Healthcare IT M&A Update, Q3 2017...With a total of 54 Healthcare IT-related deals, transaction...

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Healthcare IT Investment Banking + M&A Advisory Healthcare IT M&A Update, Q3 2017 December 8, 2017

Transcript of Healthcare IT M&A Update, Q3 2017...With a total of 54 Healthcare IT-related deals, transaction...

Healthcare IT Investment Banking + M&A Advisory

Healthcare IT M&A Update, Q3 2017 December 8, 2017

Table of Contents

Contents M&A Market Brief ................................................................................................................................................................ 3

Healthcare IT Global M&A Deal Value — Quarterly Comparison ............................................................................. 4

U.S. Enterprise Value/ EBITDA M&A Multiples Comparison by Year ...................................................................... 5

EV/EBITDA multiples in the U.S. across all industries averages around 10.9x for 2017. ..................... 5

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Publicly Traded Healthcare IT EV/Revenue and EV/EBITDA Multiples Comparison by Quarter .................... 6

2017 Healthcare IT M&A Trends & Drivers ..................................................................................................................... 7

Notable Healthcare IT M&A Transactions, Q3 2017 (Sorted by Deal Size) ............................................................ 10

Publicly Traded Healthcare IT Firms Valuation Table ............................................................................................... 12

M&A Spotlight .................................................................................................................................................................... 13

WebMD acquired by Internet Brands, a portfolio company of KKR, for $2.8 billion ........................................... 13

About Solganick & Co. ...................................................................................................................................................... 17

DISCLAIMER

The information contained herein is of a general nature and is not intended to address the circumstances of any particular company,

individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such

information is accurate as of the date it is received or that it will continue to be accurate in the future. We perform our own research

and also use third party research. No one should act on such information without appropriate professional advice after a thorough

examination of the particular situation. This is not an offer or recommendation to buy or sell securities nor is it a recommendation

to merge, acquire, sell or exit a specific company or entity. We do not hold any equity or debt position in any of the securities listed

herein as of the date of this report.

Sources for our research and data include: PitchBook, MergerMarket, Wall Street Journal, Company Websites, SEC Filings, Bloomberg, TechCrunch, MergerMarket Corum Group, Rock Health, Mercom Capital

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M&A Market Brief

Global, U.S., and Healthcare IT M&A Activity Q3 2017 -

Source: Solganick & Co. Analysis, Pitchbook, MergerMarket M&A Report Q317. Mercom Capital group, Donelly Healthcare Market Spotlight

Worldwide

Global M&A activity in Q3 2017totaled $674 billion in deal value -an 23.4% decline from Q3 2016.Deal count in Q3 dipped to 3,772 -the first time deal count hasdropped below 4,00 since 2013.

Global M&A activity in Q3 2017 hasfaltered due to companies' struggleto adapt to a dynamic polictical andtechnological global environment.Global M&A activity will bemotivated by limited organicgrowth options and the need toaddress the business modeltransformation that is occurringacross industries.

Technological disruption is animportant deal motivator.Companies involved in M&A aremost interested in acquiringrelevant technologies andresponding to transformation intheir industry as well as a desire toexpand on their products.Established businesses aremodernizing through technologyfocused deals, making traditionalindustry boundaries blurry andunconventional.

United States

Five of the 10 largest deals of Q32017 were targeted at U.S.companies, representing a shift inM&A activity from Europe to theUnited States.

The U.S. accounted for 40.9% ofglobal M&A deal value, In the U.S.,1,123 deals were recorded in Q32017, totalling $283.7B in value..

The total value of U.S. deals felldue to uncertainty about PresidentDonald Trump's tax reform andderegulation agenda. Manycompanies have adopted a "waitand see" mentality.

U.S. M&A deal value totalled $283.7 billion in Q3 2017 - a 30. 2% decline from Q3 2016

Healthcare IT

In Q3 2017, there were a total of 54Healthcare IT M&A transactions,compared to 56 in Q2 2017.Healthcare practice-focusedcompanies made up 36 of the 54transactions and consumer-focused comapnies made up 18 ofthe transactions.

Practice Management Solutionsand Data Analytics companies wereinvolved in the most M&Atransactions in Q3 2017.

