How to value a ZBC?

How to value a ZBC?

Valuing practices in the Netherlands

Frank Schepers

Master Thesis

University of Groningen

Faculty of Economics and Business

MSc Business Administration

How to value a ZBC?

Valuing practices in the Netherlands

Frank Schepers

Master Thesis

University of Groningen

Faculty of Economics and Business

MSc Business Administration

Specialization: Organizational and Management Control

August 2010

Supervisor: Prof. dr. D.W. Feenstra Co-supervisor: dr. E.P. Jansen

Preface

This master thesis is a result of the research I performed previous months. This research is completed in order to finish the study Business Administration at the Rijksuniversiteit Groningen. In this research I applied as much as possible the subjects that I learned during previous years.

In this thesis I describe the research that I performed to find out how analysts in the Netherlands value a ZBC. In order to be well prepared for the case studies I accomplished a literature study in which I performed a study to the most common valuation methods to value a health care organization. With eight interviews I researched the valuation practices in the Netherlands according to ZBC’s. Besides these valuation methods other remarkable issues around valuing a ZBC are described.

In March 2010 the first contact with Jeroen Schenk of Cure4Finance was established. Cure4Finance offered me the opportunity to write my masters’ thesis at their office. We had discussions about the topic of this research and finally this topic was developed. Therefore I would like to thank Jeroen Schenk and Hans Bonté of Cure4Finance for their knowledge, sources, network and their participation in the discussions with me. Besides them I would like to thank the other colleagues of Cure4Finance for their company and support. Furthermore, I would like to thank Prof. dr. D.W. Feenstra for his support during this process. His opinions, recommendations and knowledge were of big importance for this thesis. Without his supervision this thesis would not be the same.

For the moral support I would like to thank my friends and my parents, who made it possible that I could follow this study and made me who I am. A special thank goes out to my girlfriend, Marijke, who supports and encourages me in everything I do. Therefore thanks! Hopefully you will all enjoy reading this thesis!

Yours sincerely,

Frank Schepers

Management summary

The Dutch health care sector is liberalizing. Because of this liberalization more freedom is given to health care entrepreneurs. Therefore it is more easy to start up a so called zelfstandige behandelcentrum (ZBC). This development is followed with interest by private equity firms. Evidence shows (e.g. Holman, Mar. 2008, Holman, Dec. 2008, PWC 2009, and PWC 2010) that an increasing amount of private equity firms are investing in the health care sector. Because of their interest, the private equity firms need to value these ZBC’s. Little is known about the valuation methods used by the private equity firms to value ZBC’s. Therefore this research is done to find out which valuation methods are described in the literature and how analysts value ZBC’s. Because little is known about the valuation of ZBC’s, the correct research methodology is to perform an explorative research, according to Cooper and Schindler (2006). To accomplish this explorative research a case research is done. This is completed by eight interviews.

A ZBC can be compared with a small hospital or an organization for specialized medical care (RIVM, 2009). However, there are some differences. According to RIVM (2009), the differences lie in the fact that ZBC’s do not offer care with residence in the a-segment. The care that ZBC’s offer is care that can be planned and therefore is not acute, so the patient does not have to be offered residence. This contains assured care in the a- and b-segment. It is prohibited for ZBC’s to make profit. Any profit from the operation of a ZBC cannot be paid out to shareholders.

Literature describes two valuation methods that are most common to value a health care organization. These two valuation methods are the DCF method (income approach) and the multiplier method (market approach). According to the interviewees, these are the two most preferred methods to value a ZBC. It is remarkable to see that the multiplier method is preferred the most by the interviewees who work at a private equity firm. The DCF method is more preferred by the interviewees who work in other firms like a bank or a valuation firm, for example. Most interviewees who prefer the multiplier method use this method because it calculates more easy, it is less time consuming and to apply the DCF method a lot of assumptions have to be made.

The interviewees who use the DCF method use this method because they think it is more reliable and they can include specific firm risk and the small firm premium.

The literature describes several value drivers that can be applied to a health care organization. ZBC’s also have value drivers. According to the interviewees, quality is one of the most important value drivers. Besides quality there are other value drivers, for example, patient volume, the strength of the relationship with the person who is referring, production divergence, working capital, added value of the operation, reputation of the physician, price, volume, investment level, capital management, and level of debt.

investors state that the problem of management expectation can be dealt with during the negotiation. Also performance based pay could be a solution.

Table of contents

Chapter 1: Introduction... 8

1.1 Objective... 8

1.2 Research questions ... 8

1.3 Following chapters ... 9

Chapter 2: Research methodology... 10

2.1 Explorative research... 10

2.2 Quantitative vs. Qualitative research... 10

2.3 Sampling ... 12

2.4 Interview... 13

2.5 Reliability of evidence ... 14

Chapter 3: Health care sector and private equity... 15

3.1 Dutch health care sector ... 15

3.2 ZBC’s ... 15

3.3 Private equity and health care ... 16

Chapter 4: Valuation methods and other significant issues ... 17

4.1 Valuation ... 17

4.2 Income approach... 17

4.2.1 Income approach applied to health care ... 19

4.2.2 Difficulties of the income approach ... 21

4.3 Market approach... 22

4.3.1 Market approach applied to health care ... 23

4.3.2 Difficulties of the market approach ... 23

4.4 Asset approach ... 24

4.4.1 Asset approach applied to health care ... 24

4.4.2 Difficulties of the asset approach... 25

4.5 Health care entity valuation... 25

4.6 Other significant issues ... 26

4.7 Conclusions... 27

Chapter 5: Interview questions and relevant information ... 29

5.1 Interview questions... 29

5.2 Relevant interview information ... 31

Chapter 6: Results ... 33

6.1 Health care sector ... 33

6.2 Private equity investments... 33

6.3 ZBC’s ... 34

6.4 Valuation methods ... 36

6.5 Other significant issues ... 39

Chapter 7: Conclusions, limitations and suggestions for further research... 43

7.1: Answer to the key research question ... 43

7.2 Answers to the sub-research questions... 43

7.3: Other significant issues ... 45

7.4 Limitations of research... 46

7.5 Recommendations for further research ... 47

References... 48

Appendices ... 52

Appendix I: List of interviewees ... 53

Chapter 1: Introduction

The Dutch health care sector is liberalizing. Because of the liberalization more freedom is given to health care entrepreneurs. Therefore it becomes easier to start up a so called zelfstandige behandelcentrum (ZBC). This development is followed with interest by private equity firms. Evidence shows (e.g. Holman, Mar. 2008, Holman, Dec. 2008, PWC 2009, and PWC 2010) that an increasing number of private equity firms are investing in the health care sector. Because of their interest, the private equity firms need to value these ZBC’s. Little is known about the valuation methods used by the private equity firms to value ZBC’s. Therefore this research is done to find out which valuation methods are described in the literature and how analysts value ZBC’s .

