The senior care sector has seen significant M&A activity, with 527 transactions in 2022 alone, marking a 17% increase over the prior year. If you are an owner of a memory care center, you are likely aware of this trend. You also know that valuing your facility is a complex process. It goes far beyond simple formulas, requiring a hybrid assessment that analyzes both your business operations and your physical real estate.
This guide breaks down the core components of a professional valuation. We will show you how sophisticated buyers determine what your memory care center is truly worth, giving you the insights needed to prepare for a successful transaction.
Establishing Your Financial Baseline: Beyond the P&L
Before any valuation can begin, you must establish a clear and accurate picture of your facility’s profitability. Buyers look past the net income on your profit and loss statement. They focus on a metric called Adjusted EBITDA. Understanding your Adjusted EBITDA is the first step in understanding your facility’s value.
Adjusted EBITDA normalizes your earnings by adding back non-operational or owner-specific expenses. This process of adjusting your financials presents the true, ongoing cash flow a new owner could expect. For memory care centers, common adjustments include:
- Owner’s Salary: Adjusting your compensation to a market-rate salary for a non-owner manager.
- Personal Expenses: Removing any costs run through the business that are not related to operations, such as personal vehicle leases or travel.
- One-Time Costs: Adding back expenses that are not expected to recur, like a major facility repair or a one-time legal settlement.
- Rent: If you own the property, an adjustment is made to reflect fair market rent, separating the business’s performance from the real estate asset.
Let’s look at a simple example. Suppose your memory care center shows $4 million in revenue and $400,000 in net income. You pay yourself a salary of $300,000, while the market rate for a facility administrator is $150,000. You also had a one-time $75,000 roof replacement.
- Reported Net Income = $400,000
- Add back Salary Normalization ($300k – $150k) = +$150,000
- Add back One-Time Repair = +$75,000
- Adjusted EBITDA = $625,000
This $625,000 figure is the baseline number that buyers will use to begin their valuation calculations.
The Two Pillars of Memory Care Valuation
A memory care center is both an operating business and a piece of commercial real estate. A credible valuation must address both elements separately and then combine them. Buyers will analyze the value of your ongoing operations and the value of your physical property.
Valuing the Business Operations
The first pillar is your business’s ability to generate cash. This is most often valued using a multiple of Seller’s Discretionary Earnings (SDE) or Adjusted EBITDA. Industry data shows that memory care centers typically transact for a multiple between 1.30x and 3.09x SDE.
Where your facility falls within this range depends on its quality and risk profile. Factors that push your multiple to the higher end include:
- Scale of Operations: Larger facilities with higher earnings are perceived as less risky and command higher multiples.
- Occupancy Stability: Consistently high occupancy rates demonstrate predictable and reliable revenue streams.
- Payer Mix: A healthy blend of private pay, insurance, and government sources suggests financial resilience. A higher percentage of private pay is often viewed favorably due to higher margins. Understanding your Payer Mix is essential.
- Staffing Model: A well-trained, stable, and tenured staff reduces operational risk for a new owner.
The Real Estate Component
The second pillar is the physical asset itself. The property is typically valued using a Capitalization Rate, or “Cap Rate.” A cap rate is the expected rate of return on a real estate investment property. You calculate the property’s value by dividing its Net Operating Income (NOI) by the cap rate.
Property Value = Net Operating Income / Cap Rate
According to 2025 industry data, the average cap rate for memory care facilities is around 7.7%. This rate reflects the market’s perception of risk. For context, a higher-risk skilled nursing facility might have a cap rate closer to 12.4%. A lower cap rate signifies lower perceived risk and results in a higher property valuation for the same level of income.
From Gross Value to Your Net Proceeds
Once an enterprise value is established by combining the operational and real estate valuations, the next step is to calculate your potential net proceeds. This is not just the headline price. The calculation generally follows this path:
Enterprise Value – Debt & Loans – Transaction Fees +/- Working Capital Adjustment = Net Proceeds
This formula highlights why deal structure is as important as the purchase price. How the deal is constructed can have a significant impact on your final take-home amount, especially after taxes.
The structure of your practice sale has major implications for your after-tax proceeds. Learn about our Tax-Efficient Sale Structures →
Advanced Valuation Considerations for Sophisticated Buyers
In many transactions, especially with private equity or larger corporate buyers, the deal structure can include more than just cash at close. Two common components are earnouts and equity rollovers.
An earnout is a contingent payment you receive in the future if the facility hits certain performance targets post-sale. Buyers use this to bridge valuation gaps and de-risk the acquisition.
An equity rollover is when you, the seller, retain a portion of ownership (e.g., 10-30%) in the new, larger company. This aligns your interests with the buyer and gives you the potential for a “second bite at the apple” when the new, larger entity is sold again in the future. These are strategic tools that can increase your total long-term return from a sale.
Your Next Move
Valuing a memory care center is a detailed process that blends a hybrid analysis of your operations and property. Your value depends on clean, normalized financials like Adjusted EBITDA. It also depends on dynamic market conditions reflected in valuation multiples and cap rates.
Guesswork and “rule of thumb” estimates are insufficient for making one of the most important financial decisions of your career. The foundational first step toward any successful transition is to obtain a formal, expert-led valuation. This gives you a realistic benchmark and prepares you for productive conversations with serious buyers.
Curious about what your practice might be worth in today’s market? Request a Complimentary Value Estimate →
Frequently Asked Questions
What is Adjusted EBITDA and why is it important in valuing a memory care center?
Adjusted EBITDA normalizes earnings by adding back non-operational or owner-specific expenses to reflect the true ongoing cash flow a new owner could expect. It includes adjustments like owner’s salary normalization, removal of personal expenses, and adding back one-time costs. It is important because buyers focus on this metric rather than net income to establish a financial baseline for valuation.
How do buyers value the business operations of a memory care center?
Buyers value the business operations primarily using a multiple of Seller’s Discretionary Earnings (SDE) or Adjusted EBITDA. Memory care centers typically transact for multiples between 1.30x and 3.09x SDE. The specific multiple depends on factors like scale of operations, occupancy stability, payer mix, and staffing model, which all affect the facility’s risk profile and earnings quality.
What role does real estate play in the valuation of a memory care center?
The real estate component is valued separately from operations using a Capitalization Rate (Cap Rate). The property’s value is calculated by dividing its Net Operating Income (NOI) by the cap rate. For memory care facilities, the average cap rate is around 7.7%, reflecting the market’s perception of risk. Lower cap rates signify lower risk and higher property values for the same income level.
How do transaction structures like earnouts and equity rollovers affect the valuation and proceeds from selling a memory care center?
Earnouts provide contingent payments based on future performance, reducing buyer risk and potentially increasing total sale value. Equity rollovers allow the seller to retain a portion of ownership in the new company, aligning interests and offering potential long-term returns from future sales. These structures can significantly impact the seller’s total proceeds and should be considered alongside the headline sale price.
What steps should an owner take to prepare for valuing and selling their memory care center?
Owners should start with obtaining a formal expert-led valuation that includes a hybrid analysis of both business operations and real estate. They need to ensure clean, normalized financials with a clear Adjusted EBITDA figure. Understanding market conditions, valuation multiples, cap rates, and deal structures is essential for realistic expectations and productive negotiations with buyers.