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Healthcare Sector M&A Perspectives
April 4, 2016
Disclaimer
Confidential
This document is for discussion purposes only and does not constitute advice of any kind, including tax, accounting, legal or regulatory advice, and Cain Brothers & Company, LLC (“Cain Brothers”) is not and does not hold itself out to be an advisor as to tax, accounting, legal or regulatory matters. We recommend that you seek independent third party legal, regulatory, accounting and tax advice regarding the contents of this document. The matters discussed herein are subject to our review and assessment from a legal, compliance, accounting policy and risk perspective, as appropriate, following our discussion with you. This document was prepared on a confidential basis solely for discussion between you and Cain Brothers and not with a view toward public disclosure. This document, and any oral information provided in connection herewith, shall be treated as strictly confidential and may not be reproduced, distributed or disclosed, in whole or in part, except with our prior written consent. Cain Brothers assumes no obligation to update or otherwise revise these materials.
No representation or warranty, express or implied, is made as to the accuracy or completeness of the information contained herein and nothing contained herein is, or shall be relied upon as, a representation or warranty, whether as to the past or the future. Cain Brothers and our affiliates and our and their respective officers, employees and agents expressly disclaim any and all liability which may be based on this document and any errors therein or omissions therefrom. This document does not constitute an offer or solicitation to sell or purchase any securities and is not a commitment by Cain Brothers or any of its affiliates to provide or arrange any financing for any transaction or to purchase any security or act as an agent or advisor or in any other capacity in connection therewith. This document does not constitute a recommendation to pursue, and is not intended to provide the sole basis for evaluating, a particular transaction, and you retain full responsibility for the decision to pursue any specific transaction discussed herein or otherwise.
Healthcare Trends
Major Themes in Healthcare
• • • •
Value-based reimbursement models Stewardship of scarce healthcare resources Team-based care models with high patient engagement Focus on chronic health and preventive medicine
• • • •
Large, multi-specialty groups are proving to be a superior model Hospitals are catalyzing aggregation due to access to capital Most hospitals have not yet proven to be effective “employers” of physicians Only physicians can unlock the potential of population health
• • • •
Disintermediation of payers in certain MSAs Optum (United) is aggressively acquiring physicians Payers are anxious about being commoditized or disintermediated Vertical integration with providers is a strategy for longer-term relevance
• • • •
CMS is moving decisively toward bundled payment models Post-acute care represents most of the variability in cost of care In most larger MSAs, new post-acute care venues will be needed Non-ownership collaboration models will be necessary in many markets
• • • •
Lower cost information delivery technology Collection of clinical data and analysis using Big Data to refine protocols Tools to improve access to data and clinicians (email, telemedicine, etc.) What will be the Uber of Healthcare?
4
Technology-Enabled Healthcare
Post-Acute Coordination
Payer-Provider Vertical Integration
Aggregation of Physicians
Population Health Management
Current System is Fragmented and Rewards Volume over Value Outside of a handful of closed networks, a patient navigating the healthcare delivery system today will encounter many providers who are not financially or clinically integrated
Long-Term
5
Acu
ity /
Rev
enue
ACUTE CARE General Acute Care Hospital
COMMUNITY-BASED CARE Ambulatory Surgery
Urgent Care
Diagnostic Imaging
Physician Clinics
Wellness Center/Retail Pharmacy
POST-ACUTE CARE
Acute Care
Inpatient Rehab
Skilled Nursing
Home Health
Outpatient Rehab
Migration to Population Health Managing the shift from fee-for-service reimbursement, which constitutes ~90% of the market today, to fee-for-value models is a fundamental force driving increased M&A and investment activity
Reimbursement Pressure from Public and Private Payers
Demand for Coordinated Care Models
Quality and Price Transparency
Increasing Consumerism and Employer Engagement •
•
•
Provider-centric
FFS-based Payment
Loosely Integrated Provider Networks
Procedure Oriented
•
•
•
Patient-centric
Value-based Payment
Tightly Integrated Provider Networks
Health Oriented
Sophisticated EMR and Healthcare IT Systems
• •
6
Today
Key Drivers of Change
Tomorrow
Integrated Systems will View Interventional Care as a Cost Center Payers are increasingly transferring financial risk and clinical accountability to providers, incenting increased coordination and technology to provide high quality, low cost care
General Acute Care Hospital
7
Acu
ity /
Cos
t INTERVENTIONAL CARE
Ambulatory Long-Term Surgery Acute Care
Urgent Care Inpatient Rehab
PREVENTIVE CARE
Diagnostic Imaging/Clinical Labs
Physician Clinics
Wellness Center/Retail Pharmacy
Skilled Nursing
Home Health
Outpatient Rehab
TECHNOLOGY SOLUTIONS
EMR Email and Apps Remote Monitoring TeleMedicine
Value-based Payment Models Demand Advanced Capabilities Alternative payment and population health models require higher levels of integration and accountability relative to the traditional fee-for-service model
Financial Risk and Care Provider Integration and Accountability
Condition or Service Line Programs
Degree of Care Provider Integration and Accountability
Keys to Success Market Density Reputation Care Coordination IT Infrastructure Cost Management Preventative Medicine
P P P P P P
P P P P P P
P Disease / Case Management P Predictive Analysis P
8
Leve
l of F
inan
cial
Ris
k to
Pro
vide
r
Fee-for-Service Alternative Payment Models Population Health Models
Population Health Models Shared Savings
Shared Risk
Alternative Payment Models Primary Care Incentives
Performance-based Contracts
Capitation and Population Based C
Fee-for-Service Condition or Service Line Progr
CMS Moving to Alternative Payment Models and Population Health CMS intends to link 50% of reimbursement to Alternative Payment Models by 2018 from ~20% today
CMS Payments by Type
2008 2014 2016P 2018P
100% 60% 55% 50% 40%
30% 20%
20% 15% 10%
Fee-for-Service
Fee-for-Service Linked to Quality
Alternative Payment Models (Including Population-based Payment)
Source: Centers for Medicare & Medicaid Services. 9
Multiple Factors are Driving Physicians into Organized Models The trends accelerating the movement to group practice appear unlikely to subside in the near term
Employed or Affiliated Physicians as % of Total (Numbers in thousands)
793
2000 2005 2009 2013*
Number of Physicians Employed or Affiliated Physicians
*Estimated Source: Accenture and MGMA. 10
Ability to Practice Medicine in Patient-Centric, Aligned Models
Risk of Being Excluded From Networks
Lifestyle Expectations of Younger MDs
757
67%
723
57%
683
51%
43%
Increasing Expense and
Complexity of Managing Small Practice
Consolidation of Payers and Hospitals
Sector M&A Trends
Acute Care Hospitals Viewpoint: Spurred by demographic change, an improving economy, and ongoing reform, patient volume growth is improving the operational and financial outlook for hospital operators
Industry Drivers and Trends Number of Hospitals in Health Systems (2003- 2014)(1)
3,300
3,200
3,100
3,000
2,900
2,800
2,700
2,600
2,500
2,400
• Volume Growth > Q3 2015 marked 6th consecutive quarter of volume growth, with
inpatient volumes rising 0.9% YoY and outpatient volumes increasing by 2.7%
> Growth driven by large, urban hospitals (+3.4%), births (+4.3%) and emergency department visits (+3.2%)
> Q4 volumes projected to be below projections for publicly traded operators due to weaker than expected flu season
• Medicaid Expansion > State governments who have resisted Medicaid expansion are under
new pressure to act following the ACA’s second upholding by SCOTUS
> SCOTUS’ ruling in King vs Burwell is believed to have been the last significant chance to judicially remove the Affordable Care Act. 30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Increased YoY Growth in Outpatient Volumes (2013-
2015)1.0% 0.8% 0.6% 0.4% 0.2% 0.0%
(0.2%) (0.4%) (0.6%) (0.8%)
states have already expanded Medicaid, the remaining 20 are
IndustcroyncDenrtirvaeterdsinathnedSTourtehnadndsMidwest
• Payer mix improvement is slowing > Medicare continues to grow but at a slowing pace
• Consolidation is under heavy FTC and AG scrutiny > In April 2014, ProMedica was ordered to divest St. Luke’s Hospital
following their denied petition to overturn the FTCs ruling that the acquisition was anti-competitive
> State attorney general decisions have scuttled transactions in MA, CA, and CT
Sources: American Hospital Association annual hospital survey; UBS Research “A Very Good Day for Hospital Stocks, SCOTUS Affirms Subsidies in Healthcare.gov States”, 6/25/15; Morgan Stanley Research “3Q15 Hospital Survey”, 10/6/15 1) 2015 AHA data does not have a finalized year-end total yet due to outstanding regulatory clearance for several Q4 transactions in PA and IL. 12
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
2013 2014 2015
$53.0 7.8x
$106.3 16.7x
$54.0 8.0x
$74.0 3.7x
N/A
Acute Care Hospitals Active M&A market for deals of all sizes as benefits of consolidation increase Notable M&A Transactions ($ in millions)
For-Profit JVs / Investments Enter pr ise
Value EBIT DA M ultiple Announced T ar
get Acquir or
12/29/15 2 IU Health Hospitals Community Health Systems
N/A N/A
11/03/15 Akron General Cleveland Clinic $186.3 NMF
10/12/15 Crozer-Keystone Health System
Prospect Medical Holdings $100.0 8.8x
06/10/15 Trinity Health Hospital Billings Clinic RegionalCare
N/A N/A
01/29/15 Community Medical Center Billings Clinic RegionalCare
CONFIDENTIAL
12/22/14 Bert Fish Medical Center
Florida Hospital $40.0 NMF
10/06/14 Culpeper Regional Hospital
UVA Medical Center $10.0 0.7x
08/28/14 Lodi Memorial Hospital Adventist Health CONFIDENTIAL
03/31/14 Fairmont General Hospital Alecto Healthcare $15.3 NMF
02/12/14 East Orange General Hospital
Prospect Medical Holdings $32.0 16.5x
01/29/14 Hackettstown Regional Medical Center
Atlantic Health System CO NFIDENTIAL
10/03/13 Citrus Memorial HCA $140.0 NMF
08/27/13 Sharon Regional Health System
Community Health Systems
$70.0 13.4x
Sector Valuation Snapshot ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /
as of 4/1/16
as % of 52- W eek H igh
M ar ket Value
Enter pr ise Value
Revenues EBIT DA Pr ice / Ear nings 2017E P/E/G Companies LT M CY 16E CY 17E LT M CY 16E CY 17E CY 16E CY 17E
Acute Car e - H ospitals HCA Holdings, Inc. Tenet Healthcare Corp. Community Health Systems, Inc. Universal Health Services Inc. LifePoint Health, Inc.
$79.20 28.89 18.67
125.39 69.16
82.9% 47.4% 28.7% 84.4% 78.4%
$33,850.9 2,955.2 2,106.2
12,783.4 3,153.0
$65,210.9 19,642.2 19,706.2 16,474.3 5,686.3
1.6x 1.1 1.0 1.8 1.1
1.6x 1.0 1.0 1.6 0.9
1.5x 1.0 0.9 1.5 0.8
8.3x 9.0 8.3 9.9 8.8
7.8x 8.0 6.9 9.3 7.3
7.4x 7.6 6.7 8.7 6.8
12.7x 15.8 NM 17.0 18.3
11.5x 11.5 NM 15.6 15.5
1.1x 0.9 0.4 1.8 2.1
13
M ean 64.4% - - 1.3x 1.2x 1.1x 8.9x 7.9x 7.4x 16.0x 13.5x 1.3x M edian 78.4% - - 1.1 1.0 1.0 8.8 7.8 7.4 16.4 13.5 1.1
10/03/13 CharterCARE Health Partners Prospect Medical Holdings CONFIDENTIAL
02/06/14 Garden City Hospital Prime Healthcare Services $48.8 7.8x
12/30/13 Casa Grande Regional Medical Banner Health $87.0 NMF
03/14/14 Conemaugh Health System Duke LifePoint Healthcare $75.0 1.7x
10/02/14 W atertown Regional Medical Center LifePoint Health $40.0 5.6x
07/11/14 MedW est Haywood Duke LifePoint $28.5 NMF
11/06/14 SwedishAmerican Health System University of W isconsin Health $179.5 4.0x
03/27/15 Carroll Hospital Center LifeBridge Health $50.0 1.6x
01/08/15 Nason Hospital Conemaugh Health System $12.0 NMF
09/01/15 W est Jefferson Medical Center LCMC Health $200.0 NMF
10/29/15 W heaton Franciscan Healthcare Ascension N/A N/A
11/12/15 RegionalCare Hospital Partners Apollo Global Management N/A N/A
04/01/16 5 Tenet Atlanta-Area Hospitals W ellStar Health System $575.0 CO NFIDENTIAL
03/22/16 Capella Healthcare RegionalCare Hospital Partners N/A N/A
Tenet
Aetna & Banner Health Risk Sharing Agreement
Billings Clinic & RegionalCare
Cerberus Capital Management
CCMP & Canada Pension Plan Investment Board
IASIS Healthcare (TPG)
Leonard Green & Partners
The Carlyle Group & TPG Capital
TPG Capital
Warburg Pincus
Ambulatory Surgery Centers Overview Viewpoint: Favorable given relative cost effectiveness and volume growth potential
Subsector Overview Medicare-certified ASCs in the United States • The ASC market is expected to be ~$25 billion a year sector, growing
at roughly ~2% a year
Due to broad market saturation, the growth in the total number of ASCs has slowed in recent years and attractive de novo opportunities have become difficult to find
Same-facility case volumes at ASCs have been under pressure over the past few years; however, ACA implementation and a broad health care industry shift to outpatient care are anticipated to cause an increase in same-facility case volumes going forward
6,000 20% 5,443 5,344 5,346 5,159 4,837 5,000 •
15% 4,102 4,000
8.6% 3,000 10% •
2,000 5% 3.3%
1,000 1.8% 0.9%
• Three-way joint venture partnerships, including physicians, hospital, and ASC management company, continue to be attractive
Hospitals and health systems continue to pursue ASC partnerships and acquisitions as part of their long-term growth strategy
Payers have been actively acquiring and partnering with physician groups and facility-based providers including ASCs as a part of a focus on a population health management delivery model
ASCs valuations can vary greatly depending on a number of factors including majority/minority ownership interest, specialty type, in or out- of-network payor model, and physician commitment & stability
0.0% 0 0%
2005 2007 2009 2011 2013 2015 • # of ASCs % Growth
• U.S. ASC Case Mix GI
Ortho
Pain Mgmt
Opthalmology
ENT
General
Urology
OB/GYN
Plastic
Podiatry
Other
4% 3% 7% • 2%
8%
22% Regulatory / Reimbursement Environment
15% • In November 2015, CMS finalized a 0.3% net increase for ASCs and
0.3% net decrease for hospital outpatient services for 2016
• Expected net flat to slightly positive updates in coming years 16% 16%
• Rates are beginning to migrate towards ASC levels and away from higher HOPD rates
14 Source: Wall Street research, SEC filings, Verispan and Cain Brothers’ estimates.
NA 6.5x
NA 6.0x
6.0
$10.9 13.0x
$10.9 13.0x
Ambulatory Surgery Centers Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments EBIT DA
M ultiple(1)
Enter pr ise
Value Announced T ar
get Acquir or
Arcapita
Caltius Capital Mgmt
Symbion Surgery Partners
$792.0 10.1x 6/13/2014 Chicago Growth Partners
East Brunswick Surgery Center
Surgical Care Affiliates
$49.8 9.3x 12/31/2013
DFW Capital Partners
Physicians Endoscopy, LLC
Pamlico Capital
NA 8.5x 9/3/2013
$135.0 6.8x 1/24/2013 Covenant Surgical Partners
DFW Capital Partners Enhanced Equity Funds
11/8/2012 American Institute of Gastric Banding
United Surgical Partners International Inc
CONFIDENTIAL
HealthCor Partners 5/15/2012 Foundations Surgery Affiliates
Graymark Healthcare
$51.2 6.0x
10/6/2011 National Spine & Pain Centers
Sentinel Capital Partners
NA 7.3x H.I.G (Public)
8/24/2011 National Surgical Care
AmSurg $135.0 7.9x
ICV Partners 1/21/2011 NovaMed Surgery Partners Holdings
$214.0 8.5x
Irving Place Capital
LLR
Sector Valuation Snapshot ($ in millions, except per share data) Pamlico Capital
Closing Price Enterprise Value / Sentinel Capital Partners as of
3/23/16 as % of 52- W eek H igh
M arket Value
Enterprise Value
Revenues EBIT DA LT M CY 16E CY 17E LT M CY 16E CY 17E
(1) Physician-Partnered Facilities Texas Pacific Group (Public)
A m S u r g Corp.
