Healthcare Products & Services Industry Update Q2 2017
Q2 M&A TRANSACTION SUMMARY Q2 Deal Volume (1) Healthcare Products & Services M&A decreased slightly following increased transaction activity in Q1 2017 The Healthcare Staffing sector was the most active M&A segment of the Healthcare Products & Services universe 300 Durable Medical Equipment, 28 200 173 172 155 179 174 Clinical Laboratories, 3 Healthcare Staffing, 33 Emergency Services, 21 100 Surgicenters/Rehabilitation, 3 Contract Pharma Manufacturing, 4 Home Care/Hospice, 7 Acute-Care Hospitals, 18 Medical Devices and Products, 16 0 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Physician Practice Management, 8 Medical/Surgical/Dental Supplies, 9 Assisted Living/Long- Term Care Facilities, 11 Life Sciences Tools, 13 Q2 2017 total Healthcare Products & Services M&A transaction volume was 174, representing a 0.6% increase over Q2 2016 Footnote: (1) Defined as U.S. or Canadian targets that fall within our core Healthcare Products & Services coverage sectors or transactions completed by companies in BlackArch s public company coverage universe 2
NOTABLE M&A TRANSACTIONS MultiCare Health System, Inc. acquired Spokane Washington Hospital Company, LLC from Community Health Systems, Inc. for $425 million on June 30, 2017. Ashland LLC acquired Pharmachem Laboratories, Inc. for $660 million on May 17, 2017. This valuation implies a 10.5x EBITDA multiple. Spokane Washington Hospital Company June 2017 Spokane Washington Hospital Company, LLC is an acute care hospital in Spokane. May 2017 Pharmachem Laboratories, Inc. manufactures and distributes custom and branded nutritional and nutraceutical ingredients to natural and nutritionals, food and beverages, flavors and fragrances industries worldwide. Varex Imaging Corporation acquired the Medical Imaging business of PerkinElmer, Inc. from PerkinElmer Holdings, Inc. and other investors for $276 million on May 1, 2017. Allergan acquired ZELTIQ Aesthetics, Inc. from Aisling Capital LLC and other investors for $2.5 billion on April 28, 2017. This valuation implies a 7.4x revenue multiple. Medical Imaging Business of PerkinElmer May 2017 The acquired business develops, manufactures and sells digital detectors that are key components in medical and industrial X-ray imaging systems made by global OEM manufacturers. April 2017 ZELTIQ Aesthetics, Inc. is a medical technology company that develops non-invasive products for the selective reduction of fat. WellCare Health Plans, Inc. acquired Universal American Corp. from Deerfield Management Company and other investors for $600 million on April 28, 2017. Sartorius Aktiengesellschaft acquired Essen BioScience Inc. from SFW Capital Partners for $320 million on April 3, 2017. April 2017 Universal American Corp. provides health benefits to people covered by Medicare in the United States. April 2017 Essen BioScience Inc. develops and manufactures instruments, software, reagents and consumables for life science researchers worldwide. 3
HEALTHCARE PRODUCTS & SERVICES PERFORMANCE INDEX Public Company Trading Multiple Trend Analysis Y-o-Y Q-o-Q 12-Month Change (%) 60 Y-o-Y Q-o-Q Specialty Pharmacy Management Information Services 40 Surgicenters / Rehabilitation 20 Assisted Living / Long-Term Care Facilities 0 Home Care / Hospice Acute-Care Hospitals Clinical Laboratories Life Sciences Tools Medical / Surgical / Dental Supplies -18-8 Physician 2 12 22 Practice ManagementHealthcare Staffing Dialysis Services Dental Products -20 Psychiatric Hospitals / Management Contract Research Organizations Contract Pharma Manufacturing Durable Medical Equipment 3-Month Change (%) -40 Medical Devices and Products Diagnostic Imaging Centers -60 Y-o-Y Q-o-Q Y-o-Y Q-o-Q Note: Size of each data point corresponds to the relative size of each sub-sector s trading multiple 4
