Quarterly Healthcare Market Report - Brentwood Capital · 2015-11-12 · Quarterly Healthcare...

Quarterly Healthcare Market Report 2Q14 & 3Q14

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2Q & 3Q14 M&A Update M&A activity rebounded in the 2Q and 3Q after a sluggish 1Q that was dominated by a few mega deals. Deal volume increased 12.7% in the 2Q from 615 to 693 and another 4.6% in the 3Q to 725 transactions. As illustrated in the chart, most of the M&A activity was in the lower middle-market in transactions valued between $25 and $100 million. Without many large deals, transaction values plummeted 41.9% in the 2Q from $314.0 to $182.5 billion before climbing 27.8% in 3Q to $233.3 billion.

Conditions continue to be very favorable for M&A, particularly the aggressive lending environment. The recent increase in deal flow has resulted in more balanced supply and demand conditions that have stabilized credit pricing and terms. In particular, we have seen some increase in the yield requirements of BDC’s in an effort to support weak stock price performance and ensure continued access to additional capital. BCA has benefited from the increase in middle-market M&A activity, closing seven transactions valued at approximately $350 million in the first three quarters of 2014. As valuations have risen, PE firms have been aggressive sellers of portfolio companies. Whereas on the buy-side, PE firms have been increasingly receptive to “buy & build” strategies, particularly in the dental and behavioral health sectors where valuations have risen dramatically for companies with any scale. As an example, early in 2Q, we raised $25 million in equity for Spring & Sprout Dental, a consolidator of pediatric dental offices. We have also secured a $50 million equity commitment for a consolidator of addiction treatment centers that should close its first acquisition in 1Q15.

We expect the pace of M&A activity to quicken as PE firms continue to sell mature portfolio companies. We also believe that these buy & build strategies will gain steam, particularly in the dermatology, hospitalists and behavioral healthcare sectors.

Stock Market The S&P 500, NASDAQ and DJIA resumed their relentless climb in the 2Q, increasing 4.7%, 5.0% and 2.2% respectively. These increases reflect an improved economic outlook after a record cold 1Q forced consumers into a prolonged hibernation and an accommodative monetary policy. In the 3Q, the S&P 500, NASDAQ and DJIA grew modestly at 0.6%. 1.9% and 1.3%, respectively, reflecting some of the political uncertainty surrounding whether the Republicans would take control of the Senate. U.S. stock indices will have to rely mostly on the performance of the underlying companies with the Fed’s decision to officially end Quantitative Easing in October. Thus ends the largest monetary stimulus in history, totaling $4.5 trillion over the last six years. Although the Fed has stated it remains committed to maintaining low interest rates, this will be a difficult task in the face of an accelerating economy and inflation. Most economists expect rates to rise by the summer of 2015. Public company earnings were strong in 2Q and 3Q, increasing 7.7% and 7.6% respectively, led by the Telecom sector. Consumer Discretionary stocks were the only sector that reported a year-over-year decline in earnings. Of the 499 companies that have reported earnings in 3Q, 74% beat analyst expectations.

2Q14 & 3Q14 Overall Market Update and Economic Review

Source: Capital IQ.

1

484

655 644

1,030

479

579 657

860

615 693 725

$0

$50

$100

$150

$200

$250

$300

$350

-100

100

300

500

700

900

1,100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2012 2013 2014

Total Tran

saction

Valu

e($

in b

illion

s)

Tran

sact

ion

Vo

lum

e

Middle-Market Quarterly M&A Activity

$25 - $100 $101 - $250 $251 - $500

$501 - $750 Over $750 Total Transaction Value

-10%

0%

10%

20%

30%

Oct2013

Nov2013

Dec2013

Jan2014

Feb2014

Mar2014

Apr2014

May2014

Jun2014

Jul2014

Aug2014

Sep2014

Oct2014

Q3 2014 Index Performance

S&P 500 Index NASDAQ Composite Index Dow Jones Industrial Average

Although the U.S economy and corporate earnings continue to improve, major challenges loom large for sustained global economic growth. Europe seems to be teetering on the brink of its second recession in three years, somewhat confirmed by the rapid decline in commodity prices, particularly in oil. Typically, commodity prices are a reliable leading indicator of future economic performance. In addition, there is a great deal of political instability in Eastern Europe, the middle-east, Asia and other parts of the world that could dampen global and, ultimately, U.S. economic growth. Non-Farm Payroll New job creation accelerated in 2Q with non-farm payrolls increasing 304K, 229K and 267K in April, May and June, respectively. For the quarter, monthly non-farm payroll growth averaged 267K versus 190K in 1Q and 194K for 2Q13. This growth is primarily related to a rebound in hiring after a record cold 1Q that dampened economic activity and job creation during January. These job growth trends continued albeit at more subdued rate in 3Q with non-farm payrolls increasing 243K, 203K and 271K in July, August and September, respectively. For the quarter, monthly non-farm payroll averaged 239K versus 267K in 2Q and 167K for 3Q13. Although the economy is accelerating, we believe there are significant global economic and political challenges that could ultimately impede U.S. economic growth.

