Non-profit health systems are increasingly interested in making minority investments in other NFPs within their service area as a means to affiliate with financially healthy hospitals and systems that wish to maintain independent local control. These minority investments in successful smaller organizations that share a common charitable mission can be an efficient use of philanthropic resources for larger systems, as the smaller organization may be better positioned to maximize the impact of the funds.
In a recently announced example, AdventHealth, a large integrated health system with 46 hospitals across nine states, has acquired a 25% minority interest in Health First, Inc., a community based non-profit health system located in Brevard County, Florida. According to AdventHealth's financial statements, they invested $125m at the January 3, 2020 closing with two remaining installments to be paid in 2021 and 2023 with a total fair value of $350m - which implies a total valuation of $1.4b.
According to their financial statements, Health First had approximately $600m of debt as of September 30, 2019, which was offset by slightly over $700m in investments. Assuming these items essentially cancel each other out, a $1.4b valuation works out to the following:
0.81x LTM revenue of $1.74b
9.5x LTM EBITDA of $147.6m
Eliminating the $100m of net non-operating assets ($1.3b total valuation) works out to:
0.75x LTM revenue
8.8x LTM EBITDA
These multiples, which are above the median for similar sized systems according to our database, seem to imply that little, if any, minority interest discount was applied in the valuation.