1.1 Objective

The objective of this research is to find out how, according to the literature, to value a health care firm and how analysts in the Netherlands value ZBC’s. According to Phillips (2003), it is difficult to value a health care entity because there is no external stock price as a starting point for valuation and there is no standardized financial measure identified. Some articles, however, describe methods to value health care firms in the United States (Carden et al., 2010; Kominski, 2001; Endicott and Sinaiko, 2004 and Reilly and Schweihs, 2004). In this thesis these methods are compared to valuing practices in the Netherlands. Furthermore, other relevant issues regarding valuation are described.

1.2 Research questions

Based on the objective, several research questions are developed. The key research question is:

How do private equity firms in the Netherlands value ZBC’s and are there any differences compared to valuation models applied in the United States?

To answer this key research question, the following sub-questions have to be answered: 1. Are the investments of private equity firms in the health care sector in the

Netherlands increasing? a. If so, why?

2. What is a “Zelfstandige behandelcentrum” (ZBC)? 3. Which methods are used to valuate a company?

4. Are there methods to valuate a firm in the health care sector? a. If so, which methods?

5. Are there limitations to these models? a. If so, are there alternatives?

7. Are there any differences between valuation methods of health care firms described in the literature and the valuation methods of private equity firms in the Netherlands regarding ZBC’s?

a. If so, what are these differences and why are there differences? 1.3 Following chapters

Chapter 2: Research methodology

Because little research is done regarding valuation methods to value a ZBC, it is still a vague area. Therefore, according to Cooper and Schindler (2006), the correct research methodology is to perform an explorative research. In their book “Business Research Methods” Cooper and Schindler (2006) describe exploration as particularly useful when researchers lack a clear idea of the problems during the study. This is supported by Ryan et al. (2002). They state that explorative research, in particular case study research, is appropriate in areas where theory is not well developed.

Cooper and Schindler (2006) state that despite its obvious value, less attention to exploration is given by managers and researchers than it deserves. Managers and researchers sometimes link it to old biases about qualitative research: subjectiveness, nonrepresentativeness, and nonsystematic design, Cooper and Schindler (2006) state. They think it is more realistic to say that exploration saves time and money and should not be slighted. According to Gummesson (2005), quality criteria for quantitative studies, such as reliability and representativeness, cannot in general be applied to qualitative research. 2.1 Explorative research

The first step when performing an explorative research is to accomplish a literature review (Cooper and Schindler, 2006). The aim of the literature review is to receive more information on the examined topic. Moreover, this literature research determines the way in which the selected cases are approached (Ryan et al., 2002). Furthermore, Ryan et al. (2002) state that this literature should be as explicit and comprehensive as possible to make the research meaningful to others. For this thesis recent and historically significant books and articles of researchers who are familiar with this topic are examined to become more familiar with this topic. The literature study forms the basis of this thesis. The literature study starts with general information about valuation methods. Thereafter more specialized information on valuation methods is described. This includes methods to valuate a health care firm.

With the second step more in-depth information is gathered. This can be done with qualitative or quantitative techniques, although exploration research relies more heavily on qualitative techniques (Cooper and Schindler, 2006). Quantitative research can be done if researchers need to know what happened and or how often things happened. To tell researchers how and why things happen qualitative research is applicable (Cooper and Schindler, 2006). The following section describes more about whether to use quantitative or qualitative research.

2.2 Quantitative vs. Qualitative research

their experiences. This often requires research techniques that delve more deeply into people’s hidden interpretations, understandings and motivations (Cooper and Schindler, 2006). According to Atkinson and Shaffir (1998), qualitative research can be described as observing events in their natural settings and reporting them in a systematic way. In table 2.1 the main differences between quantitative and qualitative research in different areas are described. This table is based on work of Langer (2001), Mariampolski (2001) and Carson et al. (2001).

Table 2.1: Main differences between qualitative and quantitative research methods (Cooper and Schindler, 2006, p. 199)

Qualitative Quantitative

Focus of research

- Understand and interpret - Describe, explain and predict Research

purpose

- In-depth understanding, theory building

- Describe or predict; build and test theory

Sample size - Small - Large

Research design

- May evolve or adjust during the course of the project

- Often uses multiple methods simultaneously or sequentially - Consistency is not expected - Involves longitudinal approach

- Determined before commencing the project - Uses single method or mixed

methods

- Consistency is critical - Involves either a

cross-sectional or a longitudinal approach

Data type and preparation

- Verbal or pictorial descriptions - Reduced to verbal codes

- Verbal descriptions

- Reduced to numerical codes for computerized analysis Data analyses - Human analysis following

computer or human coding; primarily non-quantitative - Forces researcher to see the

contextual framework of the phenomenon being measured, distinction between facts and judgment less clear

- Always ongoing during the project

- Computerized analyses; statistical and mathematical methods dominate

- Analysis may be ongoing during the project

- Maintains clear distinction between facts and judgments

Insights and meanings

- Deeper level of understanding is the norm; determined by type and quantity of free-response

questions

- Researcher participation in data collection allows insights to form and be tested during the process

- Limited by the opportunity to probe respondents and the quality of the original data collection instrument

- Insights follow data collection and data entry, with limited ability to re-interview participants

and Schindler (2006), many senior managers interpret qualitative data as too subjective and sensitive to human error and bias in data collection and interpretation. These managers believe that qualitative research provides an unstable foundation for expensive and critical business decisions. They consider the fact that results cannot be generalized from a qualitative study to a larger population is considered a fundamental weakness. However, an increasing amount of managers make use of a qualitative study to found their business decisions, because quantitative techniques fall short of providing the insights needed to make these decisions (Cooper and Schindler, 2006).

According to many authors (among others: Cooper and Schindler, 2006, p. 198), managers who make use of qualitative research overcome the problems of trustworthiness of qualitative data through following methods:

• Carefully using literature searches to build probing questions.

• Thoroughly justifying the methodology or combination of methodologies chosen. • Executing the chosen methodology in its natural setting (field study) rather than a

highly controlled setting (laboratory).

• Choosing sample participants for relevance to the breadth of the issue rather than how well they represent the target population.

• Developing and including questions that reveal the exceptions to a rule or theory. • Carefully structuring the data analysis.