Unemployment The traditional unemployment rate improved gradually in the 2Q and 3Q falling from 6.1% in June to 5.9% in September, largely due to improved job creation and a still low labor participation rate. Over the same period, U-6 unemployment was around 12.1% before falling to 11.8%, reflecting the quality of job creation. U-6 accounts for the shift in the hiring of full-time versus part-time employees. If the current rate of job growth creation continues, the U.S. should recover most of the jobs lost in the 2008 financial crisis and ensuing recession within the next six to twelve months. Although a significant milestone, it represents a hollow victory seven years later, and represents the weakest economic recovery in U.S. history since the Great Depression. Gross Domestic Product GDP grew 4.6% in 2Q and 5.0% in 3Q, a big reversal from the 2.1% decrease in 1Q. Due to this improved performance, most economists believe the U.S. economy will grow 3% for the full year, particularly with the significant drop in oil and related gasoline prices that should put additional cash in the hands of consumers, who continue to account for approximately 70% of all economic activity.

Source: Bureau of Labor Statistics

2

2Q14 & 3Q14 Overall Market Update and Economic Review

3%

6%

9%

12%

15%

18%

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

Jan

Ap

r

Jul

Oct

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Ap

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Jul

Oct

Jan

Ap

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Oct

Jan

Ap

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Jul

Oct

2009 2010 2011 2012 2013 2014

Unemployment

U-6 Unemployment Traditional Unemployment

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3

2007 2008 2009 2010 2011 2012 2013 2014

GDP Growth

Source: Bureau of Labor Statistics

0

50

100

150

200

250

300

350

400

Jan

Mar

May Ju

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Mar

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2011 2012 2013 2014

(in

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ds)

Historical Change in Non-Farm Payrolls

2011 Dip 2012 Dip

-40%

-30%

-20%

-10%

0%

10%

20%

30%

Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14

Commodity Price/Index Performance

Crude Oil Gold

Dow Jones UBS Commodity Index Goldman Sachs Commodity Index

$98 $106 $124

$162 $144 $139

$110

665 623

748 755 805

704

588

0

300

600

900

$0

$45

$90

$135

$180

Q1 Q2 Q3 Q4 Q1 Q2 Q3

2013 2014

# o

f Transactio

ns($

in b

illio

ns)

Capital Invested # of Deals Closed

$128 $91 $115

$135

$230

$127

178 183

221 221

289

207

0

50

100

150

200

250

300

350

$0

$50

$100

$150

$200

$250

$300

2009 2010 2011 2012 2013 2014*

# o

f Transactio

ns

($ in

bill

ion

s)

Capital Raised # of Funds Closed

Private Equity Activity

Total Private Equity Acquisition Activity

Select Private Equity Transactions

Total Private Equity Fundraising Activity

• While M&A activity increased slightly in 3Q14, private equity investment activity declined with $110 billion invested across 588 transactions compared to $139 billion across 704 transactions in 2Q14 and $124 billion across 748 transactions in 3Q13.

• Add-on acquisition activity continues to rise as investors evaluate opportunities to put cash to work in an environment where buyout valuations remain elevated. This is evidenced by the rising interest in buy & build opportunities.

• With valuations high, most of the PE firms with which we frequently speak feel it is a much better time to be a seller than a buyer. PE firms garnered $47 billion in proceeds from 193 transactions in 3Q14. This level of activity was similar to the $48 billion in proceeds across 209 exits in 2Q14.

• Middle-market transactions are driving current deal flow volume as investors look to avoid the extremely high valuations commanded by larger companies.

• Total PE fundraising is expected to be lower in 2014 compared to 2013 due to the small number of mega fund closings.

• Assuming deal activity in 4Q14 is inline with 3Q14, 2014 is on pace to be the busiest post-crisis year, despite the lack of quarter to quarter growth.

Source: Pitchbook Source: Pitchbook

3

*As of September 30, 2014.

(dollars in millions)

Announced Enterprise

Date Private Equity Firm Target Value(1)

8/19/14 Linden Capital Partners Spear Education, LLC

8/4/14 Beecken Petty O'Keefe & Company himagine solutions, Inc. $119.0

7/30/14 GTCR, LLC XIFIN, Inc. N/A

7/29/14 Great Hill Partners, LLC Qualifacts Systems, Inc. N/A

7/28/14 The Riverside Company Censis Technologies, Inc. N/A

7/25/14 Consonance Capital excelleRx, Inc N/A

7/24/14 Graham Partners HemaSource Holdings, LLC N/A

7/18/14 Nautic Partners, LLC All Metro Aids Inc. N/A

7/17/14 Ares Private Equity Group National Veterinary Associates, Inc. N/A

(1) Data from SEC filings and Capital IQ.

BCA Proprietary Data

Quarterly Healthcare Loan Volume Average Spread on Healthcare Loans

Leveraged Loan Market

Recent Leveraged Loan Statistics(1)

Select Recent Healthcare Debt Deals

(1) Indicative debt multiples are for borrowers with at least $10 million of EBITDA.