Medical Faci l i t ies
Corp. Surgical Care Aff i l ia tes Surgery Partners
$65.05 9.81
39.54
16.45
74.4% 69.2% 87.7%
73.7%
$3,518.5 306.1
1,630.7
811.9
$6,004.0 308.5
2,443.1
2,011.6
2.3x 1.0 2.5
1.5
2.1x 1.0 2.3
1.8
NA 1.0 NA
1.6
12.4x 5.8
14.4
9.1
10.9x 5.9
12.9
10.7
NA 5.8 NA
8.8 Welsh, Carson,
Anderson & Stowe (Tenet majority owner)
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (1) EBITDA equal to EBITDA less minority interest. (2) Enterprise Value per USPI/Tenet Healthcare investor presentation. EBITDA Multiple based on Cain Brothers’ estimates. EBITDA multiple is blended to include sale of 50.1% at close and estimated future valuation(s) of 49.9% interest.
15
M ean 76.2% - - 1.8x 1.8x 1.3x 10.4x 10.1x 7.3x M edian 74.1% - - 1.9 1.9 1.3 10.8 10.8 7.3
1/5/2011 National Surgical Hospitals Irving Place Capital CONFIDENTIAL
Median M e an High Low
8.5x 8.7x 13.0x 5.3x
7/1/2011 Surgery Center Partners Sutter Health/Surgical Care Affiliates CONFIDENTIAL
9/1/2011 Titan Health Corp USPI $48.4 9.9x
3/26/2012 Capitol Spine & Pain Centers National Spine & Pain Centers NA NA
1/8/2013 National Pain Institute Prospira PainCare NA NA
9/20/2012 Pacific Endoscopy Center, LLC Covenant Surgical Partners $36.1 8.5x
6/3/2013 Health Inventures Surgical Care Affiliates $18.5 5.3x
12/6/2013 IMS Health ICV Partners NA NA
5/29/2014 Sheridan Healthcare AmSurg $2,350.0 12.2x
1/8/2016 Blue Chip Surgical Center Partners NueHealth CONFIDENTIAL
6/8/2015 Optim Health National Surgical Healthcare CONFIDENTIAL
3/23/2015 United Surgical Partners International(2) Tenet Healthcare $4,200.0 12.1x 3/6/2015 Green Clinic Surgical Hospital Northern Louisiana Medical Center CONFIDENTIAL
7/16/2014 Siouxland Surgery Center USPI CONFIDENTIAL
demand
Behavioral Health Overview Viewpoint: Very favorable given increasing volumes stemming from increased reimbursement coverage and declining social stigmas traditionally associated with mental illness/addiction treatment
Industry Drivers and Trends $53 Billion Target Market • The behavioral health sector, including the chemical dependency
segment, represents a total market opportunity of ~$53 billion
The behavioral health facility market is exhibiting favorable business trends:
Psych Hospitals 5.7% •
22.6% Behavioral Health & Addiction Clinics
> Public awareness of behavioral health and substance abuse issues is at an all time high, with focused media attention on celebrity health issues 41.5%
– As a result, treatment of these issues is more “accepted” and more treatment options are available Behavioral Health & Addiction
RTCs > Approximately 25% of Americans experience a mental disorder in a given year
According to the NIH, an estimated 20% of people in the U.S. have used prescription drugs for non-medical reasons
30.2% Eating Disorder Clinics
>
Growing Demand for Care and a Shortage of Providers Legislative Initiatives and Destigmatization Drive Continued Growth • Recent favorable legislation is expanding healthcare coverage
• 44 million Americans suffer from mental illness in a given year > It is estimated that there are over 22 million people over the age of 12 in the
U.S. that have a substance abuse disorder
• Suicide is the 10th leading cause of death in the U.S., killing more that 42,000 people annually Depression and anxiety are leading causes of debilitating symptoms The U.S. needs more than 2,800 more psychologists to address current
> Mental Health Parity and Addiction Equity Act: Insurers are required to provide coverage for behavioral health in a way no more restrictive than other services Anna Westin Act (in process): Clarifies that the parity laws should require insurance companies to cover full treatment for eating disorders Affordable Care Act: Generally increases insurance coverage (~32mm additional individuals gaining coverage) and allows children to stay on parents insurance until age 26
• • >
Press coverage has brought the national spotlight on eating
disorders and addiction
>
• Advocacy groups educate and bring awaren_e s_s : Source: United States Department of Health and Human Services, Parthenon Market Study Report., SAMSHA, NAMI. 16
$215.0 NA 7.2x
$73.0 NA NA
(in millions)
Behavioral Health Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enterprise Value /
Announced T arget Acquiror Enterprise Value LT M Sales LT M EBIT DA
12/01/15
D&SCommunity Services
Comvest Partners
CONFIDENTIAL
11/13/15 Meridian Behavioral Health
Audax Group $120.0 NA 10.0x
10/30/15
RHA Health Services
Formation Capital
NA NA NA
09/03/15
Providence Community Services
Molina Healthcare
~$200.0 NA 9.8x
07/27/15
The Ranch at Dove Tree
Summit Behavioral Healthcare
$36.0 NA 9.0x
05/13/15
The Oxford Centre American Addiction Centers, Inc.
$35.0 2.9x 6.3x
03/02/15
Quality Addiction Management
Acadia Healthcare Company, Inc.
$53.0 NA 8.7x
01/08/15
Crossroads Treatment Center
Revelstoke Capital Partners
$48.0 NA 8.0x
12/19/14
Hanley Center and Gate Lodge
Origins Behavioral Healthcare
NA NA NA
12/03/14
Castlecare Residential Care and Education
Priory Group NA NA NA
09/30/14
Rosewood Rivermend Health
$50.0 NA 9.0x
Sector Valuation Snapshot ($ in millions, except per share data)
Closing Pr ice
as of 3/23/16
as % of 52- W eek H igh
Enter pr ise Value
Revenues EBIT DA Pr ice / Ear nings 2017 P/E/G Behavior al LT M LT M CY 16E CY 17E
Universal Health Services Inc. Acadia Healthcare Company, Inc. Civitas Solutions, Inc.
AAC Holdings, Inc.
$116.65 52.37
16.91 19.88
78.5% 61.2%
55.9% 42.7%
$15,190.9 6,815.0
1,242.3 578.6
1.7x 3.8
0.9 3.0
9.2x 17.7
9.5 20.8
15.8x 18.5
21.3 20.8
14.5x 15.4
17.9 17.5
1.6x 0.6
1.8 0.9
M edian 58.6% - 2.3 13.6 19.6 16.5 1.3
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 17
M ean 59.6% - 2.3x 14.3x 19.1x 16.3x 1.2x
09/18/14 Matrix Medical Network Providence Service Corp. $400.0 2.1x 8.7x
10/29/14 CRC Health Group Acadia Healthcare Company, Inc. $1,207.7 2.8x 13.4x
12/15/14 Recovery First, Inc. American Addiction Centers, Inc. $13.1 NA NA
12/30/14 Park Bench Counseling Group Elements Behavioral Health NA NA NA
01/26/15 Clinical Services of Rhode Island, Inc. American Addiction Centers, Inc. $2.0 NA NA
05/12/15 Five Behavioral Treatment Providers (YTD) Civitas Solutions, Inc. ~$38.0 NA 4.0x
06/08/15 Sunspire Health Kohlberg & Company $120.0 NA 10.0x
09/03/15 Monte Nido and Affiliates Levine Leichtman Capital Partners $280.0 NA 16.0x
09/18/15 Foundations Recovery Network Universal Health Services Inc. $350.0 NA 12.1x
11/03/15 Discovery House Acadia Healthcare Company, Inc. ~$100.0 NA ~9.0x
01/04/16 Priory Group Acadia Healthcare Company, Inc. ~$2,200.0 2.5x 11.2x
11/24/15 AdvoServ W ellspring Capital Management CONFIDENTIAL
Audax Group
American Capital
Bregal Partners
Clearview Capital
Comvest Partners
Cressey & Co
Dobbs Management Group
Frazier Healthcare, NEA
H.I.G.
Lee Equity Partners
Trinity Hunt Partners
Vestar Capital Partners
Webster Capital
Wellspring Capital Management
Welsh, Carson, Anderson & Stowe
N
Clinic-Based Physician Services Overview Viewpoint: Hospitals will increasingly outsource specialty services and departments to gain efficiencies and reduce operating costs
Industry Drivers and Trends Cost per Episode
• Approximately 9,300 urgent care centers in U.S. Emergency Rooms $26
> >
>
>
700 – 800 new clinics open every year Average of 342 weekly patient visits per center
Over 150 million total visits annually
85% are open 7 days/week
Physician Offices
Urgent Cares
• Demand for next generation primary care delivery models driven by: Retail Clinics
> Of an estimated 1.0 billion visits made to physician offices in 2009 on-Pharmacy Cost Pharmacy Cost
– About one-third are minor and require little continuity of care
– 34% are for a new problem Projected PCP Shortage
> 14 - 27% of emergency department visits could be handled by urgent care centers, saving up to $4.4 billion a year 52,000
> Shortage of primary care physicians, aging population, expanded coverage with health care reform
• Urgent care and retail clinics offer more convenient, less expensive, high-quality environment
2015 2020 2025
Source: National Ambulatory Medical Survey: 2009. Urgent Care Association of America, 2010 Benchmarking Study. “Physician Office vs. Retail Clinic: Patient Preferences in Care Seeking for Minor Illnesses,” Annals of Family Medicine, 2010. Project US Primary Care Physician Workforce Needs: 2010-2025. The Costs and Quality of Care for Three Common Illnesses at Retail Clinics as Compared to Other Medical Settings.
18
36,000
21,000
$544
$145 $21
$134 $22
$89 $21
Clinic-Based Physician Services Market Activity Notable M&A Transactions ($ in millions)
Private Equity Investments
Ent erprise V alue /
Moelis Capital Partners
Ent erprise
V alue
LT M
Revenue
LT M
EBIT D A Announced T arget Acquiror
01/25/16 Physiother apy Associates ~$400.0 NA ~12.0x Select Medical
01/04/15 Center for Vein Restor ation (W aud Capital) ~$150.0 ~3.0x ~12.5x Cor tec Gr oup Great Point Partners 12/15/15 Upstr eam Rehabilitation ~$300.0 NA ~10.0x Revelstoke Capital Par tner
s
11/03/15 Valley Anesthesiology & Pain Consultants Sher idan Healthcar e (AmSur g )
~$350.0 NA ~12.0x
09/01/15 Emer us ~$375.0 NA ~15.0x W elsh Car son Ander son & Stowe Sterling Partners 07/30/15 Rur al/Metr
o Envision Healthcar e ~$620.0 ~1.0x ~10.0x
Altaris Capital Partners
06/11/15 Reliant Hospital Par tner s
HealthSouth Cor por ation ~$730.0 NA 8.9x
05/12/15 Vir tual Radiologic Cor por ation MEDNAX ~$500.0 2.7x 11.1x
Bison Capital Partners
03/23/15 Concentr a (Humana) Select Medical & W elsh Car son, Ander son & Stowe
$1,055.0 1.1x ~8.5x
01/19/15 VISTA Staffing Solutions (On Assignment) Envision Healthcar e $123.0 0.9x 9.8x
Revelstoke Capital Partners
12/02/14 Gastr oenter ology Anesthesia Associates CRH Medical Cor por ation $58.6 2.3x NA
11/07/14 Acceler ated Rehabilitation Center s AthletiCo ~$440.0 NA ~11.0x
New Harbor Capital
Management
10/10/14 Results Physiother apy
Ster ling Par tner s
~$150.0 NA ~15.0x
Ares Management
Frazier Healthcare
TPG Growth
Goldman Sachs
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 19
06/25/14 Sound Inpatient Physicians Fr esenius Medical Car e $700.0 1.2x ~20.0x
10/27/14 Car eNow HCA ~$375.0 NA ~13.0x
11/12/14 Center r e Healthcar e Kindr ed Healthcar e, Inc. $195.0 NA 15.4x
12/19/14 OGH LLC (W elsh, Car son, Ander son & Stowe) AMN Healthcar e Ser vices $82.5 NA 8.3x
01/23/15 Encor e Rehabilitation Revelstoke Capital Par tner s ~$140.0 NA ~10.0x
04/08/15 MedExpr ess Ur gent Car e Optum (UnitedHealth) $1,500.0 NA ~15.0x
05/21/15 FastMed (Comvest) Abr y Par tner s ~$300.0 NA ~15.0x
07/06/15 Dental Car e Alliance (Quad-C) Har vest Par tner s NA NA ~13.5x
08/04/15 IPC Healthcar e Team Health $1,600.0 2.2x 10.7x
09/16/15 Alliance Healthcar e Ser vices (Nasdaq: AIQ) Fujian Thaihot Investment Co. ~$725.0 1.7x ~6.5x
11/18/15 B.E. Smith AMN Healthcar e Ser vices $160.0 1.6x ~10.5x
12/29/15 Spectr um Pr ofessional Ser vices Beecken Petty O'Keefe & Company $170.0 0.7x 10.6x
01/14/16 For efr ont Der matology (Var sity Healthcar e) Omer s ~$450.0 NA ~13.0x
Consumer & Digital Health Overview Viewpoint: Key features of health care consumerism are personal responsibility, self-care, choice, personalized care and convenience. Technology and entrepreneurs are converging in effort to make these features a reality
Key Trends Telehealth Market Projection Forecast of Telehealth Patients, Device, and Service Revenue • Consumer health is helping drive lower costs, better outcomes and higher
patient satisfaction based on the following macro trends and initiatives 5,000 8,000
7,000 6,000 5,000
4,000 3,000 2,000 1,000 0
> The Digitization of Health Care is Happening – The majority of providers using fully functioning EHRs and the majority of
consumers prefer to communicate via email with regard to healthcare concerns
Quality-Over-Quantity Incentives are Being Implemented – Providers are shifting to value-based, from FFS payments
– Employers are lowering costs by offering services to improve engagement, choices and care
Patient Engagement Is Rising and Yielding Results – Consumers want to access tools, websites rankings for quality /
satisfaction / patients reviews of doctors and hospitals in addition to personal health tracking devices
– According to a recent Towers Watson Report, 96% of employers expect to increase their focus on employee well-being and engagement as a means of reducing healthcare costs
4,000
3,000 >
2,000
1,000
> 0 2012 2013 2014 2015 2016 2017 2018
Device & Service Total Patients
Wearable Device Market Forecast ($ in millions) • Digital health funding reached $4.3 billion in 2015. The continued strong
investment activity is largely being driven by the increased focus on the consumerization of healthcare as well as health care reform and the related business model shifts within the industry > Digital health accounted for 7% of all venture funding over the twelve months
ended Q3 2015
> Top subsectors comprised 51% of all funding in 2015: – Healthcare Consumer Engagement, Wearables & Biosensing, Personal
Health Tools & Tracking, Payer Administration, Telemedicine Care Coordination
In 2015, 278 financing transactions, and approximately 180 M&A transactions, were completed. The average deal size increased to $15.6 million, a 11% increase over last year’s $14.0 million
