Learn how Withum worked with a well known practice to establish a higher fair market value, leading to a successful renegotiation of purchase price.
Executive Summary
Withum was engaged by the physician owner of an orthopedic practice and its related real estate to determine whether the value placed upon the practice by a suitor was reasonable. The suitor, a large hospital, engaged a valuation firm that put a $6.0 million value on the practice. Withum performed its own analysis and provided calculations of value that estimated a range of value between $7.2 million and $8.0 million. In addition to the practice valuation, Withum was engaged to determine the value of related real estate if it were to be sold and to determine the fair market value rent if the property were not sold but rather rented by the practice.
The Client
An orthopedic and sports medicine practice in Florida with an annual revenue of nearly $7 million.
The Challenge
The client felt that the value placed upon the practice was understated and was uncomfortable with the real estate value and the proposed rent to be paid by the practice. As Withum’s team delved into the records, it became apparent that given the recent hiring of physicians, the valuation figures used by the hospital’s expert failed to account for future revenue and resultant income, thereby understating the value of the practice. In addition, given the interplay between the practice and rental property, fair market value rent must be considered.
The Approach And Solution
Withum analyzed the historical results of the practice and key metrics. Based on the analysis, a discounted cash flow analysis was prepared, making assumptions that allowed the practice owner to negotiate a higher value for the practice while accounting for the increased rent expense. As a result, the agreed-upon value for the practice was $7.0 million. Withum’s real estate appraisers also determined that real estate was undervalued. Unless the hospital was willing to increase its offer, it made sense for the client to continue to own the real estate and enter into an updated lease agreement with the practice.
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