• Comparing data across multiple sources and different contexts.

• Conducting peer-researcher debriefing on results for added clarity, additional insights, and reduced bias.

Besides some criticism regarding qualitative research and with the above information in mind, this research is completed through a qualitative study.

According to Cooper and Schindler (2006, p. 196), qualitative research draws data from a variety of sources, including the following:

• People (individuals or groups) • Organizations or institutions

• Texts (published, including virtual ones)

• Settings and environment (visual/sensory and virtual material)

• Objects, artifacts, media products (textual/visual/sensory and virtual material) • Events and happenings (textual/visual/sensory and virtual material)

In this thesis the focus will lie on the data from people and organizations and institutions. This choice is made because a majority of the information which is needed can be obtained from individuals and organizations.

2.3 Sampling

According to Cooper and Schindler (2006), sample sizes for qualitative research vary by technique but are generally small. The selection of the particular case for study may be relatively unimportant. What is needed is a relevant case that will enable the researcher to begin the process of theory development (Scapens, 2004).

types of nonprobability sampling. Purposive sampling, snowball sampling and convenience sampling. With the first method researchers choose participants arbitrarily for their unique characteristics or their experiences, attitudes, or perceptions; as conceptual or theoretical categories of participants develop during the interviewing process, researchers seek new participants to challenge emerging patterns. Snowball sampling means that participants refer researchers to others who have characteristics, experiences, or attitudes similar to or different from their own. The third sampling technique, convenience sampling, is a technique in which researchers select any readily available individuals as participants.

In this research the purposive sampling techniques is used. The participants are chosen for their experience and knowledge of valuating techniques which are used by private equity firms regarding the valuation of ZBC’s.

Yin (2003) states that multiple cases may be preferred over a single case. The chances of doing good research will be better with multiple cases than with a single case, even if only two cases can be consulted. With multiple cases the possibility of direct replication is present. Analytic conclusions independently arising from two, or more, cases will be more powerful than those coming from a single case alone. Therefore the choice is made to complete multiple interviews.

2.4 Interview

Cooper and Schindler (2006) state that the interview is the primary data collection technique for gathering data in qualitative methodologies. This statement is supported by Yin (2003). He states that interviews are one of the most important sources of case study information. Nonetheless, interviews are subject to the common problems of bias, poor recall, and poor or inaccurate articulation. To overcome this problem, a reasonable approach is to corroborate interview data with information from other sources (Yin, 2003). A distinction is made whether to perform an individual or a group interview. Table 2.2 compares individual and groups interviews.

Table 2.2: Comparison between individual and group interviews (Cooper and Schindler, 2006, p. 204)

Individual Group

Research objective

- Explore life of individual in depth.

- Create case histories through repeated interviews over time. - Test a survey.

- Orient the researcher to a field of inquiry and the language of the field.

- Explore a range of attitudes, opinions, and behaviors. - Observe a process of consensus

and disagreement. - Add contextual detail to

quantitative findings. Topic

concerns

- Detailed individual experiences, choices, biographies.

- Sensitive issues that might provoke anxiety.

- Issues of public interest or common concern.

- Issues where little is known or of a hypothetical nature.

Participants - Time-pressed participants or those difficult to recruit (e.g., elite or high-status

participants).

- Participants with sufficient

- Participants whose backgrounds are similar or not so dissimilar as to generate conflict or discomfort. - Participants who can articulate

language skills.

- Participants whose distinctions would inhibit participation.

- Participants who offer a range of positions on issues.

Besides the choice between individual and group interviews, a choice have to be made whether to perform an unstructured interview, a semi-structured interview or a structured interview, according to Cooper and Schindler (2006). When a researcher performs an unstructured interview no specific questions or order of topics to be discussed are prepared. Each interview is customized to each participant. A semi-structured interview will start with a few specific questions and then follows the individual’s thoughts about the subject. A researcher performing a structured interview often uses a detailed interview guide similar to a questionnaire to guide the question order and the specific way the questions are asked. However, the questions generally remain open-ended. Structured interviews permit more direct comparability of responses and question variability has been eliminated. Besides this, in the structured interview, the interviewer’s neutrality has been maintained (Cooper and Schindler, 2006).

For this research individuals are interviewed, because of the importance of the experiences and choices of these individuals regarding valuing a ZBC. Moreover, the participants are difficult to recruit and are mostly time-pressed.

The individuals are interviewed by means of the individual depth interview (IDI) method. The interviewees are interviewed face-to-face. The interviews, however, could also be accomplished by phone or online. According to Cooper and Schindler (2006), the benefits of face-to-face interviews over phone and online interviews are the possibility to observe and record nonverbal as well as verbal behavior. According to, among others, Mariampolski (2001), there are several types of IDI’s. The type used for this article is the “Grounded theory”. When using the “Grounded theory”, research is accomplished using a structured interview. Each subsequent interview is adjusted based on the findings and interpretations from each previous interview.

2.5 Reliability of evidence

Chapter 3: Health care sector and private equity

The following chapter answers the sub-research questions 1 and 2 by describing the Dutch health care sector and the attendance of liberalization, describing ZBC’s, and describing the relationship of private equity with the health care sector.

3.1 Dutch health care sector

The Dutch health care sector is changing dramatically. Last years there have been extremely many changes in this sector (e.g. NZa, 2009, Buitenhuis, 2009, and SEO, 2010). The Dutch government decided to liberalize the health care sector to improve the competition between health care providers. This liberalization forces and motivates health care firms to provide the best quality of health care, according to MinVWS (2009). To improve this liberalization some laws are introduced. One of these laws is called the “Wet toelating zorginstellingen” (WTZi). The WTZi is implemented on 1 January 2006. The purpose of this law is to gradually create more freedom for health care firms, according to MinVWS (2009). The WTZi proposed rules for a more transparent management structure and a more orderly conduct of business of health care enterprises that deliver assured care (MinVWS, 2009).

An other measure to improve the competition between health care providers was the introduction of the so called b-segment. In the b-segment health care providers can negotiate about the prices of the treatments. The prices of the treatments in the a-segment are established nationwide, and therefore are the same for every health care provider (RIVM, 2008). The b-segment started with 10% of the treatments, this increased to 34% in 2009 (Buitenhuis, 2009). The objective of the government with the b-segment is to improve the entrepreneurship of the health care providers and the insurance companies so that they better meet the wishes of the patients, provide higher quality and create a more efficient business (Buitenhuis, 2009).