Prominent M&A transactions in Q32017 included: Internet Brandsacquisition of WebMD for $2.8B,Optum's acquisition of TheAdvisory Board Company for$1.3B, Navicure's acquisition ofZirmed for $750M., and PRA HealthSciences acquisition of SymphonyHealth for $530M.

Valuations for publicly traded Healthcare IT companies averaged 4.3x EV/Revenues this latest quarter.EV/Revenue and EV/EBITDA M&A multiples average 4.0x and 15.9x, respectively, as of Q3 2017.

According to a Donelly Market Spotlight survey, 60% of industry respondents predict Digital Health to be the top Healthcare sub-sector to see growth in M&A activity in 2018.

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Healthcare IT Global M&A Deal Value — Quarterly Comparison With a total of 54 Healthcare IT-related deals, transaction value for Global Healthcare IT M&A deals announced in Q3 2017 surpassed $12 biilion (according to Results International).

Source: Results International Healthtech Heartbeat Q3 2017 Market Review)

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U.S. Enterprise Value/ EBITDA M&A Multiples Comparison by Year EV/EBITDA multiples in the U.S. across all industries averages around 10.9x for 2017.

Source: PitchBook

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Publicly Traded Healthcare IT EV/Revenue and EV/EBITDA Multiples Comparison by Quarter

The average Healthcare IT public company revenue and EBITDA multiples dipped in Dec 2016 and Jan 2017, principally due to the presidential election effects. EV/Revenue and EV/EBITDA multiples have since rebounded with an average of 4.0x and 15.9x, respectively.

EV/Revenue Multiples and EV/EBITDA multiples Source: Nasdaq, Capital IQ & Results Analysis

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2017 Healthcare IT M&A Trends & Drivers Demand for data storage, cloud technology, analytics, interoperability, cybersecurity, smart medical devices and electronic health record (EHR) management will help drive industry growth in 2017. Consumerization is also driving HCIT M&A activity. Individuals have become accustomed to paying for many of their healthcare expenses out-of-pocket and seek ways to empower their purchasing decisions through education and personalized care. As the industry becomes more customer-centric, buyers are turning to digital health solutions (such as online training and smartphone applications) by which they can promote value-based business models. Cloud Computing in Healthcare: Overcoming Barriers and Evolving Due to concerns about security, transparency, availability and uptime – where technology failure can pose a risk to patient safety – some healthcare professionals hesitate to move to the cloud. While these apprehensions may be valid, they are surmountable. As this eBook shows, HIMSS17 provided an excellent venue to discuss how various players are optimizing patient care, engagement and business operations using the cloud, along with where this technology is taking us. Patient Engagement Though the original motivation may remain the same, the methods and technologies that enable patient engagement are changing. This theme showed up strongly throughout HIMSS17. In fact, perhaps "engagement" itself has even become an inadequate term. As seen in this eBook, "personalization" and "empowerment" may be better descriptors of how digital innovations in connected health are changing the ability of patients to take ownership of their respective health experiences. Artificial Intelligence and Machine Learning: Poised to Transform Healthcare Delivery From predictive security to productive analytics to bot-based patient engagement, applications of artificial intelligence and machine learning will surely revolutionize healthcare tomorrow. But make no mistake: they're already making an impact today.

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Big Data and Analytics: Leveraging Synergies to Support Outcomes As the relationship between big data and analytics matures, new concepts are in the offing. Such as the application of cognitive learning, which means looking at as many factors as possible outside the actual medical record to more fully understand a particular patient's health condition. As more opportunities arise to collect and track big data, the extent to which systems and devices can interchange information has grown increasingly crucial. Furthermore, new Department of Health and Human Services (HHS) policy requirements under the Medicare Access and CHIP Reauthorization Act (MACRA), Merit-based-Incentive Payments System (MIPS) and Advanced Alternative Payment Models (APMs) are expected to drive the need for new data exchange solutions in 2017. Key interoperability projects for HCIT executives in 2017 will be: connecting external databases to exchanges, connecting applications within the organization and adding connections from medical devices to existing systems, according to a survey by Healthcare IT News.

