula was agreed upfront so there was no ambiguity later. Drag-along and tag-along rights were explained plainly — what happens if the fund wants to sell and my client does not, and what protections exist in that situation. The non-compete clause was reviewed carefully so it did not go beyond what was fair. A valuation is not just a price. It is the base on which every other term in the deal is built.

The Outcome

The final agreed multiple was higher — and it was applied to a higher base. My client sold a strategic minority stake, kept clinical governance as a protected right, and negotiated a defined exit window in year four. Importantly, my client went into this with full awareness. The risks were not hidden. Every significant term was a conscious decision, not a surprise discovered after signing.

What This Means For You

If a fund has given you a valuation, do not react to the number first. Find out what assumptions are sitting underneath it. Compensation treatment, operational upside, doctor brand value — each of these can move the effective value by crores. In my view, no doctor-founder should enter that conversation with only the fund’s model on the table. You need your own number before you can negotiate.

Clinicatalyst Note

If a fund has approached you and something about the offer does not feel right — even if you cannot put your finger on it — that instinct is worth a conversation. This is exactly the kind of work Clinicatalyst does before a founder signs anything.

Frequently Asked Questions

It is their starting position, not your hospital’s true worth. You will only know if it is right when you have your own independent number to hold against it.
It depends on the real potential of the industry and your hospital. The same will be affected by your reputation, profitability, occupancy, and payer mix — among many other parameters. You can benchmark it against recent transactions of similar hospitals. The multiple means nothing without verifying all of these.
Normalised EBITDA is your true recurring operating profit — adjusted for items that may not continue after the fund acquires the hospital.
The opening offer is always negotiable.
Your accountant reports what happened. The fund adjusts it based on the expected number in their eyes. You need a third number — your own normalised version — before you sit down with anyone.
It counts — but only if you put it on the table. You have to quantify it — through patient volumes, referral patterns, and outcomes data. Defend it as part of the valuation.
It depends. If your competitor are able to capture reasonable marker share , you all will be at par. If you have encashed benefit of the 1st mover, it will matter.
The financial reflects your past performance. While your businee valuation will consider your future potential. Due weightage will be given to trust, brand, and years of clinical relationships. Your job — and your advisor’s job — is to make sure those things are reflected in the final number..

It depends on terms of share holder agreement. Clinical independence is negotiable clause. You can cover it suitably in share holder agreement and to some extent in professional service agreement.

Your remuneration must be benchmarked to market rate and locked in the agreement before signing. It will be decided mutually with consent of both the parties.

Drag-along means if the fund wants to sell, they can compel you to sell too. Tag-along means if they sell, you have the right to sell on the same terms. One protects them. The other protects you. Both must be clearly defined before you sign.
This should be well defined before execution of agreement through various rights like tag along or ROFR (Right of first refusal) or some others… If not, you will be at the mercy of the situation

A non-compete restricts you from starting or joining a competing hospital for a defined period after exit. The geography and duration are negotiable. .
An exclusivity clause requires you to practice only with the acquirer’s company for a defined timeframe

This will define the price at the time of exit of investor. Without clear formula defined in advance, both the parties end up in confrontation for best return with each other.
Many points are not clearly defined in share holder agreement , if you sign it without understanding implication , you will be at risk. E.g board composition , your remuneration , reserved matters, committed return etc..
Understand each and every clase with help of exert in this area, not only legally but operationally. Do not sign if you do not understand any clause.
It depends. You have to benchmark it with your own valuation , understand other non financial factors and if the complete image is acceptable to you, it is good offer.

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