3.2 ZBC’s

An other effect of the WTZi is that is becomes easier to start a ZBC (Boer & Croon, 2010). A ZBC can be compared with a small hospital or an organization for specialized medical care (RIVM, 2009). However, there are some differences. According to RIVM (2009), the differences lie in the fact that ZBC’s do not offer care with residence in the a-segment. The care that ZBC’s offer is care that can be planned and therefore is not acute, so the patient does not have to be offered residence. This contains assured care in the a- and b-segment.

On behalf of medical indicators ZBC’s can meet with the quality of general hospitals. ZBC’s are, however, more customer directed and customer friendly compared to general hospitals (Boer & Croon, 2010).

Because of the law WTZi, the term ZBC actually does not exist anymore. The official name has changed into “Instelling voor medisch-specialistische zorg” (IMSZ). There are two types of IMSZ that can be distinguished. Type 1 and type 2. Type 1 is a health care centre that does not provide care in which a patient stays longer than 24 hours. This type can be considered as a continuation of a ZBC (Bouwcollege, 2010). Because the term ZBC is still widely used in practice, the term ZBC will be used in this thesis in stead of IMSZ type 1. Type 2 is a health care centre that does provide care in which a patient stays longer than 24 hours. A hospital is such a health care centre (Bouwcollege, 2010).

3.3 Private equity and health care

According to Holman (Dec. 2008), health care centers struggle to finance their business with regular financing. Their ability to access capital at a fair rate has declined, she says. The demand for health care services and products in the United States is expected to increase, because of the graying population in the United States (Holman Dec. 2008). Because of this trend, the need for finance in the health care sector is increasing. Besides the increasing need for finance the credit crunch is an other problem for health care centers to finance their activities on the regular way. According to the health care investment bank The Waiden Group (Holman, Dec. 2008), the economic crisis adds more general uncertainty which makes it difficult to obtain financing for needed projects and overall operations.

The health care entities in the Netherlands face the same problems (AME, 2009). The change in the health care sector is making it more difficult for Dutch health care firms to finance their business. It becomes more difficult for an entrepreneur to finance the start-up of a ZBC, because it is a capital intensive business and ZBC’s do need a lot of pre-finance for their exploitation (Jutte, 2009).

These facts make it possible for private equity firms to increase their investments in health care entities. It is attractive, according to Holman (Mar. 2008), to invest in health care firms for several reasons. The aging baby boomers population will increase the need for health care, which will increase revenues. An other reason is that health care has typically performed well as an asset class, and such businesses generally have a predictable earnings stream. However, besides these advantages there are also disadvantages when investing in health care. High fixed costs are experienced as a downside to investments in health care (Holman, Mar. 2008). In her article, Becker (2007) mentioned an other disadvantage to invest in a health care firm. Investing in health care is not a typical investment for a private equity firm. Private equity firms are not interested in reimbursement risk that they will face when investing in health care (see also PWC, 2008). Nevertheless, investments in health care will increase the upcoming years in the United States (Becker, 2007).

Chapter 4: Valuation methods and other significant issues

This chapter answers the sub-research questions 3, 4 and 5. Some relevant general valuation methods are described. These general valuation methods are applied to health care firms and limitations to these methods are mentioned. Furthermore, other significant issues, such as value drivers, are described.

4.1 Valuation

Before the valuation techniques are described an explanation of the term “value” is given. In this thesis I refer to value as economic value. According to Damodaran (2002), the value of a firm is equal to the present value of the expected future cash flows the organization will generate. Claes (2008) states that the value of a firm is a function of three major factors. These factors include: the magnitude, the timing, and the degree of uncertainty of the future cash flows. Assumptions about the expected future cash flows and the uncertainties of those cash flows, however, often vary among investors (Carden et al., 2010).

Carden et al. (2010) state that it is important to notice there is a difference for whom the valuation is meant for and under which circumstances the valuation is made. They state for instance, a distinction should be made between fair value and investment value. According to FASB (2009), fair value can be described as “the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date”. This definition is established according the generally accepted accounting principles (GAAP) and is consistent with the definition of the International Accounting Standards Board (IASB) (IASB, 2009). The general definition of investment value can be written, according to Damodaran (2002), as the value to a particular investor based on individual investment requirements and expectations. This can result in a higher value compared to the fair value, because particular investors may bring specific synergies to the investment (Damodaran, 2002).

Any asset has a value and can be valued. Some assets are easier to value than others and the details of valuation will vary form case to case, according to Damodaran (2002). He states that it is surprising that despite the differences in techniques there is a huge degree of similarity in basic principles. Frei and Leleux (2004) state that a company can have as many values as there are people valuing it. The amount of values increases when the company faces uncertainty, according to Carden et al. (2010). They state that uncertainty is created in dynamic environments characterized by innovation and change. The health care sector is currently facing such an environment. The volatile reimbursement levels are an example of this uncertainty (Carden et al., 2010 and PWC, 2008).

There are several methods to value an organization, although there are three valuation methods that are most common in practice. These methods include the income approach, market approach, and the asset approach (among others: Hitchner, 2006). The income and market approach are sometimes referred to as primary and secondary valuation, respectively (Frei and Leleux, 2004).

4.2 Income approach

Endicott and Sinaiko (2004) state, the income approach is the most sound methodology in measuring the intrinsic value of an asset. However, they argue, it could be the most time-consuming and difficult methodology to apply due to inadequate information and numerous assumptions that often have to be made in order to make sense of the data provided by hospitals, for example (Endicott and Sinaiko, 2004).

According to Frei and Leleux (2004), the most common method of the income approach in the corporate finance literature is the discounted cash flow (DCF) method. This is supported by Copeland et al. (1994). They state that the DCF method captures all the elements that affect the value of a company in a comprehensive yet straightforward manner. With the DCF method a company is valued at the present value of the future cash flows it will be able to generate. Corporate finance theory indicates that the value of any asset is equal to the present value of its future cash flows (Frei and Leleux, 2004). To calculate the present value of the future cash flow two steps need to be taken, according to Frei and Leleux (2004). First, an estimation of the expected future cash flow of the business has to be made. Second, the expected future cash flow need to be discounted back to the present. This step is done using a discount rate consistent with the level of risk in the project (Frei and Leleux, 2004).