2012 – 2018 CAGR: ~46.9%
•
2012 2013 2014 2015 2016 2017 2018
20 Source: Rock Health, StartUp Health, Capital IQ, Towers Watson, and Wall Street research.
Mill
ions
of U
SD
Thou
sand
s of
Pat
ient
s
$12.6
$2.5 $1.3
$12
$10.9
$8.9
$7.1
$5.2
Consumer & Digital Health Market Overview
Notable M&A Transactions ($ in millions)
Largest Financings in 2015 ($ in millions)
Announced T arget Acquiror Purchase Price T arget D escript ion
02/24/16
Shape Up, Inc. & Global
Cor por ate Challenge
Vir gin Pulse
NA Pr ovide solutions designed to optimize employee engagement, health and
per for mance Apr. 2015 $300.0
Jun. 2015 $200.0 12/3/2015
Silver link Communications
W elltok, Inc. NA Deliver s consumer health engagement pr ogr ams to educate and suppor t
healthcar e consumer s
Aug. 2015 $130.0 11/04/15 1DocW ay,
Inc. Genoa, a QoL Healthcar e
Company
NA Telemedicine company offer ing br owser -based telepyschiatr y
Jul. 2015 $115.0
07/01/15
Inter active Health
FFL Par tner s
NA Lar gest U.S based company offer ing integr ated wor kplace wellness solutions Oct. 2015 $112.5
Dec. 2015 $105.0 06/06/15
Altegr a Emdeon
$910 National pr ovider of technology and inter vention platfor ms for impr oved
management for value-based healthcar e
Aug. 2015 $100.0
Sector Valuation Snapshot ($ in millions, except per share data)
May 2015 $92.0
Mar. 2015 $70.0 Closing Price Ent erprise V alue /
as of
3/23/16
as % of 52-
W eek H igh
Ent erprise
V alue
Revenues EBIT D A Aug. 2015 $70.0 Com panies CY 16E CY 17E CY 16E CY 17E
Fitbit Inc.
W ebMD Health Cor p.
HealthEquity, Inc.
Teladoc, Inc.
Ever yday Health, Inc.
Castlight Health, Inc.
$14.55
58.22
24.36
10.34
5.19
3.00
28.2%
98.1%
69.7%
29.7%
37.2%
29.2%
$2,760.0
2,361.8
1,377.0
296.0
251.5
169.6
1.1x
3.4
8.0
2.5
1.0
1.7
0.9x
3.1
6.5
1.7
0.9
1.3
6.6x
10.6
24.0
NM
5.6
NM
5.0x
9.4
18.7
NM
4.3
NM
Nov. 2015 $70.0
Jun. 2015 $62.8
Jul. 2015 $55.4
21 Source: Company filings, Capital IQ, Wall Street research.
M ean 48.7% - 2.9x 2.4x 11.7x 9.3x
M edian 33.4% - 2.1 1.5 8.6 7.2
05/19/15 Pr edilytics, Inc. W elltok, Inc. NA Pr ovides analytic solutions based on consumer health status and r eceptivity
to engagement
06/24/15 Sage Technologies Ar cadia Solutions $28 Pr ovides technology based ser vices allowing physician gr oups to enter into
r isk-based contr acts with health plans
08/24/15 RSA Medical, LLC X er ox Cor por ation NA Pr ovides health assessments and r isk management for member s inter acting
with health and life insur ance companies
11/11/15 Misfit, Inc Fossil Gr oup, Inc $236 Invents and manufactur es connected wear able pr oducts, including activity
tr acker s
02/18/16 Tr uven Holding Cor p. IBM W atson Health $3,556 Pr ovides cloud-based analytic solutions and ser vices
Health & Wellness Overview Viewpoint: Very favorable given focus on preventive medicine, ACA essential health benefits, rising healthcare costs and changes in consumer/employer behavior and accountability
Industry Drivers and Trends(1) Self-Reported Obesity Among US Adult – 2013(2)
• Demographic and health trends favor growth of health & wellness sector > Nearly 35% of adults and 17% of children are
overweight/obese
> Approximately 86% of all health care related costs stem from chronic health conditions
Indirect costs associated with poor health estimated to be “several times higher” than direct medical costs
WA
MT ME ND MN
VT OR NH MA RI CT NJ D E M D DC
ID SD WI NY
MI WY
IA PA NE NV OH IN UT IL
CO WV VA KS CA MO KY
NC TN
OK AZ AR SC NM
AL GA MS TX LA AK
FL
• HI
PR GUAM
> > >
Absenteeism Disability Reduced work output Employer Avg. Spending on Employee Incentives(3)
• Increase in consumer health awareness has presented compelling market opportunity in health & wellness sector
Employers accelerating adoption of health & wellness programs to improve employee health and benefit bottom line
> Average spending on employee health incentives: $594 in 2014, up from $430 in 2010
> ~93% of employers expect to maintain health incentive programs, including ~57% expecting to further expand programs
$594
•
2010 2011 2013 2014
(1) CDC & Joint National Business Group on Health/Fidelity Investments Health Improvement Survey. (2) CDC. (3) Joint National Business Group on Health/Fidelity Investments Health Improvement Survey. 22
$521
$430 $460
15%–<20%
20%–<25%
25%–<30%
30%–<35%
≥35%
Health & Wellness Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enter pr ise Value / Andreesen Horowitz / Kaiser
Permanente Ventures / U.S. Venture Partners / The Vertical Group
Enter pr ise
Value
LT M Revenue
LT M EBIT DA Announced T ar
get Acquir or
07/01/15 Interactive Health
FFL
NA NA NA Cambia Health Solutions / Draper Fisher Juvertson
10/28/14 Alere Health Inc Optum $600.0 ~1.7x ~10.0x Century Capital
01/21/10 Health Fitness
Trustmark Mutual Holding Company
$91.8 1.2x 12.9x Escalate Capital Partners /
Frontier Capital 09/21/09 Free & Clear
Alere (Inverness Medical Innovations)
$100.0 2.1x 12.0x
Founders Fund / New Enterprise Associates 03/17/08 I-trax Inc W algreens
Co $278.0 1.9x NM
11/27/07 ProFitness Health Solutions
I-trax Inc $7.5 0.6x 8.3x FFL
Harbert Venture Partners/ Noro-Moseley Partners /
Summit Partners
10/24/07 Alere Medical Inc Inverness Medical Innovations
$302.0 NM 15.1x
06/05/07 APS Healthcare
GTCR Golder Rauner
$285.0 1.3x 12.2x
Lemhi Ventures 01/18/07 Comprehensive Care Corp
Hythiam Inc $12.3 0.6x NM
05/31/06 Focused Health Solutions Inc
Linden LLC $89.0 2.0x NA Norwest Venture Partners
04/11/06 Summex Corp W ebMD Health Corp $30.0 NM NA Oak Investment Partners
Sector Valuation Snapshot ($ in millions, except per share data)
Parthenon Capital Partners
River Cities Capital Closing Pr ice Enter prise Value /
as of as % of 52-
3/23/16 W eek H igh
Enter prise
Value
Revenues EBIT DA Pr ice / Ear nings 2017E
P/E/G Solis Capital Partners /
Innovate Partners Companies CY 16E CY 16E CY 16E CY 17E Healthways Inc. $9.81 46.4% $588.9 0.8x 6.9x NM 23.0x 1.3x
Summit Partners / Noro- Moseley Partners
Vestar Capital Partners
Wellington Capital Management
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 23
05/10/06 Cardium Health Services Corp CenCorp Health Solutions (Centene) $13.0 NM NA
10/11/06 AXIA Health Management LLC Healthways Inc $450.0 NM 14.0x
04/03/07 Alere Medical Inc TA Associates $175.0 NM 10.4x
09/04/07 Berkeley HeartLab Inc Celera Group $195.0 2.3x NA
11/26/07 ParadigmHealth Inc Inverness Medical Innovations $230.0 NM NA
01/28/08 Matria Healthcare Inc Inverness Medical Innovations $1,180.0 NM 15.5x
06/18/08 MEDecision Health Care Service Corporation $116.0 NM NM
11/22/10 Concentra Inc Humana Inc $790.0 1.0x 8.5x
01/11/12 APS Healthcare Universal American $227.5 0.8x 7.3x
03/26/15 Concentra Inc Select Medical Holdings, $1,055.0 ~1.1x NA W elsh, Carson, Anderson & Stowe
Health Care Distribution Overview Viewpoint: Direct consumer targeting and increased use of data to increase supply chain efficiencies continue to represent two of the positive opportunities in Health Care Distribution
Estimated U.S. Rx Drug Spending ($ in billions) Industry Drivers and Trends • Peak in patent expirations to impact generic economics $435 $409 $385 $364 $343 $328 >
>
~75% of U.S. prescription drug volume, but only 25%-27% of costs
~$78 billion of drugs to go off-patent in 2012 – 2016 with ~$17 billion in 2017 - 2021 $305 $271
• Specialty represents the next growth avenue beyond generics >
>
>
Fastest-growing component of drug spend, rising ~20-25% per year
Expected to reach ~44% of total drug spend by 2017, vs. 32% in 2014
By 2020, 9 of top 10 selling drugs will be specialty vs. 3 of 10 in 2010
2013 2014 2015 2016 2017 2018 2019 2020
Estimated Specialty Drug Spending ($ in billions)
• Aging seniors to drive increasing utilization 5-year CAGR: 14.1%
>
>
31% of Rx spend, 14% of population but growing 3.3% (5x rate of non seniors)
~92% of seniors have a chronic condition, ~77% have 2+, ~45% have 3+ $291
$272 $252 $233 $215
• Targeted pharma/ med distribution models offer considerable growth potential (e.g. catheters, incontinence, nuclear pharmacy)
Focus on increasing compliance and persistence across all sectors, typically via increased consumer engagement / value-add services
Consolidation across all sectors expected to continue
2016 2017 2018 2019 2020 •
Major Brand Drugs Going Off-Patent ($ in billions)
~$78 billion going off patent 2012- 2016
•
Regulatory/Reimbursement Environment $28.3
• Passage of Accountable Care Act bodes well by ensuring increased coverage/ utilization
Payers are aggressively seeking to rein-in costs of specialty drugs • $2.0 $1.7 > Looking to increasingly engage/touch the consumer
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Source: IMS Health, Express Scripts Drug Trend Report 2015, and EvaluatePharma World Preview 2020. 24
~$17 billion going off patent 2017-
$14.8 $14.1 $12.6 2021
$7.4 $4.6 $4.1 $4.4
Health Care Distribution Market Activity
Notable M&A Transactions ($ in millions)
Date
Private Equity Investments ($ in millions)
Enterprise Value
EV/EBIT DA Announced T
arget Acquiror LT M ACON
2/1/2016 National Distribution & Contracting, Inc.
Court Square Capital Partners L.P.
NA NM
AEA Investors / TH Lee Partners 12/16/201
5 1-800 CONTACTS, Inc.
AEA Investors LP
NA NM
Audax / LLR Partners 8/24/2015 UDG Healthcare
Celesio AG / McKesson
$463.5 13.4x
8/20/2015 United States Medical Supply, Inc.
H.I.G. Capital, LLC
NA NM Beecken Petty O’Keefe
7/10/2015 US Diagnostics, Inc.
Alere Inc.
$60.0 NM Court Square Capital Partners
05/02/15 Animal Health International, Inc.
Patterson Companies, Inc.
$1,100.0
16.2x DW Healthcare Partners
02/26/15 BioRx, LLC
Diplomat Pharmacy, Inc.
350.0 15.2x Enhanced Equity
01/11/15 MW I Veterinary Supply, Inc.
AmerisourceBergen Corporation
2,522.5
18.5x Frazier Healthcare
12/03/14 Allied 100, LLC
Ridgemont Equity Partners
NA NM H.I.G. Capital
Sector Valuation Snapshot ($ in millions, except per share data)
Highland Capital Management
MTS Health Investors
Closing Pr ice Enter pr ise Value / New Mountain Capital as of
3/23/16
as % of 52- W eek H igh
M ar ket Value
Revenue EBIT DA Pr ice / Ear nings
Ridgemont Equity Partners Companies CY 16E CY 16E CY 16E CY 17E
McKesson Corporation Cardinal
Health, Inc. AmerisourceBergen Corporation Henry Schein, Inc.
Patterson Companies, Inc.
Owens & Minor Inc.