4

$0

$4

$8

$12

$16

$20

$24

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2009 2010 2011 2012 2013 2014

Loan

Vol

ume

by

Qua

rte

r ($

in b

illio

ns)

Institutional Pro Rata

L+

L+ 100

L+ 200

L+ 300

L+ 400

L+ 500

2008 2009 2010 2011 2012 2013 YTD 2014

Ave

rage

Sp

read

Ove

r LI

BO

R

Revolving Credit / Term Loan A Weighted-Average Institutional

Date Borrower Industry Tranche Type Rating Spread

9/30/2014 Rel iant Hospita l Partners LLC General medical & surgica l hospita ls 160$ Term Loan A NR / NR L + 475

9/30/2014 Spectrum Health System General medical & surgica l hospita ls 200 Revolver/Line ≥ 1 Yr. NR / NR N/A

9/30/2014 FHC Health Systems Inc Psychiatric Hospita ls 65 Revolver/Line ≥ 1 Yr. B+ / B2 N/A

9/30/2014 FHC Health Systems Inc Psychiatric Hospita ls 350 Term Loan B B+ / B2 L + 400

9/12/2014 HealthSouth Corp Offices & cl inics of medical doctors 600 Revolver/Line ≥ 1 Yr. BB- / Ba3 L + 175

9/11/2014 Brookdale Senior Living Inc Intermediate care faci l i ties 500 Revolver/Line ≥ 1 Yr. NR / NR L + 425

9/9/2014 Team Health Inc. Offices of health practi tioners 251 Term Loan A BB / Ba2 L + 175

9/5/2014 Methodist Le Bonheur Healthcare General medical & surgica l hospita ls 273 Other Loan NR / NR N/A

• The supply / demand imbalance in the leveraged loan market has abated, stabilizing pricing and terms.

The softer market conditions have resulted in lenders becoming slightly more selective and a small up-tick in pricing; however, covenant-lite structures remain available to larger companies with strong cash flow.

• New lending standards are making banks less aggressive in leveraged lending.

• M&A related financing accounted for a higher percentage of the loan activity in 3Q14 as fewer companies opportunistically refinanced or executed dividend recapitalizations.

• In general, the capital markets remain very attractive for issuers. Healthcare Services

Healthcare IT

Non-Healthcare

Debt as a Multiple of EBITDA

Senior Debt Total Debt

3.0x

6.0x

3.5x

4.0x

7.0x

4.5x

Pricing

Floor

Upfront Fees

Unused

Leverage Pricing and Fees

50 bps50 bps

50 bps

-

L + (4.0 - 4.75%)

Bank Non - Bank

L + (5.0 - 6.0%)

1.00%

100 - 200 bps

IPO, 26

Follow-on, 29


Announced Enterprise

Date Acquiror Target Value(1)

9/30/14 Optum, Inc MedSynergies, Inc N/A

9/24/14 Laboratory Corp. of America Holdings LipoScience, Inc. $58.3

9/23/14 HCA Holdings, Inc. PatientKeeper, Inc. N/A

9/23/14 Conifer Health Solutions, LLC. Springfield Service Corporation 235.0

9/14/14 Cognizant Technology Solutions

Corporation

TriZetto Corporation 2,700.0

8/26/14 Roper Industries Inc Stategic Healthcare Programs N/A

8/19/14 Linden Capital Partners Spear Education, LLC

8/18/14 Genesis HealthCare, LLC Skilled Healthcare Group, Inc. N/A

8/13/14 MedAssets, Inc. Sg2, LLC 142.0

8/4/14 Premier Healthcare Solutions, Inc. TheraDoc, Inc. 117.0

8/4/14 Beecken Petty O'Keefe & Company himagine solutions, Inc. 119.0

8/1/14 Nordson Medical Corporation Avalon Laboratories, LLC 180.0

7/17/14 Kindred Healthcare Inc. Gentiva Health Services Inc. 1,791.7

7/14/14 St. Jude Medical Inc. NeuroTherm, Inc. 200.0

(1) Data from SEC fi l ings and Capital IQ.

BCA Proprietary Data

3Q14 Healthcare Public Offerings

$ Value # Offerings HC # by Offering Type

LTM Healthcare Index vs. S&P & NASDAQ

Select 3Q14 Healthcare M&A Transactions

Healthcare Industry Overview

• For the last twelve months ended September 30, 2014, healthcare stocks rose 25.8%, while the S&P 500 and NASDAQ increased 19.1% and 17.3%, respectively.

• Following a dip in August, public equity markets have continued to rise with healthcare stocks ending 4.9% higher and the S&P 500 and the NASDAQ up only 0.6% and 1.9%, respectively.

Geopolitical tensions, fears of the equity markets being overvalued and expectations that the Federal Reserve would cut its economic stimulus program all weighed on stocks in the middle of 3Q14.

On October 29th, the Fed announced the end of its quantitative easing program.

• 55 of the 273 announced public offerings in 3Q14 were healthcare-related, including 26 IPOs and 29 follow-on offerings.

− Key IPOs include HealthEquity (HQY) and American Addiction Centers (AAC).

• Healthcare M&A activity increased slightly compared to 2Q14 and 3Q14 level, although not the significant increase previously predicted.

• The newly elected Republican Senate and House of Representatives is expected to focus on changes or appeals to aspects of the Affordable Care Act (“ACA”).

Source: Capital IQ.

Source: Capital IQ.