The free cash flow (FCF) is the key data used for valuation, according to Frei and Leleux (2004). They state the FCF refers to the cash flows free of (or before) all financing charges related to the corporate debts. All necessary fixed asset investments and working capital needs are included in these cash flows. A forecast period of 5 or 10 years is most commonly used, this depends, however, on the available information and the time frame needed for a steady revenue flow (Frei and Leleux, 2004). Copeland et al. (1994) state that the FCF is the correct cash flow for this valuation model. They argue this is because it reflects the cash flow that is generated by a company’s operations and available to all the company’s capital providers, both debt and equity. Generally, the FCF is not affected by the company’s financial structure, even though the weighted average cost of capital (WACC) could be affected by the company’s financial structure (Copeland et al., 1994).

Determining the value with the DCF can be performed in three ways, according to Damodaran (2002). All three approaches discount expected cash flows, however, the relevant cash flows and discount rates are different under each (Damodaran, 2002). First, only the equity stake in the business could be valuated. The value of the equity is obtained by discounting expected cash flows to equity at the cost of equity (Damodaran, 2002). The second way is to value the entire firm. This includes equity and the other claimholders in the firm; bondholders, preferred stockholders, etcetera. The value of the firm is obtained by discounting expected cash flows to the firm at the WACC (Damodaran, 2002). The last approach is called the adjusted present value (APV). With this approach the value of the firm can be obtained by valuing each claim on the firm separately. The first step is to value the equity in the firm, assuming that the firm was financed only with equity. Second, the value added by debt is considered by considering the present value of the tax benefits that flow from debt and the expected bankruptcy costs. The formula can be written as follows: Value of firm= Value of all-equity-financed firm + Present value of tax benefits + Expected bankruptcy costs (Damodaran, 2002).

4.2.1 Income approach applied to health care

According to Frei and Leleux (2004), the income and market approach are the most relevant techniques to value a health care firm. Because the DCF method is the most common method of the income approach, the focus in this thesis will lie on the DCF method. As mentioned in the previous section there are three paths to DCF valuation. In this thesis the path to value the entire firm is used. According to Reilly and Schweihs (2004), the DCF method requires the following analyses when using the DCF method to value a health care firm: revenue analysis, expense analysis, investment analysis, capital structure analysis, and residual value analysis. These analyses will be discussed separately.

Reilly and Schweihs (2004) state that the revenue analyses involves a projection of future revenues from the provision of health care and related services by the organization. This includes a consideration of factors such as: patients seen/procedures administered, average patient/procedure charge, market dynamics, competitive pressures, fee flexibility, regulatory changes, demographic analysis, and technological changes (Reilly and Schweihs, 2004). The expense analysis requires, according to Reilly and Schweihs (2004), consideration of the following aspects: patient and third-party payer allowances, fixed versus variable costs, patient-related versus period costs, cash versus noncash costs, direct versus indirect costs, cost absorption principles, cost/efficiency relationships, and cost/volume/profit relationships. The following aspects need to be considered when analyzing the investment: required minimum cash balances, days revenues outstanding in account receivable/payable, facilities utilization and related constraints, and capital expenditure budgets (Reilly and Schweihs, 2004). The capital structure analysis requires consideration of, according to Reilly and Schweihs (2004): current capital structure, optimal capital structure, cost of various capital components, WACC, systematic and non-systematic risk factors, and marginal cost of capital. Reilly and Schweihs (2004) state, the residual value analysis results in an estimation of the value of the future cash flow generated by the health care organization. This residual value can be estimated by various methods, for example, price/earnings multiple, annuity in perpetuity method, or the Gordon growth model

(Phillips, 2003). According to Reilly and Schweihs (2004), the principal components of the net cash flow model for the valuation of health care entities are expressed as follows:

Gross patient service and medical revenues

Less: Third-party payer and other contractual allowances Net patient service and medical revenues

Less: Total operating expenses (incl. reasonable provider compensation) Profit before tax

Less: Income tax After-tax profit

Plus: Tax-affected interest expense Plus: Depreciation expense

Less: Capital expenditures

Less: Annual increases in (noncash) current assets

Plus: Annual increases in non-interest-bearing current liabilities Annual net cash flow

The above model is an after-tax net cash flow model, according to Reilly and Schweihs (2004). They state this particular cash flow model represents the total business enterprise value of the health care entity. Typically, in health care entity valuations, the DCF analysis is based on a 5-year discrete period (Reilly and Schweihs, 2004).

Because the net cash flow is discounted, an explanation how to calculate an appropriate discount rate follows. According to Reilly and Schweihs (2004), the appropriate discount rate should represent a combination of risk applicable to two factors, equity investors and debt investors. To determine the WACC an estimation should be made of the relevant required rate of return on equity, the relevant required rate of return on debt, and the relevant proportions of debt and equity comprising the relevant capital structure of the health care entity (Reilly and Schweihs, 2004).

Ross et al. (2008) mention the following calculation to determine the WACC: WACC = S x Rs + B x Rb x (1-Tc)

Where:

S = the proportion of equity

Rs = the relevant required return of equity B = the proportion of debt

Rb = the relevant required return of debt Tc = tax shield

duration of the cash flow of the company being valued. The solution of the companies beta (ß) times the market risk premium (Rm-Rf) needs to be added up to the Rf. This is how to calculate the Rs. The formula can be written as follows:

Rs = Rf + ß x (Rm – Rf)

According to Reilly and Schweihs (2004), it is difficult for a health care firm to determine the beta (no historical price series exists, according to Phillips (2003)) and the market risk premium. Therefore they mention a substitution to calculate the Rs. This model starts with a risk-free rate and adds relevant equity risk premiums to estimate the appropriate required rate of return on an equity investment.

The required return on debt for the health care entity is typically represented by the entity's marginal cost of borrowing (Reilly and Schweihs, 2004). This can be stated in a formula as follows, according to Reilly and Schweihs (2004):

Rb = borrowing rate x (1 – effective income tax rate)

The proportion of the equity to debt can be estimated by the capital structure. The capital structure is typically estimated based upon a review of the subject practice’s historical capital structure (Reilly and Schweihs, 2004). The WACC can now be calculated.

4.2.2 Difficulties of the income approach

According to Damodaran (2002), there are several scenarios in which problems could arise when valuing a firm using the DCF method. The point is not that the DCF method cannot be used in these cases, but analysts have to be flexible enough to deal with them (Damodaran, 2002). These scenarios include, among others, firms that are distressed, firms with unutilized assets, firms in the process of restructuring, firms involved in acquisitions, and private firms. Firms that are distressed generally have negative earnings and cash flows and expect to lose money for some time in the future (Damodaran, 2002). The DCF method does not work very well for firms that are expected to fail, according to Damodaran (2002). He states this is because the DCF method values the firm as a going concern providing positive cash flows to its investors.