Source: Healthcare IT News

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High Volume of VC Funding Creates Need for Healthcare IT M&A Exits Venture capitalists have invested a record amount of money into startups over the past several years and the influx of capital has created a surplus of companies that are poised for an M&A exit. While overall funding slowed slightly in 2016, HCIT companies remain attractive investment targets for VC firms. In 2016, venture capitalists invested $4.2 billion in HCIT companies, an 8.7% decline from 2015. Nevertheless, the total number of funded HCIT companies increased by 8.0% year-over-year. According to Bobby Franklin, President and CEO of National Venture Capital Association, “The large amount of capital raised for deployment to the ecosystem as well as optimism surrounding the IPO pipeline are all positive signs as we look ahead. Given the 2016 election results and the venture industry’s return to normal, 2017 will prove a pivotal year for venture investors and the startups they support.” Q3 2017 Healthcare IT VC funding saw $1.5 billion in 227 deals, a 38 percent decrease compared to the $2.6 billion raised in Q2 2017. However, VC funding in the first nine months of 2017 increased 31 percent from the same period in 2016. This past quarter, Healthcare Practice-focused companies received $731 million in 78 deals while Healthcare Consumer-centric companies raised $751 million in 149 deals.

Healthcare IT VC Funding Trends

Source: Mercom Capital Group

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Deal Date Seller Acquirer Description of Target

Deal Size

(mm)

EV/ Revenue

EV/ EBITDA

15 Sept 2017 Web MD Internet Brands

Developer of online health-focused publications designed to provide online healthcare information

$2,800

29 Aug 2017

The Advisory Board Company

Optum United Health Group

Provides technology and consulting services intended to hardwire best practices and make health care better, education smarter and our communities stronger.

$1,300

13 Sept 2017 Zirmed Navicure

Provider of a cloud-based financial and clinical performance management platform designed to optimize revenue and population health.

$750

06 Sept 2017

Symphony Health

PRA Health Sciences

Provider of high-value data, analytics, and technology services intended to deliver strategic market data insights.

$530 2.7x

05 Sept 2017

T-System Holdings

Fidelity National Financial

Provider of clinical documentation and coding solutions to hospital-based and free-standing emergency departments and urgent care facilities.

$200

03 Aug 2017 McKesson Allscripts

Provides pharmaceutical distribution services and health information technology, medical supplies, and care management tools.

$185

10 July 2017 RowdMap Cotiviti Holdings

RowdMap, Inc. Risk-Readiness® Benchmarks help health plans, physicians and hospitals in 48 states succeed in value-based payment models.

$70

25 Aug 2017 NantHealth Allscripts

Developer of patient & provider engagement platform. The business' platform presents a unified view of patient clinical data from multiple systems to providers, resulting in more informed care and potentially more effective treatments.

$62.4

09 Aug 2017 Parallel 6 PRA Health

Solutions

Parallel 6 is a provider of a cloud-based solutions that engages patients for clinical trials.

$49.7

Notable Healthcare IT M&A Transactions, Q3 2017 (Sorted by Deal Size)

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17 Aug 2017

EagleDream Health

NextGen Healthcare

cloud-based analytics outfit that optimizes practice performance using clinical, financial and administrative data.

$26

Deal Date Seller Acquirer Description of Target

Deal Size

EV/ Revenue

EV/ EBITDA

19 July 2017 deVero Netsmart

Technoliges

DeVero is a cloud-based Electronic Health Records company that focuses on improving the quality of patient care and reducing business costs.

05 Sept 2017 Amazing Charts Constellation

Software Inc

Provides Electronic Medical Record (EHR), Practice Management (PM) software and Medical Billing services to primary care and specialty outpatient practices.

13 Aug 2017 Senosis Health Google

Mobile application that provides health sensing and monitoring solutions to measure, manage and diagnose diseases

11 Aug 2017

Medisec Software

Clanwilliam Group

Medisec Software is a specialist systems developer providing tried and tested paperless NHS digital dictations.

19 July 2017

Constellation Health IT

Med Tech Solutions

Constellation’s Health IT business is a health care technology consulting and solutions company.

25 Spet 2017

Harris Healthcare MorCare, LLC

Provider of care, quality, and risk and performance management solutions to the healthcare industry.

11 Aug 2017 RemitDATA eSolutions

RemitDATA offers comparative analytics and productivity solutions to outpatient providers, health systems and RCM companies.