$155.03
81.28 87.27
168.57
45.90
39.61
63.9%
88.8% 75.6%
99.1%
89.0%
98.2%
$35,610.8
26,944.3 18,207.1
14,022.8
4,448.1
2,491.4
0.2x
0.2 0.1
1.4
1.0
0.3
8.2x
9.0 9.2
15.1
11.3
10.4
11.9x
14.6 14.7
25.5
17.4
19.2
11.0x
12.7 12.9
23.0
16.2
17.9
RountTable Healthcare Partners
The Riverside Company
Water Street
Wellspring Capital Management
25
M ean 85.8% - 0.5x 10.5x 17.2x 15.6x
M edian 88.9% - 0.3 9.8 16.1 14.5
12/15/14 Holt Dental Supply Patterson Companies (PDCO) NA NM
02/10/15 Envision Topco Holdings, LLC Rite Aid Corporation 2,011.5 13.0x
03/05/15 Genoa, a QoL Healthcare Company Advent International NA 15.0x
6/5/2015 The Harvard Drug Group, L.L.C. Cardinal Health, Inc. $1,115.0 NM
8/13/2015 HASCO Medical, Inc. W MK Inc. $48.8 9.3x
8/20/2015 HurryCane LLC Medical Depot, Inc. NA NM
12/15/2015 Kreisers, Inc. & Midwest Medical Supply Seneca Medical, Inc. NA NM
1/20/2016 InHome Medical Solutions LLC Anatomy Holdings, LLC NA NM
Prac ab
Health Care IT Overview Viewpoint: Favorable given multiple forces driving increased IT investment across all health care segments
Industry Drivers and Trends Perfect Storm Driving Increased IT Investment • HITECH payments exceeding $22bn , including $12bn in 2013, have
driven build of clinical IT infrastructure – likely in the 7th inning of this game
Next wave will be focused on Analytics to leverage HITECH infrastructure toward actionable results
Ultimate foundation for Population Health Management + True Evidence Based and Personalized Medicine
Payor IT spending focus on advanced Care Management and Value Based Reimbursement , some of which will be dependent on the above provider clinical infrastructure
“ACO Tools” represent convergence of the above and an area of considerable focus for providers and payors
Population Health Management / Risk Stratification
Care Coordination / Transitions of Care
While early, mHealth applications address the “Holy Grail” of consumer connectivity /oversight
Changing reimbursement away from fee for service creates need for “new”, sophisticated RCM capabilities to address increasing reimbursement complexity
ICD 10 to represent a meaningful provider / payor pain point and therefore a large IT / BPO opportunity
Increasing proliferation of standards (including ICD 10) likely to continue to attract historically non-health care focused IT companies to the sector
•
•
•
•
•
•
• ACOs Require New RCM & Clinical IT
Physician HER Adoption
90%
• 80%
70%
Employed tices
Outpatient L
60%
50% •
40%
Affiliated Practices
Home Health 30% Hospital
• 20%
7% 10%
Partner Hospital
0% Patients 2006 2007 2008 2009 2010 2011 2012 2013
Any EMR/EHR System Basic System Fully Functional System
26 Source: Cain Brothers’ research, CDC, HIMSS.
78%
72%
57% 51%
48% 48% 42% 40%
35% 34% 29%
22% 25%
17% 15% 15% 11% 12% 10%
13% 3% 4% 5%
$175.0 3.1x
($ in millions)
Health Care IT Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enter pr ise Value /
Enter pr ise
Value
LT M Revenue
LT M EBIT DA ABRY Partners
Announced T ar get
Acquir or 02/23/16 02/18/16
Brightree Truven Health Analytics
ResMed (NYSE: RMD) IBM (NYSE: IBM)
$800.0 $2,600.0
NA 6.0x
13.5x 36.0x
Confidential
01/05/16 11/25/15
NaviNet Inc. CPSI (NasdaqGS: CPSI)
NantHealth Healthland Essex Woodlands $250.0 NA NA
10/30/15 09/21/15
08/06/15 08/04/15
HealthFusion Alegis Revenue Solutions Merge Health
CECity
Quality Systems (NASDAQGS: QSII) MEDNAX (NYSE: MD) IBM (NYSE: IBM) Premier (NasdaqGS: PINC)
$190.0 ~$350.0
$975.0 $400.0
~5.0x NA
4.3x NA
~15.0x ~10.0x
24.7x NA
Francisco Partners
Genstar
05/11/15 Acclaris Towers W atson (NASDAQ: TW )
$140.0 4.0x NA
04/13/15 04/13/15
Explorys Phytel
IBM (NYSE: IBM) IBM (NYSE: IBM)
~$500.0 ~$240.0
~8.0x ~10.0x
NA NA
JMI Equity 01/23/15 11/19/14
10/28/14 09/30/14 09/23/14 09/15/14
Strata Decision Technology Change Healthcare Corporation Alere Health
MedSynergies SPi Healthcare TriZetto Corporation
Roper Industries (NYSE: ROP) Emdeon Optum Optum Conifer Health Solutions Cognizant Solutions (NasdaqGS:CTSH)
~$140.0 $185.0
$600.0 ~$800.0 $235.0
$2,700.0
NA ~10.0x
NA NA NA NA
~18.0x NA
~12.0x 20.0x+ ~8.5x
~13.0x Norwest Equity Partners
Sector Valuation Snapshot Serent Capital ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /
as of 3/23/16
as % of 52- W eek H igh
Enter pr ise Value
Revenue EBIT DA Pr ice / Ear nings 2017E P/E/G Companies CY 16E CY 16E CY 16E CY 17E
The Blackstone Group Legacy H CIT
Cerner Corporation athenahealth, Inc. Allscripts Healthcare Solutions, Inc.
The Advisory Board Company Medidata Solutions, Inc. W ebMD Health Corp.
HMS Holdings Corp. Omnicell, Inc.
Quality Systems Inc. Computer Programs & Systems Inc. Healthstream Inc. Accretive Health, Inc.
$52.66 132.74 12.30
30.39 35.66 58.22
13.29 26.31 14.39
51.49 $20.44
$2.67
70.2% 79.1% 79.2%
50.7% 59.6% 98.1%
73.1% 65.1% 83.7%
89.0% 63.6%
44.9%
$17,997.3 5,327.4 2,848.8
1,744.8 1,991.2 2,255.2
1,168.6 860.5 771.3
655.5 $498.0
$183.1
3.6x 4.8 2.0
2.1 4.3 3.2
2.4 1.2 1.4
2.1 2.2x
0.7x
10.7x 22.9 10.3
9.2 18.6 10.1
9.9 7.9 8.3
NM 13.4x
7.0
22.4x 76.1 21.2
18.1 35.5 32.3
21.4 16.9 19.5
14.9 60.7x
NM
19.5x NM 18.0
16.0 28.7 28.5
18.2 14.2 16.5
13.4 48.9x
29.7
1.3x 3.1 1.3
1.1 1.7 2.6
1.2 1.0 1.6
1.0 3.2x
2.2x
Thoma Bravo
Thomas H. Lee Partners
Waud Capital
27 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.
M ean 71.4% - 2.5x 11.7x 30.8x 22.9x 1.8x M edian 71.7% - 2.1 10.1 21.4 18.2 1.5
02/18/15 Corepoint Health Audax Group ~$100.0 ~4.5x ~10.0x
05/06/15 Sentry Data Systems ABRY Partners $200.0 NA 9.5x
07/06/15 Altegra Emdeon $910.0 NA ~15.0x 06/30/15 Precyse Solutions Pamplona Capital Management NA NA NA
11/02/15 MedAssets Pamplona Capital Management $2,700.0 3.6x ~11.0x
01/28/16 Premier Health Exchange/Pay-Plus Solutions Stratose Inc. (Parthenon Capital) Confidential
Healthcare Consulting Industry Drivers Executive Summary
• Demand for consulting services, broadly defined, continues to be strong as a number of factors drive need for various services, either strategic, operational or IT-related
requiring significant organizational shifts to traditional care models
> Lack of internal IT expertise
•
•
•
M&A activity in the sector remains robust, with a number of significant deals getting done in the last 12-18 months
Both strategics and financial sponsors actively involved in many of the transactions for core-consulting assets
Traditional consulting firms also continue to look for add-on capabilities (sector focus, analytics, revenue cycle, IT implementation)
28
Reimbursement Changes
• Shift from Fee-for-Service, volume-based payment model to one dependent more on care and quality factors • Need for greater care coordination across the continuum, from ambulatory to acute to post acute settings, is
• Ability to share or independently manage risk through emerging reimbursement designs (ACO, bundled payments, share savings program) will be required to succeed into the future
Provider Cost Pressures
Care Transition Pressures
Technology Adoption
• Provider margins continue to be challenged > Changes to Medicare associated with PPACA, including rate reductions for developments such as hospital
acquired conditions and quick readmissions > Managed care industry consolidation > Technology investments required under HITECH > Increased payment risks associated with greater prevalence of high deductible plans
• Continued push to move patients out of high cost acute care hospitals into lower cost settings (e.g. skilled nursing, short-term rehab, home health, etc.)
• Increased focus on patient “leakage” not only to non-affiliated physician groups, but now to PAC providers outside of an acute care providers sphere of influence > Rapidly forming relationships to complete a full continuum of care – from the hospital through to the home
(and everything in between)
• Significant investment in HIT across the provider > Myriad of systems to choose from
> Much greater access to previously siloed data
Healthcare Consulting Select Industry Players
Industry Names / Comps
29
Public Firms
Strategy
Operational / Financial
IT-Focused
(Pamplona)
(Inovalon)
(RLH)
(Gryphon)
(McKinsey)
(Pamplona)
(Huron)
(GE)
(HealthEdge)
(Madison Dearborn)
(CHS)
(Truven)
(Ferrer Freeman)
(Chartis/RLH)
(KPMG)
(Tailwind)
(LLR)
(SVLS/HEP)
(Century)
Home Health Overview Viewpoint: Aging U.S. demographics and lowest-cost care setting are long-term tailwinds, but volume and reimbursement pressure create near to mid-term headwinds
• Total home health care expenditures in the U.S. is approximately $75 billion Medicare-Certified Home Health Agencies, 2000-2013 >
>
Medicare and Medicaid account for over 80%
Estimated spending by both programs expected to continue to grow well into the future 12,613 12,02612,225
10,961 • In 2013, Medicare spend $17.9 billion on home health serving ~3.5 million beneficiaries (86% age 65+)
8,955 9,404 8,314 > Home health currently utilized by 3.5 million Medicare beneficiaries (~6.0%
penetration rate) 7,525 7,061 7,057 7,352
• Significant number of lives already covered under governmental programs
> ~50 million people currently covered under Medicare, with 10,000 people becoming eligible every day due to aging demographics
~62 million people currently covered under Medicaid, with another 16 million expected by 2019 due to reform
Average Home Health
Utilization by Medicare Beneficiaries
~6.0%
>
• Highly-fragmented industry ripe for consolidation 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
> ~12,600 Medicare-certified home health agencies (~21% market share by the six publicly traded operators) Estimated Medicare Home Health Spending, 2014-
2($0in25 Estimated Home Health Market Share billions)
($ in $27 millions)
$22 $21 $20 $19 $18 $18 $18 $17 $17 Publicly traded operators ~24%
2014A 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Source: CMS Office of the Actuary, CMS Statistical Supplement, and CBO Medicare Baseline. 30
$24 $25 Rank Company O wner ship Est. Revenue Shar e
1 Kindred Healthcare NYSE (KND) 1,579 8.4%
2 Amedisys Nasdaq (AMED) 1,072 5.7%
3 LHC Group Nasdaq (LHCG) 630 3.3%
4 Almost Family Nasdaq (AFAM) 532 2.8%
5 AccentCare O ak Hill Capital Partners 500 2.6%
6 Encompass / CareSouth NYSE (HLS) 478 2.5%
7 Bayada Home Health Private 275 1.5%
8 HCR ManorCare (Heartland ) The Carlyle Group 215 1.1%
9 Nurse on Call NYSE (BKD) 200 1.1%
10 Great Lakes Caring W ellspring Capital 80 0.4%
T op 10 5,561 29.5%
11,654
10,040
7,804
$59.5 0.8x 10.6x
~$40.0 ~$0.9 NM
$37.0 1.0x 7.1x
$300.0 1.2x 6.2x
Home Health Market Activity Notable Recent M&A Transactions ($ in millions) Enter pr ise Value /
Revenue M ultiple
EBIT DA M ultiple Announced T ar
get Acquir or Enter pr ise Value
Long Term Solutions Almost Family $37.0 2.4x NA 1/5/2016
10/31/15 Heritage Home Healthcare Evangelical Lutheran Good Samaritan Society
CONFIDENTIAL
11/03/15 Infinity Homecare Amedisys $63.0 1.3x 9.8x
08/31/15 CareSouth Health System
Encompass Home Health
$170.0 1.6x ~17.0x
08/24/15 South Shore Home Health Services and Acaring Home Care
Addus HomeCare Corp. $18.5 0.4x NA
02/25/15 W illCare HealthCare Almost Family $50.5 0.7x 6.1x
01/12/15 Pediatric Unit of Loving Care Agency Epic Health Services Inc
$99.0 0.9x ~9.0x
12/08/14 PrimeCare Network Jordan Health Services Inc
NA NA NA
10/09/14 Gentiva Health Services
Kindred Healthcare $1,798.3 0.9x 9.6x
07/10/14 Residential Home Health
Graham Holdings Company ~$90.0 1.1x ~8.0x
04/28/14 Great Lakes Caring W ellspring Capital Management
~$180.0 ~1.4x ~8.5x
12/11/13 U.S. Medical Management (Visiting Physicians Association)
Centene Corp $293.3 1.3x 9.8x
11/04/13 Senior Home Care Kindred Healthcare Inc. $95.0 0.7x ~7.5x
10/09/13 Imperium Health Management
Almost Family (61.5% majority interest) $9.4 NA NA
09/17/13 Bluebird Care Franchises (U.K.)
Interim HealthCare (Caring Brands International) NA NA NA
07/24/13 American Eldercare Humana Inc $150.0 2.0x NA
Sector Valuation Snapshot ($ in millions, except per share data) Companies
Closing Pr ice Enter pr ise Value / as of
3/23/16
as % of 52- Enter pr ise
Revenue EBIT D A Pr ice / Ear nings
2017E
P/E/G W eek H igh Value LT M CY 16E CY 17E LT M CY 16E CY 17E CY16E CY 17E Amedisys Inc.
LHC Group, Inc.
Almost Family Inc.
Addus HomeCare Corporation
$37.98
37.43
39.08
24.05
80.1%
73.2%
78.6%
67.3%
$1,339.9
781.1
522.5
270.2
1.1x
1.0
1.0
0.8
1.0x
0.9
0.8
0.7
0.9x
0.8
0.8
0.6
12.5x
10.7
11.9
10.6
10.7x
9.7
10.4
9.2
9.0x
9.1
9.6
8.1
21.8x
19.0
16.0
18.8
17.8x
17.6
14.8
15.8
1.2x
1.2
1.0
1.1
31 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.