The value of unutilized assets (assets that do not produce any cash flow) will not be reflected in the value obtained from discounting expected future cash flows (Damodaran, 2002). This will be the same, to a lesser degree, for underutilized assets, according to Damodaran (2002). The value of these assets will be understated in DCF valuation, he says. This could lead to a problem, however, the value of these assets can be obtained externally and added to the value obtained from the DCF valuation (Damodaran, 2002). Alternatively, the assets can be valued as though they are used optimally, Damodaran (2002) states.

changes and the discount rate is adjusted to reflect the new business and financial risk in the firm, a sound valuation of these firms can be made (Damodaran, 2002).

When firms are involved in acquisitions there are at least two specific issues that need to be taken into account when using the DCF valuation method, according to Damodaran (2002). The first is whether there is synergy in the merger and if the value of the synergy can be estimated. Estimating the value of synergy requires assumptions about the form the synergy will take and its effect on cash flows. The second is the effect of changing management on cash flows and risk. This effect should be incorporated into the estimates of future cash flows and discount rates.

The measurement of risk is the biggest problem in using the DCF method to value private firms, according to Damodaran (2002). Securities in private firms are not traded. Therefore it is not possible to estimate the risk parameters from historical prices, he states. There are two solutions to this problem (Damodaran, 2002). One is to look at the riskiness of comparable firms that are publicly traded. The other is to relate the measure of risk to accounting variables.

4.3 Market approach

According to Endicott and Sinaiko (2004), the market approach (also known as the relative valuation method (Damodaran, 2002) or the multiple analysis (Penman, 2004)) is one of the more common valuation approaches. Under this approach, the firm is valued through a relative-value technique (Damodaran, 2002). This approach looks at comparable or guideline assets to provide an indication value. It is a simple and cheap way to determine the value, because it uses minimal information (Penman, 2004). Because this approach is easy to apply it is easy to misapply due to its apparent simplicity (Endicott and Sinaiko, 2004).

There are two variations of the market approach, according to Reilly and Schweihs (2002), the guideline publicly traded company method and the guideline merged and acquired company method. The first relies on data from publicly traded companies. The latter relies on data from completed transactions involving public or private companies (Reilly and Schweihs, 2004).

With the market approach the value is not derived using an explicit forecast of cash flow and risk-adjusted discount rate (Hitchner, 2006). The method relies on available key figures, such as, according to Frei and Leleux (2004), earnings, sales, number of employees, number of PhDs or R&D expenditures, to estimate value. They state this approach makes the assumption that these comparable companies have been properly valued and can serve as benchmarks when assessing a company. These key figures are standardized and compared to a benchmark, according to Damodaran (2002). He states there are several variables that are commonly used. These variables include price to cash flow, price to dividends, price to earnings, price to book, price to sales, and market value to replacement value. According to Damodaran (2002), some analysts and investors compare multiples across companies, while other compare the multiple of a company to the multiples it used to trade at in the past.

firms are priced by the market or, in some cases, with how the firm was valued in prior periods (Damodaran, 2002).

4.3.1 Market approach applied to health care

As stated in previous section there are two variations of the market approach: the guideline publicly traded company method and the guideline merged and acquired company method (Reilly and Schweihs, 2004). According to Reilly and Schweihs (2004), guideline publicly traded company information for specialist health care firms is limited. For ZBC’s in the Netherlands this situation is the same. Therefore, in this thesis, no extra attention is given to the guideline publicly traded company method.

In the guideline merged and acquired company method, the value of a health care entity is estimated by analyzing completed sale transactions involving similar health care entities (Reilly and Schweihs, 2004). To search for transactions involving similar health care entities the analyst should look for the appropriate Standard Industrial Classification (SIC) code. When using this approach, the terms of each sale transaction should be carefully reviewed, according to Reilly and Schweihs (2004). They state the actual transaction price paid and whether the transaction involved the sale of assets or equity should be included in this review. If the transaction involved the sale of assets, it is important to determine the exact assets purchased and any liabilities assumed (Reilly and Schweihs, 2004). The next step is, according to Reilly and Schweihs (2004) to select a group of guideline transactions and determine each transaction’s purchase price. After this, a calculation has to be made of the various transaction-derived economic earnings/ price multiples. After estimating the appropriate pricing multiples (e.g. market value of invested capital/EBIT), the selected multiples should be applied to the health care entity’s normalized financial fundamentals (Reilly and Schweihs, 2004).

There are, according to Reilly and Schweihs (2004), several factors that should be considered when selecting the appropriate pricing multiple. These factors include, among others:

• The dates of the guideline transactions

• Market conditions at the date of the guideline transactions • Size of the guideline companies

• Health care entity mix of the guideline companies • Payer mix of the guideline companies

• Profitability of the guideline companies

• Historical growth (in assets, revenues, physician compensation and profits) • Diversity of practice of the guideline companies

• Location of the guideline companies

• Market positions of the guideline companies

Reilly and Schweihs (2004) mention that not all of the above information could be available, though an analysis of all available information is an important step in the selection of relevant and supportable market-derived pricing multiples.

4.3.2 Difficulties of the market approach

value unique firms with no obvious comparables, with little or no revenues, and with negative earnings. Furthermore, multiples are also easy to misuse and manipulate, especially when comparable firms are used. Damodaran (2002) states that the definition of comparable firms is a subjective one, because no two firms are exactly alike in terms of risk and growth. Consequently, he states, a biased analyst can choose a group of comparable firms to confirm his or her biases about a firm’s value. The potential bias problem also exists with the DCF method, but the analyst is forced to be much more explicit about the assumptions that determine the final value when using the DCF method (Damodaran, 2002). Penman (2004) also states that there could arise several problems with this approach. Firms are typically matched on industry, product, size, and some measure of risk, but no two firms are exactly alike, according to Penman (2004). Furthermore, he states, different multiples give different valuations. Applying a company’s price to book ratio to the target’s price to book ratio yields a different price than applying the company’s price to earnings ratio to the target’s earnings. Analysts could take an arithmetic average, but it is not clear that this is correct, according to Penman (2004).

4.4 Asset approach

The asset (or cost) approach is based upon the principle of substitution, according to Endicott and Sinaiko (2004). The costs to recreate or replace the assets are determined (Endicott and Sinaiko, 2004). According to Reilly and Schweihs (2004), the underlying premise of this approach is that an investor will pay no more for an asset than the cost to obtain an asset of equal utility.

