Whats the formula for pricing a TPA firm to buy or sell?
There is no rhyme or reason to valuing TPA firms….further confused by lots of misleading stories & data. A brain-storming discussion at an SPBA meeting once identified 22 different types of pricing formats. Every deal is very personal & unique…depending on the innermost reasons & intentions of both the buyer & seller. Since the seller usually stays on for a few years, we strongly suggest that before the deal is finally consummated, buyer & seller should sit down and have a very candid discussion….as if they were getting married, because that’s the kind of relationship it is. So, while still saying there is no rule of thumb, it seems that “normal” pricing seems to plot a graph of 3 to 7 times of net income of the firm compared to with the graph of 1 to 1 1/2 times gross income (if it is a healthy profitable firm). Where those two intersect gives at least a theoretical starting point.
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- Whats the formula for pricing a TPA firm to buy or sell?