Mean 74.8% - 1.0x 0.8x 0.8x 11.4x 10.0x 9.0x 18.9x 16.5x 1.1x
Median 75.9% - 1.0 0.9 0.8 11.3 10.0 9.1 18.9 16.7 1.1
07/17/13 Indiana Home Care Network (d/b/a Innovative Home Health) Almost Family $12.5 0.9x 5.0x 06/23/13 Visiting Nurse Association of Boston and Affiliates (VNA of Boston) VNA Care Network & Hospice (Atrius Health) CONFIDENTIAL 02/07/13 Addus HomeCare Medicare operations (19 HHAs and 2 hospice) LHC Group Inc $20.0 0.5x NA
M ean M edian
1.0x 7.7x 0.9x 7.8x
09/03/13 Alegis Care Cigna Inc ~$50.0 ~1.7x ~8.3x
09/19/13 Harden Healthcare Gentiva Health Services Inc $408.8 0.9x 7.6x
10/03/13 Healthcare Innovations Private Services (HCIPS) Jordan Health Services Inc ~$45.0 ~1.0x ~4.5x
11/05/13 SunCrest Healthcare Almost Family Inc $75.5 0.5x NM
02/03/14 BioScrip's Home Health Services Segment (Deaconess HomeCare) LHC Group CONFIDENTIAL
07/15/14 Life Care Home Health LHC Group $10.0 0.4x NA
09/12/14 All Metro Health Care Services Nautic Partners ~$75.0 0.7x ~5.0x
11/23/14 Encompass Home Health HealthSouth $750.0 2.0x 10.0x
December 2014 Caregivers America All Metro Health Care Services $47.5 0.9x 5.3x
01/15/15 Home Health business of Revera Inc Extendicare Inc (ParaMed Home Health Care) $83.0 0.4x 6.5x
03/23/15 Pediatric Services of America (PSA) Healthcare J.H. W hitney ~$205.0 0.9x ~10.0x
08/25/15 Help at Home W ellspring Capital Management ~$300.0 0.7x 5.5x - 6.0x
10/28/15 Nurses Registry and Home Health Corp LHC Group $5.7 0.9x NA
12/09/15 Active Day / Senior Care Audax Group $200.0 NA >10.0x
11/04/15 Home Care by Black Stone Almost Family $40.0 0.8x 10.0x
02/11/16 Associated Home Care Amedisys $28.0 0.7x ~6.2x 02/10/16 All Metro One Equity Partners CONFIDENTIAL 02/05/16 Jordan Health Services Blue W olf Capital ~$365.0 ~1.3x ~8.0x
Home Health Market Private Equity Investments
Activity
Private Equity Investments
Angelo, Gordon & Company Linsalata Capital Partners
Audax Group Oak Hill Capital Partners
Blue Wolf Capital Onex Partners
Boyne Capital One Equity Partners
The Carlyle Group Patriarch Partners
Evolve Capital Peachtree Equity Partners
Formation Capital Petra Capital Partners
Frazier Healthcare Pouschine Cook Capital Management
Fulcrum Equity Partners Psilos Group
Generation Growth Capital Transition Capital Partners
Graham Holdings Valor Equity Capital
J.H. Whitney Webster Capital
Levine Leichtman Capital Partners Wellspring Capital Management
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (Star denotes company is currently in market) 32
Home Infusion Overview Viewpoint: Highly fragmented industry with favorable demographics positively viewed by both payers and regulators; M&A activity has remained strong with both strategics and private equity showing a high level of interest in the space
Industry Drivers and Trends Estimated Infusion Spending ($ in billions)
• Highly fragmented market, primarily mom-and-pop operators $13.8
• Over 1,000 U.S. home infusion providers with an estimated 3,000 to 4,000 branch locations
> Industry consolidation driven by a few large strategics (e.g. Coram, Option Care, PharMerica, United) and private equity
• Significant consolidation occurred in last 12-24 months as PE-backed businesses / platform assets matured resulting in somewhat of a lull currently
• Increasing prevalence of chronic conditions
> 65+ population: ~90% have at least one chronic condition, ~70% have two or more and ~45% have three or more
2011 2016P • Significant pipeline of new infused and injectable drugs
> 2,200+ specialty drugs in development (~1/3 are infusible)
• Lowest cost setting -- increasing need for cost-containment and reducing hospital re-admission rates Payer Mix
> Significant reduction in patient-acquired infections in the home
• Payers increasingly looking for a select number of preferred providers while cracking down on out-of-network care
Medicare 15%
> Clinically effective and more cost efficient for payers
Commercial 70% Regulatory/Reimbursement Environment 10%
• Well positioned to benefit from health care reform
> New care models focusing on quality care in the lowest cost setting Private Pay
5% • Medicare Home Infusion Site of Care Act of 2015
> (H.R. 605 / S. 275) seeks to expand coverage for Medicare beneficiaries, improve quality and ensure lower cost treatments in the home
33
$9.0
$12.0
Home Infusion Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enterprise Value /
Beecken Petty O’Keefe & Company
Enterprise
Value Revenue Multiple
EBIT D A Multiple
Announced T arget Acquiror
BBH Private Equity
09/08/15 Option 1 Healthcare Solutions
Epic Health Services
$46 - $52 NA 7.0x - 8.0x
Excellere Partners 02/26/15 BioRx Diplomat
Pharmacy $315.0 1.4x 13.7x
H.I.G. Capital 10/02/14 Advanced Care
AxelaCare Health Solutions
NA NA NA
02/04/14 ARC Infusion
AxelaCare Health Solutions
NA NA NA KRG Capital Partners
06/17/13 CarePoint Partners
BioScrip
$223.0 1.5x 11.0x
Madison Dearborn Partners 01/31/13 Equinox
Healthcare AxelaCare Health Solutions
$17.5 0.9x 13.5x
MidMark Capital 12/13/12 HomeChoice Partners
BioScrip
$72.9 1.0x 9.1x
07/31/12 InfuScience
BioScrip Inc
$39.9 1.0x NA NewSpring Health Capital
02/06/12 Crescent Healthcare
W algreen
~$75.0 0.5x NM
Norwest Equity Partners 04/26/10 Equinox
Healthcare Serent Capital
~$35.0 NA 7.0x
Riordan Lewis & Haden / Skyline Global Partners
Mean Median
Sector Valuation Snapshot ($ in millions, except per share data)
Closing Pr ice
Enter pr ise Value / as of
3/23/16 as % of 52- Enter pr ise W eek H igh Value
Revenue EBIT D A
Pr ice / Ear nings
2017E P/E/G LT M CY 16E CY 17E LT M CY 16E CY 17E CY16E CY 17E Companies
BioScrip, Inc.
$2.20 40.6% $632.6 0.6x 0.7x 0.7x 14.5x 12.5x 10.1x NM NM 9.3x
34 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.
1.3x 10.8x 1.4x 10.9x
01/25/10 Critical Homecare Solutions Holdings BioScrip $349.8 1.4x 9.0x
12/03/10 AxelaCare Health Solutions Excellere Partners ~$80.0 NA ~9.0x
06/12/12 Pentec Health Norwest Equity Partners $140.0 2.3x 7.0x
10/11/12 Home Solutions KRG Capital Partners $123.0 1.4x 10.8x
12/13/12 Amerita Pharmerica $84.0 NA 10.5x
04/15/13 AxelaCare Health Solutions Harvest Partners $234.0 NA ~12.0x
11/27/13 Coram Infusion CVSCaremark ~$2,100.0 ~1.6x ~13.0x
07/01/14 Alteus Health Pharmerica Corp NA NA NA
01/20/15 W algreens Infusion Services (majority stake) Madison Dearborn Partners ~$1,115.0 ~1.3x ~12.5x
07/22/15 ContinuumRx NewSpring Health Capital NA NA NA
11/17/15 AxelaCare OptumRx ~$650.0 ~1.4x ~13.5x
Hospice Overview Viewpoint: Favorable aging U.S. demographics and cost-efficient relative to curative care outweigh looming reimbursement pressure and negative headline risk
•
•
•
Medicare spent $15.1 billion on hospice care in 2012
In 2014, 1.6 to 1.7 million patients received services from hospice
Increasing acceptance and utilization of hospice benefit
Estimated Medicare Hospice Spending ($ in billions)
$21.6 $20.3 > Remains an underserved market (45% in 2011 vs. 23% in 2000) $19.1
• Compelling aging U.S. demographics, especially age 85+ $17.0 $16.2 $15.4 $15.1 > 84% of beneficiaries are over 65 years old, 67% are over 75 years old and almost 41% are over 85 years old $13.8 $13.0 $12.1
• Highly-fragmented industry ripe for consolidation >
>
Over 3,900 Medicare-certified hospice programs in 2013
Publicly traded operators control only ~14% market share
• Continued shift in patient diagnoses mix away from cancer > Cancer as primary diagnosis was 37% in 2013 vs. 75% in 1992
•
•
Bi-partisan support as lowest cost care setting
Revenue diversification play is attracting new entrants 2009A 2010A 2011A 2012A 2013 2014 2015 2016 2017 2018 2019
Estimated Hospice Market Share ($ in millions)
Patient Care Days by Payer
Private Insurance
4%
2 Kindred Healthcare NYSE (KND) 657 4.3% Three publicly traded operators ~13%
4 HCR ManorCare (Heartland) The Carlyle Group 400 2.6% Medicare
90% Medicaid 4%
Charity Care 0%
Self Pay
6 Amedisys Nasdaq (AMED) 261 1.7%
8 Compassionate Care Hospice
Private 220 1.5%
10 Suncoast Hospice (NFP)
Private 145 1.0% 0% Other
1%
Source: 2013 CMS Statistical Supplement, 2015 NHPCO Facts and Figures and 2009 CBO Medicare Baseline. 35
T op 10 4,167 27.5%
9 Seasons Hospice & Palliative Care Private 200 1.3%
7 Hospice of the Valley (NFP) Private 220 1.5%
5 Hospice Compassus Formation Capital / Audax 450 3.0%
3 Curo Health Services THLee Partners 500 3.3%
Rank Company Owner ship Est. Revenue Shar e 1 Chemed (VITAS) NYSE (CHE) 1,115 7.4%
$18.0
$120.0 1.5x 14.5x
Hospice Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enter pr ise Value / Behrman Capital
Enter pr ise Value
Revenue M ultiple
EBIT DA M ultiple Announced T ar
get Acquir or
Blue Wolf Capital
01/19/16 New Century Hospice Curo Health Services CON FIDEN T IAL
09/03/15 Halcyon Hospice LHC Group Inc $58.5 1.4x 10.6x The Carlyle Group 12/03/14 Guardian Angel Hospice The Ensign Group Inc NA NA NA
Clearview Capital 10/09/14 Gentiva Health
Services Kindred Healthcare $1,798.3 0.9x 9.6x
Fillmore Capital Partners 04/28/14 Great Lakes Caring W ellspring Capital Management
~$180.0 ~1.4x ~8.5x
07/10/13 LifeChoice Hospice Trident USA Health Services $92.0 0.8x 6.0x Formation Capital / Audax Group 02/04/13 Horizon Hospice Scripps Health $16.6 NA NA
Frazier Healthcare 12/03/12 SolAmor Hospice
LifeChoice Hospice $85.0 1.4x 6.2x
07/24/12 Hearts for Hospice Abode Healthcare $12.0 NA NA Fulcrum Equity Partners
New Capital Partners
* The Riverside Company
Sector Valuation Snapshot ($ in millions, except per share data)
The Straus Group
Summit Partners Closing Pr ice
Enter pr ise Value / as of as % of 52- Enter pr
ise
3/23/16 W eek H igh Value
Revenue EBIT D A
Pr ice / Ear nings
2016E P/E/G Companies LT M CY 16E CY 17E LT M CY 16E CY 17E CY 15E CY 16E
Thomas H. Lee Partners Chemed Corp.
Amedisys Inc.
LHC Group, Inc.
$129.28 37.98
37.43
81.4% 80.1%
73.2%
$2,317.7 1,339.9
781.1
1.5x 1.1
1.0
1.5x 1.0
0.9
1.4x 0.9
0.8
9.8x 12.5
10.7
9.8x 10.7
9.7
9.3x 9.0
9.1
17.9x 21.8
19.0
16.9x 17.8
17.6
1.7x 1.2
1.2 Wellspring Capital Management
* Indicates company currently in market
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 36
Mean 78.2% - 1.2x 1.1x 1.1x 11.0x 10.1x 9.1x 19.6x 17.5x 1.3x Median 80.1% - 1.1 1.0 0.9 10.7 9.8 9.1 19.0 17.6 1.2
05/31/12 Hospice Family Care Inc Curo Health Services $40.0 1.6x 8.0x
M ean M edian
1.3x 9.0x 1.4x 8.5x
08/13/12 Community Home Care and Hospice Curo Health Services ~$80.0 0.8x ~8.0x
12/14/12 Hospice Advantage Sentinel Capital Partners $130.0 1.3x 8.0x
03/12/13 Heart to Heart Hospice (minority investment) Summit Partners NA NA NA
Oct 2013 St. Croix Hospice Clearview Capital NA NA NA
05/12/14 SouthernCare Inc Curo Health Services ~$230.0 ~1.4x ~10.0x
11/11/14 Hospice Compassus Formation Capital / Audax Group / Safanad >$300.0 ~1.7x ~10.0x
02/10/15 Life Choice Hospice Hospice Compassus NA NA NA
10/08/15 Hospice Advantage Hospice Compassus NA NA 11x - 12x
Hospital-Based Outsourcing Overview Viewpoint: Hospitals will increasingly outsource specialty services and departments to gain efficiencies and reduce operating costs
Industry Drivers and Trends Growth in Hospital Outsourcing
• Hospital outsourcing specialties include: 88%
Expertise of Vendor 66% 55% >
>
>
>
>
Emergency department - estimated $18 billion market
Anesthesiology - $19 billion
Hospitalist - $18 billion
Radiology - $11 billion
Surgery services - $2 billion
Cost Savings
2012
2008
2006
Requested by Physicians
Add New Service Line • Growth driven by: > Scale and operating efficiencies, improved access to personnel
and more comprehensive infrastructure offered by outsourcing companies
Revenue Enhancement
0% 20% 40% 60% 80% 100%
– Specialty departments can present operational challenges such as complex billing and administration, difficulties recruiting and retaining qualified staff
Outsourcers are providing, and some hospitals seeking multiple service lines from a single provider
Projected PCP Shortage
>
Team Health 9%
N Group 12%
– Supplementing margins across service lines
– Cross-selling opportunities and expansion into complementary markets
Health care labor market challenges
Expanded coverage with health care reform to drive incremental volume growth
~5,000 Community Hospitals
~3,250 (60%) Outsource ED
Functions
Envision 12% >
>
Local Group 48%
Regional Group
19%
Source: Wall Street Research and Society of Hospital Medicine 37
47% 25%
23%
25% 20%
17%
21% 12% 11%
18% 12%
10%
Managed Care Overview Viewpoint: Attractive sector with strong membership growth in government programs. ACA is creating new opportunities in segments including insurance exchanges and consumer oriented healthcare
Industry Drivers and Trends Projected Health Care Enrollment (in millions) 384.5 381.5 378.7 375.3 • Given that Health Care Reform ultimately became Insurance
Reform, the managed care sector is being impacted as much if not more than any other sector of health care
371.7 368.0 363.5 359.4 355.2 351.3 349.7
> Increased consolidation activity as scale will matter and many MCOs will choose to diversify
Unprecedented provider and payer collaboration activity >
• Coverage of the uninsured with the Medicaid expansion could expand coverage to 17 million additional people, with the federal government picking up the vast majority of the cost
2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E
• Despite increased reimbursement pressures and relatively flat benchmark rates, the Medicare Advantage sector is expected to continue growing
Medicare Employer-Sponsored Insurance
Medicaid / CHIP Other Insurance
Uninsured
National Health Expenditures, 2016E > Aging baby boomers are increasingly likely to select Medicare Advantage and membership is projected to reach 21 million by 2023
11.2% • Dual eligible opportunity is eagerly anticipated with approximately 9 million dual eligible Medicaid and Medicare beneficiaries in the U.S.