The first step when using this approach is, according to Reilly and Schweihs (2004), to indentify each tangible and intangible asset. The next step is to value each tangible and intangible asset is separately based on the most relevant method. The methods that have to be used depend on the industry in which the organization is doing business in. The overall asset value of the firm is based on the summation of the estimated values of each tangible and intangible asset (Reilly and Schweihs, 2004).

4.4.1 Asset approach applied to health care

The asset approach is generally not applied as frequently in health care compared to the other two approaches, according to Endicott and Sinaiko (2004). They state it is more difficult to measure the significant intangible value typically associated with health services businesses. However, according to Garruto and Loud (2001), this approach may be used when the health care entity has a huge investment in tangible assets or when operating earnings are insignificant relative to the value of the underlying assets.

There are three categories which can be classified to distinguish the assets of a health care firm (Reilly and Schweihs, 2004). These categories include financial assets, tangible real estate and personal property, and intangible assets. The first includes cash, accounts receivable, prepaid expenses, and inventory and supplies. The second includes office furniture and fixtures, medical equipment, medical buildings and land, and leasehold improvements. The potential for the existence of intangible assets in a health care firm could be significant, according to Reilly and Schweihs (2004). Generally, they state, the intangible assets of a health care firm can be categorized as follows:

• Contract-related (e.g. licences)

• Data processing-related (computer software)

• Human capital-related (a trained and assembled workforce) • Marketing-related (entity’s trademarks)

• Location-related (e.g. leasehold interest) • Goodwill-related (e.g. going-concern value)

The most significant intangible assets of a health care firm are, according to Reilly and Schweihs (2004), generally patient and referral relationships, a trained and assembled workforce, and going-concern value. The valuation of the identified intangible assets of a health care firm most often is based on the DCF method (Reilly and Schweihs, 2004).

According to Reilly and Schweihs (2004), the asset approach is an acceptable method for the valuation of tangible assets maintained at health care entities. They state there are theoretical underpinnings of the cost approach relate to the following basis economic principles. These economic principles include substitution, supply and demand and externalities. The first affirms that no prudent buyer would pay more for a property than the total cost to construct one of equal desirability and utility. The second means that shifts in supply and demand cause costs to increase and decrease and cause changes in the need for supply of different types of properties. The third means that gains or losses from external factors may accrue to industrial and commercial properties. External conditions may cause a newly constructed property to be worth more or worth less than its cost (Reilly and Schweihs, 2004).

Reilly and Schweihs (2004) state that there are different types of cost. The most common types of cost are reproduction cost and replacement cost. The first refers, according to Reilly and Schweihs (2004), to the total cost, at current prices, to construct an exact duplicate or replica of the subject health care property. This would be created using the same materials, standards, design, layout, and quality of workmanship used to create the original property. The latter refers, according to Reilly and Schweihs (2004), to the total cost to construct, at current prices, a property having equal utility to the subject property. However, the replacement property would be created with modern methods and constructed according to current standards, state-of-the-art design and layout, and the highest available quality of workmanship (Reilly and Schweihs, 2004).

4.4.2 Difficulties of the asset approach

There are some difficult problems when using the asset approach to estimate the value of a firm, according to Penman (2004). He states that the market values of assets may not be readily available, because assets listed on the balance sheet may not be traded that often. Besides that, if markets for these assets are imperfect, market values, if available, might not be efficient measures of intrinsic value. Moreover, market values, if available, may not represent the value in the particular use to which the asset is put in the firm. Furthermore, even if individual assets can be valued, the sum of the market values of all identified assets may not be equal to the value of the assets in total, because assets are used jointly.

4.5 Health care entity valuation

physicians in the U.S. operates in small groups or as sole practitioners. Because of that, a critical factor in valuing their practices is the professional and personnel goodwill of the physicians. An other example is that multiples obtained from publicly traded companies are usually not comparable to those of health care entities, and analysts who attempt to force the use of such multiples greatly increase the risk of flawed valuation.

4.6 Other significant issues

According to Carden et al. (2010), an obvious prerequisite for good valuation is an understanding of the special contexts of the health care entity that is being valued and their specific attributes and factors that create value. Any variable that affects the value of an organization can be seen as a value driver, according to Copeland et al. (1994). They state that it can be difficult to identify the key value drivers, because this requires the organization to think differently about its processes. Individual variables, however, need to work together in order to create value (Grant, 2008). In their article Carden et al. (2010) mention the value drivers of several types of health care organizations. In this thesis the value drivers of hospitals will be analyzed. These are value drivers of hospitals in the United States. The value drivers of hospitals include patient volumes, reimbursement, management quality, competition, and capital expenditure management (Carden et al., 2010).

A distinction can be made between inpatient volume and outpatient volume. Inpatients can be defined, according to Carden et al. (2010), as patients requiring an overnight stay, while outpatient require no overnight stay. Inpatient volumes are typically measured as patient admissions/discharges and the average length of stay (ALOS). Outpatient volumes are usually measured in terms of total outpatient visits (Carden et al., 2010).

In the United States the insurance companies reimburse on a per-episode-of-care basis. Different insurance companies reimburse in a different way. Because of the different payment methodologies that are present in the inpatient mix, it is important for a hospital to manage its ALOS. A hospital can improve value by reducing its ALOS because it receives the same payment regardless of the length of stay. The outpatient service reimbursement are classified by ambulatory payment classifications (APC). Hospitals must manage outpatient procedure costs relative to APC payments in order to create value (Carden et al., 2010).

According to Carden et al. (2010), management can show their quality in three ways. This includes analyzing the ALOS, case mix, and expense management. Hospital management should be aware of their ALOS. Besides the ALOS, they should be aware of the case mix. This is a measurement of the severity of illness of the inpatients treated by a hospital. Although management does not necessarily have great influence over the severity of the illnesses their hospitals treat, it can help obtain proper reimbursement for services by ensuring that patients’ charts are properly documented and medical record coding accurately reflects illness severity. The third way in which management quality can be assessed is expense management. This can be assessed by benchmarking expenses using best-of-class hospitals and keeping expense ratios in line with these facilities (Carden et al., 2010).

Besides the value drivers there are other significant issues when valuing a health care entity. These significant issues include, among others, managing expectations and complying with regulatory constraints (Reilly and Schweihs, 2004).

transaction pricing multiples (Reilly and Schweihs, 2004). Therefore the management will lean toward market-based practice pricing multiples at the higher end of the market-based range. The management will support this assumption with facts and financial advise (Reilly and Schweihs, 2004). The analyst has to take away the unreal expectations of the management. According to Reilly and Schweihs (2004), the analyst can deal with this problem to perform a comprehensive valuation analysis. Moreover, the analyst should, prior to releasing any preliminary value, be in a position to discuss similarities and differences among the subject health care entity and any guideline merged and acquired entities. Furthermore, the analyst should discuss the sensitive variables that are projected in the DCF analyses.