Source: Solganick & Co. Analysis, Pitchbook , Results International Q3 2017 Market Overview, Mercom Healthcare IT/Digital Health Funding and M&A Q3 2017 Report

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Publicly Traded Healthcare IT Firms Valuation Table

Company Name Ticker Symbol Stock Price

(as of 09/29/17) Market Cap

($mm) EV/Revenue EV/EBITDA

Allscripts MDRX 14.23 2,315 2.13x 22.08x

Athene Holding ATH 53.84 9,750 0.53x -

Benefitfocus BNFT 33.65 786.52 3.46x -

Care.com CRCM 15.89 540.3 2.66x 53.39x

Castlight Health CSLT 4.30 705.09 3.5x -

Celanese CE 103.82 14020 2.96x 14.78x

Evolent Health EVH 17.80 833.31 2.02x -

Fitbit FIT 6.96 1,450 0.41x -

HMS Holdings HMSY 19.86 1,320 3.61x 19.25x

Inovalon Holdings INOV 17.05 2270 5.51x 32.11x

IQVIA Holdings Q 95.07 21,870 4.48x 20.72x

McKesson MCK 153.61 2,895 0.17x 8.63x

Medidata Solutions MDSO 78.06 3,930 7.12x 47.15x

Mindbody MB 25.85 1,510 7.99x -

NantHealth NH 4.12 370.07 5.55x -

Omnicell OMCL 51.05 1,740 2.79x 44.42x

RWS Holdings RWS.L 396.75 1,130 7.16x 29.02x

Tabula Rasa Healthcare TRHC 26.74 558.32 5.04x 243.01x

Teladoc TDOC 33.15 1,600 9.2x -

Veeva Systems VEEV 56.41 8,480 12.43x 49.67x

Vocera Communications VCRA 31.37 751.75 4.67x -

Average 4.3x 48.7x

Source: Solganick & Co. Analysis, Pitchbook

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M&A Spotlight

WebMD acquired by Internet Brands, a portfolio company of KKR, for $2.8 billion Sept 15, 2017 – Internet Brands, the leading SaaS/web hosting player in the health space, announced its acquisition of WebMD Health Corp, operator of the popular WebMD website, for $2.8 billion. A subsidiary of Internet Brands will acquire all of WebMD’s issued and outstanding shares of common stock for $66.50 a share, to be paid in cash at close. Equity financing for the transaction is being provided primarily by KKR's private equity funds. After the deal’s announcement, chairman of WebMd Martin J Wygod stated, “After a thorough review of strategic alternatives, we are pleased to announce this transaction, which provides our stockholders with immediate and significant cash value and a substantial premium.” The deal comes after the health information services company announced in February that it was commencing a process to explore strategic alternatives. Bob Brisco, CEO of Internet Brands, called WebMD “a trusted source for health information” with “unparalleled reach to consumers and healthcare professionals.” WebMD will be an addition to Internet Brands’ consumer-focused health information brand portfolio, which includes DentalPlans.com, eHealthForum.com, HealthBoards.com, FitDay.com and VeinDirectory.org. The acquisition is expected to close during the fourth quarter of this year, subject to the all the customary closing conditions. Source: https://www.marketwatch.com/story/webmd-to-be-bought-by-kkrs-internet-brands-for-28-billion-2017-07-24

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UnitedHealth to buy Advisory Board's healthcare unit as part of $2.6B deal August 29, 2017 – Optum, the healthcare services branch of UnitedHealth, is acquiring The Advisory Board’s healthcare technology and consulting business for $1.3 billion. The deal will close after the sale of The Advisory Board’s educational unit to Vista Equity Partners. Together the two deals will total $2.6 billion. The Advisory Board’s healthcare business offers research, technology and consulting services aimed at improving the performance of healthcare organizations. The acquisition will enhance its research while offering a broader range of advisory and technology capabilities to its 4,000-plus members. The Advisory Board Company CEO, Robert Musslewhite, stated “Joining Optum will enable us to better serve our members, thanks to Optum’s unmatched data analytics resources, investment capacities and operational experience in delivering large-scale solutions and services to all health care stakeholders.” The deal with Optum is expected to close by the end of 2017 or in early 2018. It is contingent upon approval from the Advisory Board's shareholders, U.S. antitrust clearance and the closing of the deal with Vista Equity Partners.