14.7% Out-of-Pocket
Private Health Insurance Medicare >
>
5.5 million low income seniors
3.5 million people with disabilities, under age 65 17.6% $3,229 bn
35.3% Medicaid • In 2014, 8 million people enrolled in the public health insurance
marketplace Other Third Party Payor 21.2%
> 2.2 million were young adults aged 18 to 34
• About 12.7 million people selected plans through Health Insurance Marketplaces during Open Enrollment for 2016
coverage Source: Centers for Medicare and Medicaid Services, Wall Street Research and Marwood Research Reports 38
23.0 22.9 22.8 22.9 44.9 35.9 27.7 23.2 23.2
170.1 171.6 172.9 173.8 169.4 169.5 171.9 171.0 170.1
63.9 72.0 76.0 80.9 82.1 83.1 83.7 84.3 84.9
51.0 52.7 54.4 56.0 57.7 59.4 61.1 62.9 64.7
22.9 32.4
25.2 28.3 30.4 32.4 32.4 32.4 32.4
174.2
85.5
66.5
23.0
20.5 21.2 32.5
174.6
86.0
68.4
$66 5.2x
~$1,200 11.4x
$194 8.2x
Managed Care Market Activity Notable M&A Transactions ($ in millions)
Private Equity Investments T ransact
ion V alue
EBIT D A M ult iple
Announced T arget Acquiror Partners Group, Starr Investment Holdings
12/08/14
Car e1st Health Plan
Blue Shield of Califor nia
CON FIDEN TIAL aPiori Capital Partners,
Blackstone, Credit Suisse and Goldman Sachs Capital Partners
06/05/14
Centene Cor por ation
~$125 NA
09/30/13
NA NA Healthfir st Health Plan of New Jer sey (cer tain assets)
W ellCar e Health Plans
07/29/13
Molina Healthcar e of South Car olina
$65 NA
$150 NA 07/24/13
Amer ican Elder car e
Humana Camber Capital
Management, Deerfield Capital Management, Foresite Capital Management, Lee Equity Partners, Partners Healthcare Solutions, WCAS
07/09/12
$4,830 16.1x Amer igr oup
W ellPoint
07/02/15
$38,927 14.4x Humana
Aetna
11/05/12
$850 8.8x Metr opolitan Health Networ ks
Humana
11/22/11 $1,750 9.3 x X LHealth
UnitedHealth Gr oup
07/23/15
~$53,160 13.5x Cigna Anthem Bain Capital, Diamond Castle Holdings 02/02/1
4 NA NA GlobalHealth,
Inc. Kinder hook Industr ies
Essex Woodlands 01/07/13
NA NA GEMCar e Health Plan
Blue Shield of Califor nia
Crescent Capital Group, Genstar Capital
08/20/12
Coventr y Health Car e
Aetna $7,224 7.8x
Sector Valuation Snapshot Closing Pr ice Enter pr ise
Value / Broad Street Principal Investments, Pamplona Capital Management
($ in millions, except per share data) Companies
as of 3/23/16
as % of 52- W eek H igh
M ar ket Value
Enter pr ise
Value
Revenues EBIT DA Pr ice / Ear nings
2017 P/E/G CY 16E CY 16E CY 16E CY 17E
M anaged Car e - Commer cial UnitedHealth Group, Inc. Anthem, Inc.
Aetna Inc. Cigna Corp. Health Net, Inc. Triple-S Management Corporation M anaged Car e - M edicaid
$129.79 139.50 111.75 137.87 67.19 24.50
99.6% 80.4% 83.1% 80.8% 87.6% 90.0%
$124,712.6 36,722.0 39,337.9 35,574.3
5,244.0 617.6
$158,448.6 53,887.4 47,230.2 40,821.3
5,928.8 653.7
0.9x 0.7 0.8 1.0 0.3 0.2
10.6x 9.1 9.2 8.9 8.5 9.1
16.9x 12.8 14.3 15.2 17.9 15.3
14.9x 11.7 13.0 14.1 16.2 12.9
1.2x 1.1 1.2 1.3 0.9 2.1
Kinderhook Industries
Centerbridge Partners, Nautic Partners
Oxford Capital, River Cities Capital, Semaphore Capital, Spring Street, Stonehenge
Centene Corp. Molina Healthcare, Inc. M anaged Car e - M edicar e
$62.70 62.92
75.5% 76.4%
$7,661.6 3,540.6
$9,051.6 5,149.6
0.4x 0.3
8.8x 8.2
17.4x 16.6
15.7x 14.1
0.7x 0.6
Humana Inc. W ellCare Health Plans, Inc. Universal American Corp
$183.59 92.07 6.83
83.5% 93.2% 61.2%
$27,248.4 4,062.4
551.4
$31,669.4 5,274.5
551.4
0.6x 0.4 0.3
10.9x 9.1
15.6
20.7x 20.5 NM
18.8x 17.7 24.4
1.4x 0.8 NA
TA Associates
Water Street Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 39
10/08/12 Amil Par ticipacoes SA UnitedHealth Gr oup ~$4,859 NM
11/25/13 Inter Global Gr oup Aetna Inc. (NYSE:AET) NA NA
07/02/15 Health Net Centene $5,725 11.7x
10/24/11 HealthSpr ing CIGNA $3,828 7.6x Com m ercial / D
iversified
09/06/12 Easy Choice Health Plans W ellCar e Health Plans NA NA
09/05/13 W indsor Health Gr oup Inc (Munich Re) W ellCar e Health Plans ~$275 NA
10/25/11 HealthPlus (Luther an Medical Center ) Amer igr oup CON FIDEN TIAL
M edicare
05/15/13 Hudson Health Plan MVP Health Car e CON FIDEN TIAL
Community Health Solutions of Amer ica (Cer tain Assets of South
Car olina Solutions Business)
M edicaid 12/22/14 Simply Healthcar e Anthem ~$800 NA
Community Health Solutions - Louisiana Depar tment of Health and
Hospitals ("LHCC") Contr act
Medical Technology & Supplies Overview Viewpoint: Industry is regaining its footing after the impacts of the financial crisis and ACA. Industry looking at further consolidation over medium-term as it grapples with pricing pressure, need for scale and improved cost- effectiveness
Industry Drivers & Trends MedTech Global Revenues (USD in billions) 5.9 $400.0
$350.0
$300.0
$250.0
$200.0
$150.0
$100.0
$50.0
$0.0
• The Medical Technology & Supplies industry is undergoing dramatic change as a result of the passage of Healthcare Reform in 2010 (aka, Patient Protection and Affordable Care Act (PPACA), or “ObamaCare”)
The MedTech industry’s financial contribution toward reform consists of the “MedTech Tax” > Objective of the tax is to raise $20B over 10 years, beginning on
Jan 1, 2013, through a 2.3% sales tax imposed on all medical devices
> On December 15, 2015, the Consolidated Appropriations Act was signed in to law, which provided medtech companies a two-year moratorium on the medtech tax. The moratorium began on Jan 1, 2016 and runs through 2017
Due to Healthcare Reform and the shifting of risk from payors to providers, medtech companies are bearing more responsibility and are now required to demonstrate the value or cost-effectiveness of their technology as well as improved clinical outcomes
A number of other trends are emerging within the Medtech industry including:
%
•
2012 2013 2014 2015 2016
Diversified Pure-play MedTech
MedTech’s Largest Markets Global Orthopedics Market, $40.2B
• Global Stent Market, $3.9B
Dental $3.3 8%
CMF $1.2 3% Extremitie
s $1.8 4%
• Other $0.3 8%
Hips $5.5 14% Medtronic
$1.1 28%
> Industry consolidation and need for scale, leverage and product breadth Expansion in to services and “solutions” Development of new business models Globalization, particularly BRIC economics CFO/Purchasing managers becoming more influential in purchasing decisions vs. physicians
Knees $6.8 17%
Abbott $1.3 34%
> >
> >
Trauma $5.5 14%
Boston Scientific
$1.2 30%
Spine $9.5 23%
Biologics $1.6 4% Source: Cain Brothers’ research, Wall Street research. 40
5.5 5.5 % 2.8 % %
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Medical Technology & Supplies Market Activity Notable M&A Transactions ($ in millions)
Private Equity Investments Announced T arget Acquiror Ent erprise V
alue LT M M ult iples
Revenue EBIT D A Madison Dearborn Partners
02/16/16 Physio-Cont rol Int ernat ional, Inc.
St ryker Corporat ion 1,280.0 2.5 18.4
02/01/16 Aler e Inc.
Abbott Labor ator ies
7,980.3 3.2 14.6
Golden Gate Capital 01/08/16 Affymetr ix,
Inc. Ther mo Fisher Scientific, Inc.
1,141.8 3.2 24.7
11/16/15 Sur giQuest, Inc.
CONMED Cor por ation 265.0 6.0 NM
Carlyle 10/29/15 Blue Belt Holdings,
Inc. Smith & Nephew plc 275.0 14.5 NA
09/03/15 AqueSys
Aller gan
300.0 NA NA
Altaris 08/25/15 Twelve, Inc. Medtr onic 458.0 NM NA
07/01/15 Pat t erson M edical Supply
M adison D earborn Part ners
715.0 1.5 10.6
06/18/15 Lumenis Ltd X IO Gr oup
454.7 1.6 15.5 KKR
06/10/15 Bayer AG, Diabetes Car e Business
Panasonic Healthcar e Holdings Co, Ltd.
1,156.9 NA NA
Sequoia, Deerfield, and Rock Springs
03/02/15 Amer ican Medical Systems Holdings, Men's Health Business
Boston Scientific Cor por ation
1,650.0 4.1 NA
Note: Bolded rows represent sponsor related transactions.
Sector Valuation Snapshot RA Capital, Longitude Capital, and H.I.G.
BioVentures ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /
as of
3/1/16
as % of 52-
W eek H igh
M ar ket
Value
Enter pr ise
Value
Revenues EBIT DA Pr ice / Ear nings 2016E
LT M CY 16E CY 17E LT M CY 16E CY 17E CY 16E CY 17E PEG
Lar ge Cap / Diver sified Johnson & Johnson
Medtronic plc
Abbott Laboratories
Stryker Corporation
Becton, Dickinson and Company
Koninklijke Philips N.V Boston
Scientific Corporation Baxter
International Inc. Zimmer
Biomet Holdings, Inc. St.
Jude Medical Inc.
$107.22
74.18
39.33
100.92
150.12
26.27
17.22
39.98
97.39
54.13
100.0%
93.3%
76.0%
95.8%
95.3%
86.5%
90.3%
54.9%
80.3%
67.0%
$295,858
104,309
58,669
37,641
31,798
24,093
23,219
21,904
19,364
15,352
$277,343
122,857
61,545
37,588
43,001
28,431
28,577
21,063
29,297
21,067
4.0x
4.3
3.0
3.8
3.8
1.1
3.9
2.1
4.9
3.8
3.9x
4.2
3.0
3.5
3.4
1.1
3.6
2.1
3.9
3.5
3.7x
4.0
2.8
3.3
3.3
1.0
3.4
2.1
3.8
3.4
12.5x
14.3
13.8
14.1
15.0
11.6
15.5
14.1
12.5
13.1
11.3x
12.6
12.1
13.2
11.8
7.8
12.3
12.2
9.8
12.6
10.5x
11.2
11.4
12.2
10.9
7.2
11.5
10.9
9.1
11.7
16.4x
15.6
18.2
17.9
17.4
15.0
16.4
26.9
12.4
13.6
15.5x
14.1
16.2
16.3
15.5
13.0
14.5
22.7
11.2
12.4
3.0x
2.1
1.8
2.3
1.5
0.5
1.5
2.5
1.2
1.4
InterWest Partners, Kleiner Perkins, and Novartis
Venture Funds
Warburg Pincus, Vertical Group, and Fidelity
41 Source: Company filings, Capital IQ, Wall Street research, and Cain Brothers’ estimates.
M ean 83.9% - - 3.5x 3.2x 3.1x 13.7x 11.6x 10.7x 17.0x 15.2x 1.8x
M edian 88.4% - - 3.8 3.5 3.3 14.0 12.1 11.0 16.4 15.0 1.6
03/02/15 Cer tain Assets of Cor dis (J&J) Car dinal Health, Inc. 1,944.0 2.5 NA
03/05/15 Ikar ia, Inc. Mallinckr odt plc 2,300.0 NA NA
06/17/15 W elch Allyn, Inc, Hill-Rom Holdings, Inc. 2,078.1 1.1 13.9
06/28/15 TEI Biosciences and TEI Medical Inc Integr a LifeSciences Cor por ation 312.0 4.9 NA
07/22/15 Thor atec St. Jude Medical 3,507.9 7.4 30.8
08/27/15 Lake Region Medical Gr eatbatch 1,730.0 NA NA
09/15/15 Sir ona Dental Systems Dentsply 5,178.4 4.5 18.5
10/29/15 Aesynt Incor por ated Omnicell, Inc. 275.0 1.5 13.8
01/05/16 Ellipse Technologies, Inc. NuVasive, Inc. 462.8 11.5 NM
02/01/16 Sage Product s, LLC St ryker Corporat ion 2,775.0 6.5 NA
02/02/16 Creganna M edical Lt d. T E Connect ivit y Lt d. 895.0 3.6 NA
02/22/16 Br ightr ee LLC Resmed Cor p. $800.0 7.1x 18.6x
Payer IT & Services Overview Viewpoint: Investor interest in the insurance services sector remains strong given increasing demand for more effective medical management and greater administrative efficiency and payment integrity
Industry Drivers and Trends Sources of Healthcare System Waste • Outsourcing has surfaced as a successful business model that mitigates
the burden of administration, procurement, accounting, logistics and other tasks, and develops cost-effective business processes The healthcare payer services (outsourcing) market is expected to reach $21.1 Billion by 2020 from $11.8 Billion in 2015, at a CAGR of 12.2% during the forecast period
The pace of M&A activity involving insurance services and cost containment companies has accelerated significantly in the past several years The fragmented nature of the industry creates consolidation opportunities
Administrativ Inefficiencies $100 to $150
billion
Fraud and Abuse - $125 to
Lack of Care Coordination -
$25 to $50 billion
Preventable Conditions and Avoidable Care
- $25 to $50 billion
•
• Unwarranted Use - $250 to $325 billion
Provider Inefficiency and Errors – $75 to $100
billion •
> The industry has a few large players ($1+ billion), a handful of mid-size companies ($200 - $300 million), and hundreds of small companies
• Key industry drivers include: > > > >
Rising insurance enrolments Federal healthcare mandates in the U.S. Increasing healthcare frauds In-house shortage of skilled personnel
$21 Billion Healthcare Payer Services Market(1)
$21.1 • Other key industry issues include:
> The industry has been built on a foundation of long-standing relationships, and the pace of change has historically been modest Growth in the utilization of opioids and physician-dispensed pharmaceuticals is having a significant adverse effect on costs Impact of provider choice on costs and outcomes Potential fall-out from ACA – i.e., cost shifting, reduced access
>
> >
• PE investors are attracted to state-based regulation (a strong barrier to entry) and the absence of “stroke of the pen” reimbursement risk
2012 2016E
42 (1) Source: Everest Group Research “Healthcare Payer BPO – State of Market with PEAK Matrix Assessment”, NCCI 2014, NASI and industry research. Data is from S&P’s internal industry data for WC per U.S.-based P/C insurers’ statutory annual statements and Wall Street Research.
$11.8
Payer IT & Services Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments
Buyer T ar get
Date T ar get Descr iption Sub-Sector ABRY Partners Helps providers achieve care quality and cost reduction
with sophisticated analytical software that generates actionable
information and clinical insights from patient records
eviCore QPID Health 2/26/16 Payer IT
ACON Investments FTV Capital StoneEagle
Services 2/17/16 processes virtual and plastic cards, checks and ACH
payments via end-to-‐end issuing and processing capabilities Provides cost containment services and software to the private healthcare payor and P&C industries
Healthcare Payments
New Mountain Capital Trover Solutions 12/10/15 Apax Partners
and related services for the liability insurance market Engages in designing, distributing, and administering healthcare insurance plans in more than 200 countries
ABRY Partners International Medical Group 11/3/15 Payer Admin Broad Street Capital Patriot National, Inc Global HR Research,
LLC 8/21/15 Payer IT
Hellman & Friedman / Blackstone
Provides technology enabled business and consulting solutions to the healthcare industry
Emdeon Altegra Health, Inc. 8/12/15 Payer IT
Chronic Care, Inc. 8/3/15
Comprehensive Industrial Disability Management, Inc.