$ in billions

5

HC, $3,428

All Other,

$51,732

HC, 55

All Other,

218

Select Public Offerings ($ in millions)

Offer Date Issuer Industry IPO/Follow-on Trans. Value

9/30/14 FibroGen, Inc. Biotechnology IPO $125

9/22/14 Avanir Pharmaceuticals, Inc. (NasdaqGS:AVNR)Pharmaceuticals Follow-on 200

9/19/14 Sientra, Inc. Healthcare Equipment IPO 86

9/8/14 PRA Health Sciences, Inc. Life Sciences Tools and

Services

IPO 375

9/8/14 Brookdale Senior Living Inc. (NYSE:BKD) Healthcare Facilities Follow-on 300

8/27/14 Dermira, Inc. (NasdaqGS:DERM) Pharmaceuticals IPO 125

7/7/14 Bluebird Bio, Inc. (NasdaqGS:BLUE) Biotechnology Follow-on 102

90%

100%

110%

120%

130%

10/1/2013 1/1/2014 4/1/2014 7/1/2014

NASDAQ S&P 500 S&P Global Healthcare Index

9/30/2014

Quarterly Healthcare M&A Activity

Quarterly Middle Market Healthcare M&A - Volume Quarterly Middle Market Healthcare M&A - Value

Year-over-Year 3Q M&A Volume by Transaction Size • 3Q14 middle market healthcare M&A volume increased slightly with 51

deals closed compared to 47 in 3Q13 and 49 in 2Q14.

• Total transaction value increased more significantly with $9.7 billion in

aggregate value, a 54.0% and 14.1% increase from 3Q13 and 2Q14,

respectively.

− A growing number of deals valued between $251 - $750 million in

3Q14 drove the increase over the same period in 2013.

• M&A activity is expected to be relatively consistent through the end of the

year, ending slightly higher than 2013 activity.

• Healthcare facilities followed by pharmaceuticals were the most active

sectors of middle market healthcare transactions in 3Q14.

Source: Capital IQ. Includes all disclosed, closed deals between $25 and $750 million, through September 30, 2014.

6

26

14

6

1

25

12

8

6

0 5 10 15 20 25 30

$25 - $100

$101 - $250

$251 - $500

$501 - $750

Tran

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ion

Vo

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e

3Q14 3Q13

$11.2

$6.9

$4.8

$6.3

$10.4

$8.0 $8.5

$9.7

$0

$5

$10

$15

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2012 2013 2014

Tran

sact

ion

Val

ue

($

in b

illio

ns)

$25 - $100 $101 - $250 $251 - $500 $501 - $750

88

43

30

47

69

58

49 51

0

25

50

75

100

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2012 2013 2014

Tran

sact

ion

Vo

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e

$25 - $100 $101 - $250 $251 - $500 $501 - $750

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

-5% 0% 5% 10% 15% 20%

Hospice

Population Health Mgmt.

Dialysis

Healthcare IT

Hospital Management

Laboratory Services

Contract Services

Healthcare Staffing

Rehabilitation

Home Health

Diagnostic Imaging

Pharmacy Benefit Mgmt.

LTM LTM(1)

Price EBITDA

Trend Revenue EBITDA Revenue EBITDA Revenue EBITDA Margin

Ambulatory Surgical Center 2.2x 16.1x 1.5x 10.4x 9.3% 0.3% 14.3%

Contract Services 1.8x 11.0x 1.6x 9.8x 15.6% 15.4% 11.8%

Diagnostic Imaging 1.4x 7.0x 1.2x 7.2x 0.8% N/A 21.2%

Dialysis 1.8x 9.7x 1.7x 9.1x 2.3% (4.1%) 18.4%

Healthcare IT 3.6x 16.9x 3.0x 14.2x 6.9% 5.4% 20.6%

Healthcare Staffing 0.9x 9.9x 0.8x 9.6x 0.2% 13.2% 8.8%

Home Health 0.7x 10.3x 0.6x 8.5x 5.1% (9.4%) 6.6%

Hospice 1.4x 10.1x 1.3x 9.4x (2.7%) (3.7%) 14.1%

Hospital Management(2)1.5x 10.6x 1.4x 8.9x 6.1% 5.1% 15.6%

Laboratory Services 1.8x 9.0x 1.7x 8.3x 2.0% (7.7%) 19.5%

Pharmacy Benefit Mgmt. 0.1x 1.5x 0.1x 1.4x 18.1% 10.8% 5.7%

Population Health Mgmt. 1.8x 12.6x 1.7x 9.7x 8.3% (9.1%) 14.3%

Rehabilitation 1.4x 9.2x 1.3x 8.4x 3.7% 1.2% 13.9%

Average 1.6x 10.3x 1.4x 8.8x 5.8% 1.5% 14.2%Median 1.5x 10.1x 1.4x 9.1x 5.1% 0.8% 14.3%

(1) Data from Capital IQ and SEC filings. Revenue and EBITDA for period ending June 30, 2014 and stock price as of September 30, 2014.(2) Includes Acadia Healthcare Company, Inc.

Enterprise Value as Multiple of:

LTM(1) NTM(1) LTM Growth(1)

Healthcare Sectors Comparison

LTM EBITDA Multiple Compared to Projected Revenue Growth

3Q EBITDA Multiples Year-Over-Year Public Company Analysis by Sector

• BCA tracks publicly-traded companies within certain healthcare IT and services sectors. The following is a summary of our findings.

• Healthcare companies finished the quarter trading at a median of 10.1x LTM adjusted EBITDA.