Source: http://www.unitedhealthgroup.com/newsroom/articles/feed/optum/2017/0829optumadvisoryboardcompany.aspx

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Navicure and ZirMed Unite to Offer Top-Performing Revenue Cycle Management Solutions for Healthcare Industry September 13, 2017 – Navicure, with the backing of Bain Capital, will purchase Zirmed’s shares for a total of $750 Million. Both companies provide cloud-based financial and clinical performance management platforms for the healthcare industry. Both revenue cycle management technology companies are well received by the industry, consistently receiving top customer ratings from KLAS. The company plans to operate under a new name after the transaction closes. Post-merger, Navicure and ZirMed will serve over 400,000 providers and healthcare organizations. The merger serves to combat continuous downward pressure on pricing by combining an enterprise-wide revenue cycle process and infrastructure to better serve larger providers. Navicure also stands to gain a competitive advantage, as ZirMed has advanced patient payment engines with analytics that help improve revenue capture. Tom Butts, Chairman and CEO of ZirMed, states “ZirMed has built and delivered an unparalleled, fully-integrated technology platform that scales to support the largest and most complex healthcare providers and systems. By joining forces, our two companies are ensuring that providers across all segments are more empowered than ever to optimize their revenue cycles.” The company will be competing directly with Change Healthcare, a large revenue cycle company formed from the merger of McKesson’s technology solutions unit and Change Healthcare. The transaction is expected to close in the fourth quarter of 2017. Source::http://www.businesswire.com/news/home/20170914006009/en/Navicure-ZirMed-Unite-Offer-Top-Performing-Revenue-Cycle

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PRA Acquires Symphony Health Solutions for $530m

September 6, 2017 – PRA Health Sciences, one of the world’s leading contract research organization, is acquiring Symphony Health Solutions for $53o million, payable in cash at closing. Transaction is expected to be immediately accretive to PRA Health Sciences’ adjusted net income per diluted share.

Symphony Health is a high-value data analytics service that provides market insights for market predictions, physician prescribing, payer reimbursement, and patient treatment patterns. Symphony Health’s health data contains information on over 280 million patients. Symphony Health Solutions’ services will help optimize PRA’s clinical trial recruitment, as well as provide the data PRA’s biopharma clients need to get better understanding of the market. Collin Sharon, PRA’s CEO, stated, “Symphony Health will also provide us with rich data insights that will allow us to customize our clinical studies,” concluded Shannon, “to be as unique as the patients who they are designed around. By creatively harnessing the power of our technology and data assets, we are redefining the clinical development process for a more patient-centric future.” The deal represents PRA’s commitment to providing data-driven insights to optimize global clinical studies and drug commercialization. Source: https://globenewswire.com/news-release/2017/08/07/1081269/0/en/PRA-Health-Sciences-to-acquire-Symphony-Health-Solutions-a-leading-provider-of-integrated-health-data-and-analytics-delivered-as-cloud-based-solutions.html

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About Solganick & Co. Solganick & Co., Inc. is an independent investment banking and M&A advisory firm focused exclusively on the global technology and digital media industry sectors, including an active practice within healthcare IT. We advise buyers and sellers of companies and efficiently execute M&A transactions that help increase shareholder value. Our professionals have advised on $20+ billion in M&A transactions to date and have current clients and relationships globally with entrepreneurs, companies and leading private equity firms within the sectors we cover. Please contact us for information regarding this report or to inquire about an M&A transaction.

Los Angeles: 811 W 7th St., 12th Floor Los Angeles, CA 90017 San Francisco: 650 California St. San Francisco, CA 94108 +1 (310) 684-3130 www.solganickco.com Aaron Solganick, CEO Alexander Khoras, Director of Business Development [email protected] [email protected] Rachael Fang, Vice President Michael Okayo, Senior Associate [email protected] [email protected] Frank Grant, Managing Director Sam Sheedban, Associate [email protected] [email protected] Sergio Rivera Vazquez, Managing Director Elizabeth Kreitzer, Analyst [email protected] [email protected] Follow Us on Twitter: @Solganickco