Offers a strategy to manage client’s workers’ compensation objectives
W orkers' Comp
KKR GENEX Services, LLC
7/31/15
New Mountain Capital Sector Valuation Snapshot
($ in millions, except per share data) Closing Pr ice Enter pr ise
Value / As of 03/01/16
As % of 52- W eek H igh
M ar ket Value
LT M Revenues
LT M EBIT DA
Pr ice / Ear nings
2016E P/E/G Onex Corporation Companies CY 15E CY 16E
Payer Admin Accenture plc Cognizant Technology Solutions Corporation Verisk Analytics, Inc. Xerox Corporation Genpact Limited Guidewire Software, Inc. Exlservice Holdings, Inc. Ebix Inc. ExamW orks Group, Inc. HMS Holdings Corp. CorVel Corporation Patriot National, Inc.
$103.45 58.21 74.34
9.93 26.58 50.52 47.66 41.22 29.58 13.64 41.78
3.92
94.2% 83.4% 90.7% 72.9% 99.0% 78.0% 97.0% 99.9% 66.7% 73.3% 89.0% 20.3%
$64,957.7 35,456.9 12,844.6 10,058.1 5,596.3 3,708.1 1,579.5 1,361.7 1,284.1 1,145.8
825.8 110.3
2.0x 2.6x 7.7x 0.9x 2.4x 7.9x 2.3x 5.7x 2.2x 2.5x 1.6x 1.1x
12.0x 12.9x 16.8x 9.1x 14.3x NM 14.4x 15.4x 15.3x 13.3x 12.5x 6.3x
21.3x 19.2x 24.7x 10.4x 21.7x NM 23.9x 18.9x NM 25.0x NA 4.7x
19.2x 17.1x 22.7x 9.0x 18.8x NM 20.4x 17.5x 53.1x 21.9x NA 4.0x
1.9x 1.1x 1.7x 0.9x 1.5x 3.7x 1.4x 1.8x 2.7x 1.1x NA
0.3x
Parthenon Capital
Stone Point
Summit Partners
43 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates..
M ean 80.4% - 3.2x 12.9x 18.9x 20.4x 1.6x M edian 86.2% - 2.3x 13.3x 21.3x 19.0x 1.5x
Injured W orkers Pharmacy, Owns and operates a workers’ compensation home delivery W orkers' LLC pharmacy Comp
Develops and provides technology solutions for talent acquisition, assessment, and screening
Provides file reviews, diagnostic, return-to-work programs ExamW orks Group Argent Rehabilitation Services 11/23/15 Payer Admin
Offers a turn-key platform that distributes, administers and Healthcare
Payments
Post-Acute Care Overview Viewpoint: Payment reform to drive consolidation among post-acute providers and integration with hospitals
Medicare Spending ($ in Billions) Industry Drivers and Trends
• Post-acute care providers have become an important part of the delivery system for patients discharged from acute care hospitals
$185 $202
• Post-acute providers include:
> Long-term acute care hospitals (“LTACHs”)
> Inpatient rehabilitation facilities (“IRFs”)
> Skilled nursing facilities (“SNFs”), and
> Home health agencies (“HHAs”) 2003 2007 Acute Expenditures
2012 PAC Expenditures
Regulatory / Reimbursement Environment Post-Acute Care Pathways • CMS is sponsoring demonstration programs to reform the payment
system from sight-specific, volume driven to sight-neutral, value- 23% are Readmitted to Hospital
17% 35% of Hospital Discharges are
Admitted to Pos-t Acute for
AdditionalCare (“Post-Acute Admissions”)
based reimbursement > > >
Hospital readmission penalties Accountable care organizations Bundled payments for episodes of care
12% 2% 58%
10% 22%
76%
• MedPAC also recommending 41%
27% > > >
Common patient assessment for post-acute care New quality measures Expanded readmissions penalties
36%
37% 18%
48% ofPost-Acute Admissions go Home after Receiving Po-st
Acute Care
10%
9% • In March 2015, the House passed permanent “Doc Fix” > Senate to vote in April
> Expected $15 billion Medicare payment cut to post-acute providers, significantly less than feared
15%
29% are Transferred to a Secondary Pos-tAcute Venue
for Additional Care
Sources: CMS, MedPAC, and RTI International. 44
Outpatient Rehab
Home Health
SNF
IRF
LTCH
Hospital
$153 $49 $59
29%
71%
$33 22%
78%
$143
$136
$120
____________________
Post-Acute Care Market Activity Notable M&A Transactions ($ in millions)
Private Equity Investments A dj. EV/
EBIT D A R A djusted EV (1) A nnounced T ar get A cquir or
09/16/15 Trilogy Health Services LLC
Griffin-American Healthcare REIT III $1,125.0 12.5x
08/18/14 Skilled Healthcare Group(2)
Genesis HealthCare Corporation 5,746.9 8.4
11/19/13 25 communities (Holiday Retirement)(3) N ational Health Investors
491.0 NA
11/07/13 CareTrust REIT (spin-off of real estate business)
Ensign Group NA NA
10/22/13 56 communities (Ark Holding) Omega Healthcare Investments
525.0 8.9
12/10/12 Plum Healthcare Group LLC Bay Bridge Capital Partners
NA NA
08/23/12 Sunrise Senior Living Inc
Health Care REIT Inc 2,615.7 14.3
Sector Valuation Snapshot ($ in millions, except per share
Closing Pr ice
Adjust ed Ent er pr
ise Value
Adjust ed Ent er pr ise Value / data)
as of as % of 52-
Cash EPS 2016E P/E/G Companies
Post -Acut e Car e - N ur sing Car e
3/1/16 W eek H igh CY 15E CY 16E CY 15E CY 16E CY 15E CY 16E
Kindr ed Healt hcar e Inc. Genesis Healt hcar e, Inc. The Ensign Gr oup, Inc.
Nat ional Healt hCar e Cor por at ion
Diver sicar e Healt hcar e Ser
vices Inc. AdCar e Healt h Syst
ems, Inc.
$10.60 1.76
20.75
64.08
8.00
2.20
43.0% 21.8%
76.7%
92.3%
46.6%
49.4%
$10,022.3 270.3
2,114.4
1,295.9
333.6
276.8
1.4x 0.0
1.6
N A
N A
NA
1.3x 0.0
1.4
N A
N A
NA
9.8x 0.4
9.6
N A
N A
NA
9.0x 0.3
8.1
N A
N A
NA
3.3x 1.9
5.9
N A
N A
NA
2.9x 1.7
5.2
N A
N A
NA
0.4x 0.2x
0.3x
NA
NA
NA
Post -Acut e Car e - Senior Living Br ookdale Senior Living Inc. Five St ar Qualit y Car e Inc. Capit al Senior Living Cor p.
$14.75 2.52
17.32
37.0% 49.7%
62.4%
$12,029.1 1,793.1
1,760.5
2.4x NA
4.2
2.3x NA
3.7
10.5x NA
13.1
9.3x NA
10.9
5.0 NA
9.5
5.2 NA
8.6
0.4x NA
0.6x
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (1) Adjusted Enterprise Value is equal to equity plus net debt and capitalized rents (8 x rent/lease payment). (2) Skilled Healthcare - Genesis merger multiples reference combined entity’s Adjusted Enterprise Value implied by share price at 8/25 close; AEV/EBITDAR multiple is not synergized. (3) Holiday Retirement sold the communities’ real estate but maintained control of the operations; real estate transactions based on Net Operating Income. (4) Transaction multiple unadjusted for rent expense.
45
Mean 49.7% - 3.3x 3.0x 11.8x 10.1x 7.3x 6.9x 0.5x Median 49.7% - 3.3 3.0 11.8 10.1 7.3 6.9 0.5
Mean 55.0% - 1.0x 0.9x 6.6x 5.8x 3.7x 3.3x 0.3x Median 48.0% - 1.4 1.3 9.6 8.1 3.3 2.9 0.3
06/20/12 Sun Healthcare Group Inc Genesis HealthCare Corporation 1,457.4 6.9
10/16/12 142 Senior Housing Communities (Blackstone) HCP Inc and Emeritus Corp 1,792.0 NA
02/26/13 Assisted Living Concepts Inc TPG Capital 575.0 10.4
10/25/13 26 communities (Holiday Retirement)(3) Ventas 790.0 NA
11/18/13 52 communities (Holiday Retirement)(3) N ewcastle Investment Corp 1,010.0 NA
02/21/14 Emeritus Corp Brookdale Senior Living 5,486.2 10.3x
11/07/14 Extendicare (USoperations only) Formation Capital 870.0 8.8
TPG Capital
Formation Capital
Fortress Investment Group
The Carlyle Group
Centre Partners Management
Fillmore Capital Partners
Bay Bridge Capital Partners
Lydian Capital Advisors
McCarthy Capital
U.S. Medical Labs & Diagnostic Testing Overview Viewpoint: The lab industry is being presented with a significant opportunity to enhance its value proposition as the healthcare system shifts toward outcomes- and risk-based reimbursement
Industry Drivers & Trends Number of Lab Tests per Year by Age Category •
•
~$75 billion total U.S. market
Shifting demographics
> Aging population drives increased testing as seniors use 5x the number of lab tests vs those < 65
– Those aged 65+ drive ~10 - 13 lab tests per year
Reduction of uninsured patients due to ACA
Improved technology fueling the development of new tests and therapies
Preventive screening / early care, population health
Growth of personalized medicine / companion diagnostics offers labs an opportunity to enhance their value proposition
Channel competition
> Move toward integrated delivery networks / acquisition of physician practices by hospital systems is resulting in greater market share capture by hospital labs in recent years
> But a growing focus on efficiency and anticipated reimbursement pressures are leading many providers to rethink their lab strategy
15
10
5
0 Under 18
yrs 18 - 44 45 - 54 55 - 64 65 - 74 75 yrs + •
• 1997 2008
•
• 2013 Est. U.S. Health Care Spend $2.9 Trillion
$3,000
• $2,500
2-3% of spend influences 70- 80% of physician decisions $2,000
10% of spend, moving toward personalized medicine as companion diagnostics improve efficacy and safety
$1,500 Regulatory/Reimbursement Environment • Increasing regulatory and budget pressures fueling reduced
reimbursement and uncertainty
• Medicare payment rates set to contract as Congress calls for $2.B of lab reimbursement savings between 2017–2024
• Scale/efficiency will be increasingly important over time as reimbursement models evolve and pricing pressures persist
$1,000
$500
$- Source: CMS, Wall Street Research, Haverford Healthcare Advisors, Avalon Healthcare Solutions, LabCorp company reports & SEC filings. 46
Other
2- 80
1 0 p e c o im
Administration
Lab Testing Nursing Home / Home
Health Prescription
Drugs
Physician Services
Hopital Care
U.S. Medical Labs & Diagnostic Testing Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enter pr ise Value /
Enter pr ise
Value
LT M Revenue
LT M EBIT DA Ampersand Capital
Announced T ar get
Acquir or
02/01/16 Alere Abbott $8,615.2 3.5x 15.2x
Bain Capital
12/23/15 MetroStat Clinical Laboratory / Diagnostic Services
Schryver Medical Sales and Marketing
NA NA NA
12/10/15 Barnabas Health System
Quest Diagnostics
NA NA NA Behrman Capital
10/29/15 Consultants in Laboratory Medicine
Aurora Diagnostics
$6.6 NA NA
BelHealth 10/21/15 Clarient NeoGenomic
s $275.0 NA NA
Consonance Capital
09/04/15 Health Diagnostics Laboratory
True Health Diagnostics
$37.1 NA NA
08/18/15 Helix JV - Illumina, W arburg Pincus, Sutter Hill
$100.0 NA NA EEF
07/21/15 B.O.N. Clinical Laboratories
Schryver Medical Sales and Marketing
NA NA NA
Frazier Healthcare 06/30/15 MemorialCare Health (lab outreach
services) Quest Diagnostics
NA NA NA
KRG Capital Summit Partners
06/04/15 Bio-Reference Laboratories
OPKO Health $1,493.6 1.7x 12.9x
01/12/15 Foundation Health
Roche $1,596.8 26.2x NM Levine Leichtman
Median
Mean High
Low
Metalmark Capital
NEA
Sector Valuation Snapshot ($ in millions, except per share data)
Closing Price
Primus Capital
Ent erprise Value
Riverside Partners
as of as % of 52-
Market Value
Revenue EBI T DA
Price / Earnings Companies 3/23/16 W eek H igh CY 16E CY 16E CY 16E CY 17E
D iagnost ic Laborat ories Sequoia Capital ,
Claremont Creek, Mayo, four Rivers
Labor at or y Cor p. of Amer ica Holdings Q uest Diagnost ics Inc. Sonic Healt hcar e Limit ed Myr iad Genet ics, Inc. Genomic Healt h Inc. Enzo Biochem Inc. Psychemedics Cor p. CombiMat r ix Cor por at ion
$113.92 70.15
13.66 36.39 22.80 4.45
13.17
4.10
86.8% 78.8%
76.5% 78.7% 63.7% 87.4% 73.9%
13.3%
$11,675.0 10,061.5
5,647.6 2,713.9
759.3 205.1 71.4
12.0
2.0x 1.8
2.3 3.4 2.3 1.7 NA
0.8
10.1x 9.0
12.8 12.1 NM NM NA
NA
14.4x 14.7
18.6 22.3 NM 27.8 NA
NM
13.1x 13.8
16.2 21.5 NM NM NA
NM
TA Associates
TPG
Waud Capital Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.. 47
Mean 69.9% - 2.1x 11.0x 19.6x 16.1x Median 77.6% - 2.0 11.1 18.6 15.0
2.6 x 12.9 x 8.2 x 13.0 x
26.2 x 15.2 x 1.3 x 10.8 x
01/07/15 Aurora Greensboro Clinical Lab Dominion Diagnostics NA NA NA
05/07/15 Experchem Laboratories Eurofins Scientific NA NA NA
06/16/15 Physicians Reference Laboratory Laboratory Corp. of America Holdings NA NA NA
07/16/15 U.S. Diagnostics Alere $60.0 NA NA
08/10/15 Response Genetics Inc. Cancer Genetics Inc. $14.0 1.3x 10.8x
09/02/15 Medivo PW N / EDG Partners NA NA NA
10/01/15 StrataDx StrataDx Management Team NA NA NA
10/23/15 Safe Foods International Holdings LabCorp NA NA NA
11/10/15 Clinical Laboratory Partners Quest Diagnostics NA NA NA
12/10/15 Pathology Inc LabCorp NA NA NA
01/08/16 Bako Integrated Physician Solutions Consonance Capital Partners NA NA NA
rs)
n)
hoppers art, 2%
, 22%
h,
U.S. Pharmacy Overview Viewpoint: While patent expirations and increasing generic penetration have held Rx spending in check over the last few years, specialty drugs are the fastest growing component of Rx spending and represent the next growth frontier / significant cost containment opportunity in the pharma supply chain
Industry Drivers and Trends Estimated U.S. Rx Drug Spending ($ in billions)
• Peak in patent expirations to impact generic economics > ~75% of U.S. prescription drug volume, but only 25%-27% of costs > ~$78 billion of drugs to go off-patent 2012 – 2016 with ~$17 billion 2017
- 2021
Specialty represents the next growth avenue beyond generics
$435 $409 $385 $364 $343 $328 $305 $271
• > > >
Fastest-growing component of drug spend, rising ~15-20% per year Expected to reach ~50% of total drug spend by 2018, vs. ~30% in 2014
2013A 2014P 2015P 2016P 2017P 2018P 2019P 2020P
Retail Pharmacy and PBM Market Shares By 2020, 9 of top 10 selling drugs will be specialty vs. 3 of 10 in 2010
• Aging seniors to drive increasing utilization 11% MedImpac
t > 31% of Rx spend, 14% of pop. but growing 3.3% (5x rate of non seni o 3% > ~92% of seniors have a chronic condition, ~77% have 2+, ~45% have
3+
Focus on increasing patient compliance, typically via increased consumer engagement / value-add services Consolidation across all sectors expected to continue > e.g. CVS Health/Omnicare, Diplomat Pharmacy/BioRx,