• Median Healthcare EBITDA multiples increased from 8.5x in 3Q13 to 10.1x in 3Q14.

− This represents an increase of 19.0% year-over-year.

− The increase was primarily lead by the ASC, Home Health, Hospice, Hospital Management and Population Health sectors.

Size of bubble indicates aggregate sector enterprise value.

Source: Capital IQ and SEC filings.

Source: Capital IQ and SEC filings. (1) Data from Capital IQ and SEC filings. Revenue and EBITDA for period ending June 30, 2014 and stock price as of September 30, 2014. (2) Includes Acadia Healthcare Company, Inc.

7

13.5x 13.0x

6.6x8.2x

19.8x

13.1x

6.3x 7.0x8.1x 8.5x

13.4x

9.3x7.8x

16.1x

11.0x

7.0x

9.7x

16.9x

10.0x 10.3x 10.1x 10.6x9.0x

1.5x

12.6x

9.2x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

24.0x

Q3 2013 Q3 2014

Contract Services and Staffing Sector Overview

Public Company Analysis Valuation Analysis

Contract Services and Staffing Indices Stock Price Performance

Select Contract Services and Staffing M&A Transactions for 3Q14 LTM EBITDA Multiple Compared with LTM Revenue Growth

8


TEV as a Multiple of:

Announced Enterprise LTM(1)

Date Acquiror Target Value(1) Revenue EBITDA

Contract Services

9/26/14 North American Partners in Anesthesia, LLP Total Anesthesia, Inc. N/A N/A N/A

9/9/14 Team Health Holdings, Inc. Florida Gulf-to-Bay Anesthesiology Associates, LLC N/A N/A N/A

9/3/14 North American Partners in Anesthesia, LLP Newton Anesthesia Associates LLC N/A N/A N/A

9/2/14 Team Health Holdings, Inc. Trident Emergency Physicians, LLC N/A N/A N/A

8/7/14 IPC The Hospitalist Company, Inc. GeriCare LLC N/A N/A N/A

7/8/14 Resolute Anesthesia and Pain Solutions, LLC Perth Amboy Anesthesiology. P.C. and St. Lucie

Anesthesia Associates, LLC

N/A N/A N/A

Healthcare Staffing

9/10/14 Team Health Holdings, Inc. Emergency Medicine Specialists, P.C. and Midwest

Emergency Services, L.L.C.

N/A N/A N/A

9/1/14 Accountable Healthcare Staffing, LLC The Parx Group Of New York Inc, Health Staffing

Division

N/A N/A N/A

8/4/14 Beecken Petty O'Keefe & Company himagine solutions, Inc. $119.0 N/A N/A

7/11/14 Source One Healthcare Professionals, Inc. Metz&Baum Healthcare Professionals N/A N/A N/A


(dollars in millions, except per share data)

Current % of 52 Enterprise

Company Ticker Price Week High Value Revenue EBITDA Revenue EBITDA

Contract Services

IPC The Hospitalist Company, Inc. IPCM $44.79 70.3% $847 1.3x 11.0x 1.1x 9.3x

MedNax, Inc. MD $54.82 85.0% $5,657 2.5x 10.2x 2.2x 9.8x

Team Health Holdings, Inc. TMH $57.99 95.2% $4,669 1.8x 16.5x 1.6x 13.9x

Average 1.9x 12.6x 1.7x 11.0x

Median 1.8x 11.0x 1.6x 9.8x

Healthcare Staffing

AMN Healthcare Service, Inc. AHS $15.70 96.3% $880 0.9x 10.0x 0.8x 9.6x

Cross Country Healthcare, Inc. CCRN $9.29 80.5% $346 0.5x NM 0.5x 11.5x

On Assignment, Inc. ASGN $26.85 67.4% $1,822 1.0x 9.8x 0.9x 8.2x

Average 0.8x 9.9x 0.7x 9.7x

Median 0.9x 9.9x 0.8x 9.6x

Note 1: Data per SEC filings and Capital IQ.

Note 2: Stock price as of 9/30/2014 close and LTM financial results for Q2 2014.

Total Enterprise Value as Multiple of:

LTM NTM

80%

90%

100%

110%

120%

130%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Contract Services Healthcare Staffing

0.0x

5.0x

10.0x

15.0x

20.0x

(5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

MD

TMH

AHS

ASGN

IPCM





9/30/14 Optum, Inc. MedSynergies, Inc. N/A N/A N/A

9/25/14 ZirMed Inc. MethodCare, Inc. N/A N/A N/A

9/23/14 HCA Holdings, Inc. PatientKeeper, Inc. N/A N/A N/A

9/23/14 Connexin Software, Inc. Workflow.com, LLC N/A N/A N/A

9/23/14 Conifer Health Solutions, LLC. Springfield Service Corporation $235.0 N/A N/A

9/18/14 Providence Service Corp Community Care Health Network, Inc 400.0 2.1x 9.2x