According to Reilly and Schweihs (2004), analysts have to be aware off the regulatory constraints which the health care entity faces. In the United States, for example, analysts have to be aware of the Stark regulations and the Internal Revenue Service guidelines (Carden et al., 2010). In the Netherlands analyst have to comply with regularities established by the Dutch ministry (“Ministerie van Volksgezondheid, Welzijn en Sport”). These regularities are established in the so called “Jaarverantwoording zorginstellingen 2010”. 4.7 Conclusions

There are three valuation methods that are most applicable to value a health care organization. The income approach and the market approach are, however, the most relevant techniques, according to Frei and Leleux (2004).

The income approach is based upon the present value of the expected future cash flows, according to Endicott and Sinaiko (2004). It could be the most time-consuming and difficult methodology to apply, they argue. The most common method of the income approach in the corporate finance literature is the discounted cash flow (DCF) method (Frei and Leleux, 2004). There are several scenarios in which problems could arise when valuing a firm using the DCF method, according to Damodaran (2002). These scenarios include, among others, firms that are distressed, firms with unutilized assets, firms in the process of restructuring, firms involved in acquisitions, and private firms.

The market approach could be easy to apply, according to Endicott and Sinaiko (2004). Under this approach, the firm is valued through a relative-value technique (Damodaran, 2002). This approach looks at comparable or guideline assets to provide an indication value, he argues. It is a simple and cheap way to determine the value, because it uses minimal information (Penman, 2004). The market approach tends to be more difficult to use to value unique firms with no obvious comparables, with little or no revenues, and with negative earnings. Furthermore, multiples are also easy to misuse and manipulate, especially when comparable firms are used (Damodaran, 2002).

The asset approach is based upon the principle of substitution, according to Endicott and Sinaiko (2004). The costs to recreate or replace the assets are determined. Difficulties of this approach are, according to Penman (2004), for example: not readily available market values, imperfect market values, and not representative market values.

Chapter 5: Interview questions and relevant information

The following chapter describes the interview questions and the reasons these questions are asked. Furthermore, this chapter includes relevant information regarding the interviews and the interviewees.

5.1 Interview questions

Because all the interviewees and the interviewer are Dutch, the interview questions were formulated in Dutch. To provide a reliable and non biased (because of translation, for example) picture of the questions asked the questions in this section are described in Dutch. Before some questions were asked I gave a short introduction. These introductions are also described in Dutch.

The first questions are questions regarding the Dutch health care sector. To get an idea of the reasons why these investors invest in this sector and what their investment criteria are, following questions were asked:

U investeert in de zorgsector.

1. Waarom investeert u in deze sector?

Een zorginstelling moet aan bepaalde investeringscriteria voldoen alvorens u investeert in deze onderneming.

2. In hoeverre verschillen deze investeringscriteria van de criteria waaraan ondernemingen, waarin u investeert, uit andere sectoren moeten voldoen?

Following questions are questions regarding private equity investments. To test the literature and therefore the research of PWC, the opinions of the interviewees were asked regarding the private equity investments in health care. Furthermore, their expectation of the future of private equity investments in health care were asked.

Uit onderzoek van PricewaterhouseCoopers (2009) is gebleken dat, in vergelijking met overige sectoren, in 2008 de meeste private equity investeringen plaats vonden in ondernemingen in de zorg- en biotechnologiesector (26%). Hoewel verreweg de meeste investeringen plaats vonden in ondernemingen in de zorg- en biotechnologiesector is dit niet af te leiden uit het geïnvesteerde bedrag dat is geïnvesteerd in de zorg- en biotechnologiesector (8,8% van het totaal geïnvesteerd bedrag).

3. Bent u bekend met deze gegevens?

4. Bestaat er volgens u een link tussen deze gegevens en de redenen waarom u in de zorgsector investeert?

Uit hetzelfde onderzoek komt naar voren dat in 2007 ook veel, maar minder (17%), investeringen plaats vonden in de zorg- en biotechnologiesector, in vergelijking met de overige sectoren.

Because this thesis is about valuing ZBC’s, the interviewees were asked why they invest in ZBC’s, what a ZBC distinguishes from other investment opportunities in health care, investment criteria of ZBC’s, and the investment phases in which they invest in a ZBC.

U investeert in ZBC’s.

6. In hoeverre verschillen de redenen om in ZBC’s te investeren in vergelijking met de redenen om in de zorgsector te investeren?

Er zijn meerdere investeringsmogelijkheden in de zorg.

7. Waarin zijn ZBC’s onderscheidend in vergelijking met andere investeringsmogelijkheden in de zorg?

8. In hoeverre verschillen de investeringscriteria waaraan een ZBC moet voldoen van de criteria die gelden voor overige zorginstellingen?

Er zijn diverse fases waarin u kunt instappen in een investering. Te onderscheiden valt onder andere seed capital, start capital, expansie, management buy out/ management buy in en herstructurering.

9. In welke van deze fases investeert u in ZBC’s?

The next questions are about the valuation methods used by the interviewees to value a ZBC. The interviewees were asked whether they use one of the valuation methods described in the literature or an other method. Furthermore, they were asked why they used that method and what the advantages and disadvantages of these methods are. Moreover, the interviewees were asked if they could use an other method and if they use the same method to value a ZBC in different investment phases and companies in different sectors.

Er zijn diverse waarderingsmethodes die gehanteerd kunnen worden om een onderneming te waarderen. Volgens Reilly en Schweihs (2004) zijn er drie methodes goed toepasbaar om een zorginstelling te waarderen, te weten de inkomensmethode (DCF), de marktmethode en de activa methode. Volgens Frei en Leleux (2004) zijn de inkomensmethode en de marktmethode de meest voorkomende methodes om een zorginstelling te waarderen.

10. Hanteert u een van deze methodes, of een vergelijkbare methode? 10a. Zo ja, welke?

11. Waarom hanteert u deze methode en niet de andere methodes die voorhanden zijn?

12. Zitten er nadelen aan de door u gehanteerde methode? 12a. Zo ja, wat zijn deze nadelen?

13. Waar liggen de valkuilen en knelpunten bij deze methode?

14. Zijn er alternatieven voor u om met een andere methode te werken om een ZBC te waarderen?