• 21%
OptumR 20%
• Specialty Drug Market Top Therapies
OptumRx/Catamaran, Rite Aid/Envision Pharmaceutical Services Regulatory/Reimbursement Environment • Passage of Accountable Care Act bodes well by ensuring increased
coverage/ utilization
Payers are aggressively seeking to rein-in costs of specialty drugs > Looking to increasingly engage/touch the consumer
Traditional $263
Specialty $108
•
Source: Wall Street Research, CMS, IMS Health, Express Scripts. 48
Oncology $31.2
Rheumatic Diseases 16.1
Hermatology 15.1
Vaccines 10.8
Multiple Sclerosis 9.7
HIV 9.7
Opthamology 3.2
Respiratory 2.2
Hepatitis C 1.1
Others 8.6 T otal $107.5
Rx Sales (~$225 billio
AAP, 2% Loblaw/S Good Neighbor Drug M Pharmacy, 3%
Health Mart, 4%
Kroger, 4%
Cardinal Health, W algreens
8%
W almart, 8% CVS
Healt
Rite Aid, 8%
MedI 3
Envision 3%
Prime Therapeutics
6% Humana Pharmacy
Solutions 7%
OptumR
PBM Market Share
Other
Express Scripts 25%
CVS Caremark
25% x
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U.S. Pharmacy Market Activity
Notable M&A Transactions ($ in millions)
Private Equity Investments Enterprise
Value EV/Revenue EV/EBI T D A
ABRY Partners D ate T arget A cquiror LT M LT M
ACON / Triton Pacific 01/15/16 Helios Unit edHealt hcare Group (Opt
umRx) NA NA NA
Advent International 10/27/15 Rit e
Aid Walgreens Boot s Alliance
$17,048.0 0.6x 13.1x
Altamont Capital Partners 08/19/15 Apot hecary by
Design BelHealt h Invest ment Part ners
NA NA NA
Beecken Petty O’Keefe 06/24/15 Envision Pharmaceut ical Services
Rit e Aid
$2,011.5 0.4x 13.0x
BelHealth Investment Partners
06/15/15 Target Pharmacy and Clinic Business
CVSHealt h $1,887.0 0.4x NA
05/20/15 Aureus Healt h Services
Meijer $205.0 0.5x 16.4x Bindley Capital Partners / Cardinal Equity Partners
03/25/15 Reeves-Sain Drug St ore (d/b/a Ent rust Rx)
Fred's $56.8 NA NA Centerbridge Partners
03/09/15 Genoa / QoL Healt hcare
Advent Int ernat ional
~ $1,000.0 1.7x 15.5x
Chrysalis Ventures 02/26/15 BioRx Diplomat
Pharmacy $315.0 1.4x 13.7x
Cibolo Capital Partners 10/08/14 Salveo Specialt y
Pharmacy Cat amaran
$260.0 0.6x 13.2x
Consonance Capital ExcelleRx Inc (Hospice Pharmacia) and PBM Holding Company
(PBM Plus)
08/18/14 Enclara Healt h
NA NA NA
Flexpoint Ford 07/23/14 Injured Workers Pharamcy (IWP) ACON Invest ment s & Trit on
Pacific $205.0 1.6x 9.2x
Gauge Capital 06/27/14 MedPro Rx Diplomat
Pharmacy $75.5 0.9x 9.6x
Generation Partners 04/25/14 Enclara Healt
h Consonance Capit al Part ners
NA NA NA Health Enterprise Partners / Sequoia Capital Sector Valuation Snapshot
($ in millions, except per share data) Closing Pr ice
Mosaic Health Solutions
Primus Capital as of 3/23/16
as % of 52- W eek H igh
M ar ket Value
Enter pr ise Value
Revenue EBIT DA Pr ice / Ear nings Companies CY 16E CY 17E CY 16E CY 17E CY 16E CY 17E
Riverside Company CVS Health Corporation
W algreens Boots Alliance, Inc. Express Scripts Holding
Company Diplomat Pharmacy,
Inc. PharMerica Corporation
$100.74 82.34
67.33
26.61 20.31
88.8% 85.2%
71.6%
51.9% 55.4%
$111,608.6 89,264.6
45,225.2
1,739.6 623.6
$136,571.6 101,383.6
57,639.3
1,832.5 1,027.8
0.8x 0.8
0.6
0.4 0.5
0.7x 0.8
0.5
0.3 0.5
10.3x 11.1
7.9
15.3 7.6
9.6x 9.9
7.7
12.6 6.9
17.3x 17.8
11.0
30.4 9.9
15.3x 15.9
10.0
24.8 8.9
RLH Equity Partners
Silver Point Capital
SilverStream Capital
Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 49
M ean 70.6% - - 0.6x 0.6x 10.4x 9.3x 17.3x 15.0x M edian 71.6% - - 0.6 0.5 10.3 9.6 17.3 15.3
05/20/14 Genoa Healt hcare QoL meds NA NA 10.0x - 11.0x
07/14/14 N avarro Discount Pharmacy CVSCaremark NA NA NA
07/31/14 MedTrack Services Envision Pharmaceut ical Services, Inc. NA NA NA
09/26/14 Millennium Pharmacy Syst ems Cat amaran NA NA NA
02/26/15 Healt hcare Solut ions Cat amaran $405.0 0.9x 11.6x
03/02/15 Pharmacare Fulfillment Cent er (d/b/a Care Plus Group) Cent ric Healt h $37.4 1.3x 7.3x
03/18/15 4D Pharmacy Management Syst ems, Inc. Magellan Healt h, Inc. $55.0 0.1x NA
03/30/15 Cat amaran Unit edHealt hcare Group (Opt umRx) ~ $12,800.0 0.5x 13.3x
05/21/15 Omnicare CVSHealt h ~ $12,700.0 2.0x 17.4x
06/19/15 Burman's Specialt y Pharmacy Diplomat Pharmacy $82.8 0.2x 3.9x
08/10/15 BioScrip's Cash Card PBM Business ProCare Rx $25.6 0.4x 4.0x
10/06/15 PharMEDium AmerisourceBergen ~$2,575.0 5.5x 23.4x
01/05/16 Cit izens Rx Mosaic Healt h Solut ions NA NA NA
02/11/16 Solut ionsRx Wellpart ner NA NA NA
©2016 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500
April 5, 2016
ACC Quik Hit Roger Strode Foley-‐Chicago, IL
Agenda
• Due Diligence • AnOtrust Pressure • Physician TransacOon Update
Hot Diligence Issues
• Corporate PracOce of Medicine – New York state seVlement with Aspen Dental Management – Many states have some form of CPOM concept and fee-‐spliYng prohibiOons
– “Friendly PC” structures are commonly used in the acquisiOon of medical/dental/professional health care pracOces by for—profit managers/consolidators of those businesses (e.g., P/E backed firms)
– Significant risks can arise when a non-‐professional vendor is engaged to manage or consult a licensed professional or an enOty comprised of licensed professionals.
– New York State AG alleged that ADMI did not simply provide business support and administraOve services but subjected its managed dental pracOces to extensive “undue control”
Hot Diligence Issues
• Corporate PracOce of Medicine – AG determined that
• PracOces were individually owned in name only, and ADMI was acOng effecOvely as a de facto owner
• Management fee captured a percentage of the pracOces’ revenue, • ADMI exercised control over bank accounts, adverOsing and markeOng pracOces, decisions involving paOent care and treatment plans, and clinical staff employment maVers
– Significant fine paid and restricOons agreed to by ADMI
Hot Diligence Issues
• Corporate PracOce of Medicine – Who is really in control of the pracOce, not just in control of clinical decision making?
– How are management fees determined? Are they consistent with FMV?
– Can the manager unilaterally discipline/fire licensed professionals?
– What do the non-‐competes look like? – What impact does a loosening of control/restricOons and renegoOaOon of management fees have on purchase price?
Hot Diligence Issues
• AnO-‐Referral Issues – ViolaOons of Physician AnO-‐Referral laws (Stark) remain a significant concern
– OIG Fraud Alert (June 2015) • Emphasized the need for FMV payments to MDs for bona fide services
• ProblemaOc arrangements include (i) those above FMV, (ii) compensaOon that takes into account v/v of referrals, (iii) MDs failing to provide contracted services and (iv) affiliated health care enOty paying for physician office staff
• Shot across the bow to physicians who someOmes believe they won’t be targeted for abusive situaOons
Hot Diligence Issues
• AnO-‐Referral Issues – Physician compensaOon, parOcularly stacking of compensaOon that leads to high aggregate compensaOon amounts
– Focus on FMV, including the selecOon of benchmarks and the quality of reports
– Focus on the accuracy, reliability and completeness of informaOon provided to advisors
– QuesOoning of commercial reasonableness of compensaOon arrangements when reasons for the arrangement are not well documented
Hot Diligence Issues
• AnO-‐Referral Issues – Hospital losses or failure to make a profit construed as evidence of non-‐fair market value, non-‐commercially reasonable compensaOon
– Tracking of hospital referrals and contribuOon margins construed as evidence of illegal behavior
• AnO-‐Referral Issues – North Broward SeVlement
• $69MM seVlement for FCA and Stark law violaOons (including a 5 year CIA)
• FCA brought by a physician who chose not to accept employment but alleged that NB employed doctors were being over-‐compensated (giving NB a compeOOve advantage)
• NB maintained “contribuOon margin” reports referencing ancillary revenue generated by the 9 physicians at issue
• Physician pracOces operated at a loss, thus raising the quesOon of “commercial reasonableness”
• Certain MDs paid in excess of MGMA 90th percenOle • CompensaOon models were a mix of guarantees and producOon based
Hot Diligence Issues
• AnO-‐Referral Issues – AdvenOst SeVlement
• $115MM to seVle Stark law and Medicare coding claims • AllegaOons same as Broward and related to 85 physicians, many of whom made at least a $1MM annually, and a few up to $3MM (most well above MGMA 90th percenOle)
• Doctors also received percentages of ancillaries • AllegaOons that it was humanly impossible for most of the doctors to work hard enough to earn their salaries on a producOon model
• AdvenOst lost scads of money on these pracOces • In pracOce, physicians deviated from contracts • Evidence of a great number of other non-‐cash perqs were made available to the physicians, including free leases of BMWs
Hot Diligence Issues
• AnO-‐Referral Issues – Employment Safe Harbor (AKS) is not bullet proof and doesn’t give you cover under the Stark Law
– If you have high compensaOon relaOve to MGMA percenOles, have good documentaOon to support the compensaOon
– Watch use of internal reports, related to physician use/referral to ancillaries—regulators will use it to “connect the dots”
– If you lose money on physician pracOces, have raOonale and a story
– Don’t pay for physician use of BMWs
Hot Diligence Issues
• AnO-‐Referral Issues – AdvenOst SeVlement
• $115MM to seVle Stark law and Medicare coding claims • AllegaOons same as Broward and related to 85 physicians, many of whom made at least a $1MM annually, and a few up to $3MM (most well above MGMA 90th percenOle)
• Doctors also received percentages of ancillaries • AllegaOons that it was humanly impossible for most of the doctors to work hard enough to earn their salaries on a producOon model
• AdvenOst lost scads of money on these pracOces • In pracOce, physicians deviated from contracts • Evidence of a great number of other non-‐cash perqs were made available to the physicians, including free leases of BMWs
Hot Diligence Issues
Hot Diligence Issues
• FinalizaOon of 60-‐Day Overpayment Rule – Statute set the 60-‐day rule staOng that the overpayment must be reported and returned by the later of:
• the date which is 60 days aser the date on which the overpayment was iden3fied, or
• the date any corresponding cost report is due, if applicable – By statute, overpayments retained a<er the deadline for repor3ng and returning an overpayment become an “obliga3on” under the Federal False Claims Act, subject to treble damages and per claim penal3es
• FinalizaOon of 60-‐Day Overpayment Rule – Does the target have an overpayment policy? – What are the target’s document retenOon policies? – Evaluate processes for conducOng internal invesOgaOons – Evaluate overpayment training
Hot Diligence Issues
• Other Areas of Concern – Pressure on mulOples and purchase price
• Hospitals being pressed to meet purchase price mulOples offered by private equity and other for-‐profit enOOes
• Physicians refer to hospitals post closing – Physician billing and coding
• Improper use of modifiers • Improper billing of physician extenders (“incident to billing) • Billing when charOng is incomplete
Hot Diligence Issues
• The FTC and DOJ have become significant partners in health care transacOons in recent years
• Emboldened by “wins” enforcement acOvity has been aggressive
• Agency aVenOon has applied to both (HSR) reportable and non-‐reportable transacOons
• Advocate-‐North Shore Merger (Chicago-‐Metro) • St. Luke’s (Boise)
Health Care AnOtrust Update
• Due diligence conOnues to be criOcal to most deals geYng done—We are seeing a heavy emphasis on diligence maVers – Osen due to the fact that buyers are taking assignment of provider numbers
– In certain situaOons, agreements to self disclose prior to closing, or immediately aser closing, are common
• ValuaOons appear robust—Not unusual to see 9-‐12x (someOmes greater) mulOples on TTM EBITDA for platorm companies in the private equity space – There is a lot of pressure on hospital systems to try and meet these mulOples due to compeOOon from for-‐profit buyers
Deal Term Updates
• Escrows of 10%-‐15% of transacOon value not uncommon
• Seeing some reducOon of escrows when R&W insurance is used – Beware of carve outs for certain issues, such as “health care compliance” reps and warranOes
– Sellers should be prepared for a second round of diligence from counsel
Deal Term Updates
• Survival Periods (R&W) – General: 12-‐18 months – Fundamental: Unlimited – Taxes/Benefits: SOL + 60-‐90 days – Health Care: SOL = 60-‐90 days or 3-‐5 years (depending upon negoOaOons)
• Caps – Can be lowered through use of R&W insurance (as low as 5% of transacOon value in some cases)
– No cap, generally, on breaches of covenants or breaches of fundamental R&W
– Higher caps, generally, on breaches of health care R&W • Baskets
Deal Term Updates
Roger Strode
Foley & Lardner, LLP 312-‐832-‐4565 (D) 414-‐202-‐8717 (M) rstrode@foley.com
QUESTIONS?
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