9/14/14 Cognizant Technology Solutions TriZetto Corporation 2,700.0 N/A N/A

9/10/14 Google Inc. Lynx Design, Inc. N/A N/A N/A

8/26/14 Roper Industries Inc. Strategic Healthcare Programs, LLC N/A N/A N/A

8/25/14 Premier, Inc. Aperek, Inc. 48.5 N/A N/A

8/13/14 MedAssets, Inc. Sg2, LLC 142.0 N/A N/A

8/6/14 Practice Fusion, Inc. Telethrive, Inc. N/A N/A N/A

8/4/14 Premier Healthcare Solutions, Inc. TheraDoc, Inc. 117.0 N/A N/A

7/29/14 Great Hill Partners, LLC Qualifacts Systems Inc N/A N/A N/A

7/28/14 The Riverside Company Censis Technologies, Inc N/A N/A N/A

7/22/14 Azalea Health Innovations, Inc. simplifyMD, LLC N/A N/A N/A

7/17/14 Advanced Answers On Demand, Inc. Stratis Business Systems, Inc. N/A N/A N/A

7/14/14 Lumin Medical LLC PatientTrak N/A N/A N/A


Healthcare IT Sector Overview


Healthcare IT Index Stock Price Performance

LTM EBITDA Multiple Compared with LTM Revenue Growth Select Healthcare IT M&A Transactions for 3Q14

9




Advisory Board Co. ABCO $46.59 66.0% $1,699 3.4x 19.5x 2.6x 14.3x

Allscripts Healthcare Solutions, Inc. MDRX $13.42 68.2% $2,938 2.1x 14.4x 2.0x 12.1x

athenahealth, Inc. ATHN $131.69 63.7% $5,287 7.9x 40.8x 6.3x 36.4x

Cerner Corporation CERN $59.57 94.5% $20,348 6.6x 21.2x 5.7x 16.1x

Computer Programs & Systems, Inc. CPSI $57.49 80.0% $620 3.1x 10.4x 2.9x 9.5x

HealthStream HSTM $24.01 60.4% $565 3.7x 21.5x 3.0x 20.3x

HMS Holding Corp. HMSY $18.85 70.9% $1,760 3.8x 13.6x 3.8x 14.1x

MedAssets, Inc. MDAS $20.72 78.0% $2,043 3.0x 9.2x 2.8x 8.4x

MediData Solutions, Inc. QSII $13.77 57.0% $713 1.6x 9.6x 1.5x 9.2x

Quality Systems, Inc. MDSO $44.29 64.9% $2,478 8.1x 36.9x 6.5x 26.5x

Average 4.3x 19.7x 3.7x 16.7x

Median 3.6x 16.9x 3.0x 14.2x




LTM NTM

90%

100%

110%

120%

130%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Healthcare IT

0.0x

10.0x

20.0x

30.0x

40.0x

50.0x

(20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%

CERN

QSII

MDRX

HMSY

CPSI

MDAS

ABCO

ATHN

HSTM

MDSO

Home Health and Hospice Sector Overview


Home Health and Hospice Index Stock Price Performance

Select Home Health and Hospice M&A Transactions for 3Q14 LTM EBITDA Multiple Compared with LTM Revenue Growth

10

ST





9/3/14 SSM Health Audrain County Health Department,

Home Health and Hospice Division N/A N/A N/A

8/29/14 Thoughtful Care, Inc. Kansas City Home Care, Inc. N/A N/A N/A

8/18/14 Genesis HealthCare, LLC Skilled Healthcare Group, Inc. N/A N/A N/A

8/4/14 Cornerstone Healthcare, Inc. Angeles Home Health Care, Inc. N/A N/A N/A

7/29/14 Greystone Healthcare Management Corp. Amity Hospice, LLC N/A N/A N/A

7/28/14 Active Home Care Holland Health, Inc. N/A N/A N/A

7/3/14 Graham Holdings Company Residential Home Health, LLC N/A N/A N/A





Home Health

Almost Family Inc. AFAM $27.17 80.0% $306 0.7x 10.8x 0.6x 8.8x

Amedisys, Inc. AMED $20.17 89.3% $803 0.7x 18.3x 0.7x 11.0x

Gentiva Health Services, Inc. GTIV $16.78 88.6% $1,686 0.8x 8.0x 0.8x 8.5x

LHC Group, Inc. LHCG $23.20 89.2% $471 0.7x 9.1x 0.6x 7.8x

Addus HomeCare Corporation ADUS $19.60 60.5% $196 0.7x 10.3x 0.6x 7.8x

Average 0.7x 11.3x 0.7x 8.8x

Median 0.7x 10.3x 0.6x 8.5x

Hospice

Chemed Corporation CHE $102.90 95.8% $2,000 1.4x 10.1x 1.3x 9.4x




LTM NTM

70%

90%

110%

130%

150%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Home Health Hospice

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x

20.0x

(20.0%) (10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%

AFAM

AMED

GTIV

LHCG

ADUS

CHE

Healthcare Facilities Sector Overview


Healthcare Facilities Index Stock Price Performance

Select Healthcare Facilities M&A Transactions for 3Q14

LTM EBITDA Multiple Compared with LTM Revenue Growth

11



Announced Enterprise LTM


Hospital Management

9/11/14 Advocate Health Care, Inc. NorthShore University HealthSystem N/A N/A N/A

9/10/14 Hackensack University Medical Center Palisades Medical Center, Inc. N/A N/A N/A

7/22/14 Tenet Healthcare Corp; Dignity Health Carondelet Health Network N/A N/A N/A

7/4/14 Tenet Healthcare Corp. Saint Mary's Health System Inc. N/A N/A N/A

Behavioral Facilities

9/30/14 St. Andrews Acquisitions, Inc. Integrated Development Services, Inc. N/A N/A N/A

9/15/14 Decision Point Center, Inc. Carleton Recovery Center, L.L.C. N/A N/A N/A

9/11/14 Elements Behavioral Health, Inc. Copac, Inc N/A N/A N/A

8/8/14 Summit Behavioral Healthcare, LLC Victory Addiction Recovery Center, LLC N/A N/A N/A

7/16/14 MedMark Services, Inc. Tejas Recovery and Counseling Services, Inc. N/A N/A N/A

Rehabilitation

9/1/14 Prestige Care, Inc. Oakwood Country Place and Liberty Country Place N/A N/A N/A

8/5/14 Urgent Care Specialists, LLC StepUp Rehab N/A N/A N/A





Hospital Management

Community Health Systems, Inc. CYH $54.79 94.9% $23,012 1.2x 11.1x 1.1x 7.9x

HCA Holdings, Inc. HCA $70.52 95.4% $60,936 1.7x 9.5x 1.6x 9.2x

Lifepoint Hospitals, Inc. LPNT $69.19 90.4% $5,099 1.3x 9.4x 1.1x 8.8x

Tenet Healthcare Corp. THC $59.39 93.4% $17,052 1.1x 10.6x 1.0x 8.5x

Universal Health Services, Inc. UHS $104.50 90.4% $13,975 1.8x 10.6x 1.6x 9.0x

Average 1.4x 10.3x 1.3x 8.7x

Median 1.3x 10.6x 1.1x 8.8x

Psychiatric Facilities

Acadia Healthcare Company, Inc. ACHC $48.50 90.0% $3,206 3.0x 14.8x 2.7x 12.6x

Rehabilitation

HealthSouth Corporation HLS $36.90 87.0% $4,778 2.1x 8.8x 1.9x 7.8x

Kindred Healthcare, Inc. KND $19.40 72.4% $2,659 0.5x 9.4x 0.5x 8.6x

Select Medical Holdings Corporation SEM $12.03 74.4% $3,201 1.1x 9.0x 1.0x 8.3x

US Physical Therapy, Inc. USPH $35.39 95.0% $467 1.7x 10.9x 1.5x 10.3x


Median 1.4x 9.2x 1.3x 8.4x




LTM NTM

90%

110%

130%

150%

170%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Hospital Management

Psychiatric Facilities Rehabilitation

0.0x

5.0x

10.0x

15.0x

20.0x

(10.0%) 0.0% 10.0% 20.0% 30.0%

HCA

ACHC

CYH

LPNT

THC

UHS

KND

HLS

SEM

USPH

Laboratory Services Sector Overview


Laboratory Services Index Stock Price Performance

Select Laboratory Services M&A Transactions for 3Q14 LTM EBITDA Multiple Compared with LTM Revenue Growth

12





9/24/14 Laboratory Corp. of America Holdings LipoScience, Inc. $58.3 1.3x N/A

9/22/14 Aurora Diagnostics Holdings, LLC Richard Bernert, PLLC N/A N/A N/A

8/1/14 Nordson Medical Corporation Avalon Laboratories, LLC 180.0 N/A N/A

7/8/14 Neogenomics Inc. Path Logic, Inc. 29.1 3.0x N/A





Bio-References Laboratories, Inc. BRLI $28.06 73.9% $823 1.0x 8.4x 0.9x 7.0x

Laboratory Corp. of America Holdings LH $101.75 93.5% $11,266 1.9x 9.6x 1.9x 9.2x

Quest Diagnostics Incorporated DGX $60.68 94.3% $12,643 1.8x 9.0x 1.7x 8.3x


Median 1.8x 9.0x 1.7x 8.3x




LTM NTM

80%

90%

100%

110%

120%

130%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Laboratory Services

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

(10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0%

BRLI

LH

DGX

Outpatient Facilities Sector Overview


Outpatient Facilities Index Stock Price Performance

LTM EBITDA Multiple Compared with LTM Revenue Growth Select Outpatient Facilities M&A Transactions for 3Q14

13





Ambulatory Surgery Centers and Other Outpatient Facilities

9/8/14 Physicians Realty L.P. Berger Medical Center, An Ambulatory Surgery

Center and Two Medical Office Buildings

$50.3 N/A N/A

7/18/14 Surgical Care Affiliates, Inc. Sheridan Healthcare, Inc. N/A N/A N/A

7/1/14 Macon Orthopaedic and Hand Center, P.A. Forsyth Street Orthopaedics Surgery And

Rehabilitation Centre PC

N/A N/A N/A

Diagnostic Imaging

8/29/14 BC Technical, Inc. Polaris Medical Imaging N/A N/A N/A

8/1/14 OU Medical Center OU Medical Center Breast Imaging of Oklahoma N/A N/A N/A

7/18/14 RadNet, Inc. HealthCare Partners, LLC, Imaging Assets in Eight

Southern California Offices

N/A N/A N/A

Other

9/29/14 Civitas Solutions, Inc. Mass Adult Day Health Alliance N/A N/A N/A

9/2/14 Advanced Dermatology & Cosmetic Surgery

Inc.

Fort Collins Skin Clinic, P.C. N/A N/A N/A

8/20/14 California Pain Network Advanced Pain Management N/A N/A N/A

7/22/14 Integrated Dermatology Group Integrated Dermatology of Groton, LLC N/A N/A N/A

7/14/14 St. Jude Medical Inc. NeuroTherm, Inc. 200.0 N/A N/A





Ambulatory Surgical Center

AmSurg Corp. AMSG $45.57 86.3% $2,727 2.5x 14.2x 1.2x 7.1x

Surgical Care Affiliates, Inc. SCAI $26.73 70.9% $1,644 2.0x 18.1x 1.9x 13.7x

Average 2.2x 16.1x 1.5x 10.4xMedian 2.2x 16.1x 1.5x 10.4x

Diagnostic Imaging

Alliance Healthcare Services, Inc. AIQ $22.61 63.9% $716 1.6x 5.9x N/A N/A

RadNet, Inc. RDNT $6.62 81.5% $901 1.2x 8.2x 1.2x 7.2x


Dialysis

DaVita, Inc. DVA $73.14 97.2% $23,387 1.9x 10.0x 1.8x 10.0x

Fresenius Medical Care AG & Co. FMS $55.02 99.5% $25,178 1.7x 9.4x 1.5x 8.2x



Note 2: Stock price as of 9/30/2014 close and LTM financial results for Q2 2014. Stock price for AmSurg Corp. as of 6/30/2014.


LTM NTM

70%

90%

110%

130%

150%

170%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Ambulatory Surgical Center

Diagnostic Imaging Dialysis

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

(10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0%

AMSG

SCAI

AIQ

DVA

FMS

RDNT

Population Health Management Sector Overview


Population Health Index Stock Price Performance

Population Health M&A Transactions for 3Q14 LTM EBITDA Multiple Compared with LTM Revenue Growth

14





8/29/14 Best Doctors, Inc. Rise Health, Inc. N/A N/A N/A

7/29/14 PopHealthCare L.L.C. Educerus Health, LLC N/A N/A N/A





Alere Inc. ALR $38.78 90.2% $7,249 2.4x 12.8x 2.4x 13.1x

Healthways Inc. HWAY $16.02 85.5% $821 1.2x 12.4x 1.1x 9.0x

Magellan Health Services Inc. MGLN $54.73 85.8% $1,413 0.4x 6.0x 0.3x 5.0x

WebMD WBMD $41.81 78.4% $1,814 3.3x 13.1x 3.0x 10.5x

Average 1.8x 11.1x 1.7x 9.4x

Median 1.8x 12.6x 1.7x 9.7x




LTM NTM

90%

100%

110%

120%

130%

140%

9/30/2013 12/31/2013 3/31/2014 6/30/2014 9/30/2014

NASDAQ S&P 500 Population Health Mgmt.

0.0x

5.0x

10.0x

15.0x

20.0x

(5.0%) 0.0% 5.0% 10.0% 15.0% 20.0%

HWAY

MGLN

WBMD

ALR

Growth Equity

Equity Investment Led by

Brentwood Capital Advisors Healthcare Overview

Representative Healthcare Transactions

Transaction Expertise

• Sell-Side M&A Advisory

• Buy-Side M&A Advisory

• Recapitalizations

• Fairness Opinions

• Growth Equity

• Senior Debt

• Subordinated Debt

• PE-Sponsored Transactions

Industry Focus

• Healthcare

• Information Technology

• Business Services

• Technology-enables and Outsourced Services

• Financial Technology & Services

• Application Software

• Medical Devices, Specialty Pharma & Contract Research Organizations

Transaction Activity

• 66 transactions with aggregate value of approximately $4.2 billion, since 2002.

• 50 M&A and equity raising assignments with aggregate volume of $3.5 billion, since 2002.

• 16 debt raises representing approximately $700 million in capital, since 2002.

• Average enterprise value per healthcare M&A transaction of approximately $90 million, since 2002.

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ss:

The Best Deal. Done.

Recapitalization Led By

Recapitalization


Recapitalization

Equity Investment Led By

$232,000,000

&

Recapitalization

Recapitalization


$25,000,000

Senior Debt Placement

Led by

Senior Debt

Buy Side

Acquired

$113,000,000

Equity Investment by

Growth Equity

Growth Equity

Equity Investment Led by

Recapitalization

Senior Debt Placement Led By

Debt Raise

$14,000,000

Recapitalization

Recapitalization Led by

$13,300,000

Growth Equity

Equity Investment Led By

&

Sell-Side Advisory to

Sell-Side

15

Sell-Side

Sell-Side Advisory Led by

Sell-Side

Sell-Side Advisory Led by


Sell-Side

Recapitalization

Senior Debt Placement Led By

Debt Raise

$75,000,000

&

Sell-Side


Recapitalization

Recapitalization


Recapitalization Led by

Recapitalization

http://www.bairdcapital.com/bairdcapital/default.aspx

http://www.mhainc.com/default.aspx

Brentwood Capital Advisors LLC Phone: (615) 224-3830 5000 Meridian Blvd, Suite 350, Franklin, TN 37067 www.brentwoodcapital.com

Member of FINRA and SIPC

Quarterly Healthcare Market Report - Brentwood Capital · 2015-11-12 · Quarterly Healthcare...

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