PUBLIC COMPANY TRADING MULTIPLE SNAPSHOT As of June 30, 2017 Sub-sector Median TEV/EBITDA Multiple Clinical Laboratories 12.2x Diagnostic Imaging Centers 8.4x Dialysis Services 9.8x Disease Management 15.4x Emergency Services NM 0.0x Information Services 17.2x Physician Practice Management 11.8x Specialty Pharmacy Management 8.3x Home Care / Hospice 15.0x Surgicenters / Rehabilitation 12.6x 5
PUBLIC COMPANY TRADING MULTIPLE SNAPSHOT As of June 30, 2017 Sub-sector Median TEV/EBITDA Multiple Assisted Living / Long-Term Care Facilities Psychiatric Hospitals / Management Acute-Care Hospitals 9.2x 9.2x 10.3x Healthcare Staffing 12.9x Medical Devices and Products Durable Medical Equipment 15.0x 16.0x Dental Products 17.6x Medical / Surgical / Dental Supplies 10.7x Contract Pharma Manufacturing 16.6x Contract Research Organizations 13.9x Life Sciences Tools 19.0x 6
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Outsourced Clinical Services Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Clinical Laboratories Laboratory Corporation of America Holdings $154.14 $154.82 $119.51 $15,769 $21,340 $9,667 $1,859 19.2% 18.2% 2.2x 11.5x Quest Diagnostics Incorporated 111.16 111.87 79.12 15,210 18,773 7,588 1,444 19.0% 1.8% 2.5x 13.0x Median 19.1% 10.0% 2.3x 12.2x Diagnostic Imaging Centers RadNet, Inc. $7.75 $7.98 $5.25 $366 $997 $909 $118 13.0% 9.0% 1.1x 8.4x Alternative Investment Trust 0.06 0.10 0.06 8 5 (1) 0 0.0% NA NM NM Median 6.5% 9.0% 1.1x 8.4x Dialysis Services Fresenius Medical Care AG & Co. $96.44 $101.62 $80.80 $29,539 $39,460 $19,570 $3,572 18.3% 8.8% 2.0x 11.0x DaVita Inc. 64.76 78.77 54.50 12,602 21,086 15,014 2,448 16.3% 7.0% 1.4x 8.6x Median 17.3% 7.9% 1.7x 9.8x Disease Management Alere Inc. $50.19 $50.32 $31.47 $4,385 $7,339 $651 NA NA 25.2% 11.3x NM Tivity Health, Inc. 0.00 NA NA 1,562 1,768 530 115 21.7% (8.6%) 3.3x 15.4x Median 21.7% 8.3% 7.3x 15.4x Emergency Services Air Methods Corporation $0.00 NA NA NA NA $1,170 $286 24.5% 10.0% NM NM Median 24.5% 10.0% NM NM Sub-Sector Median 11.3x Enterprise Management Information Services Cerner Corporation $66.47 $69.28 $47.01 $21,964 $21,982 $4,827 $1,351 28.0% 18.0% 4.6x 16.3x athenahealth, Inc. 140.55 149.55 90.11 5,599 5,784 1,151 128 11.1% 19.7% 5.0x NM Allscripts Healthcare Solutions, Inc. 12.76 15.17 9.80 2,315 3,979 1,657 160 9.7% 6.5% 2.4x 24.9x WebMD Health Corp. -- NA NA 2,128 2,139 709 185 26.0% 8.7% 3.0x 11.6x Omnicell, Inc. 43.10 44.60 30.35 1,602 1,770 680 43 6.3% 18.7% 2.6x NM HMS Holdings Corp. 18.50 24.00 15.94 1,552 1,582 495 93 18.7% 2.0% 3.2x 17.0x Quality Systems, Inc. 17.21 17.55 10.61 1,079 1,057 518 61 11.8% 4.6% 2.0x 17.3x Computer Programs and Systems, Inc. 32.80 42.02 18.25 444 588 261 29 10.9% 8.7% 2.3x 20.6x Median 11.5% 8.7% 2.8x 17.2x Physician Practice Management MEDNAX, Inc. $60.37 $76.96 $53.80 $5,558 $7,408 $3,337 $628 18.8% 13.5% 2.2x 11.8x Median 18.8% 13.5% 2.2x 11.8x Specialty Pharmacy Management Express Scripts Holding Company $63.84 $80.02 $57.80 $37,891 $50,261 $100,276 $7,160 7.1% (0.1%) 0.5x 7.0x PharMerica Corporation 26.25 28.72 19.20 816 1,267 2,206 133 6.0% 7.2% 0.6x 9.5x BioScrip, Inc. 2.72 3.43 0.98 346 877 901 25 2.8% 1.3% 1.0x NM Median 6.0% 1.3% 0.6x 8.3x Sub-Sector Median 16.3x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 7
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Specialized Services Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Home Care / Hospice Chemed Corporation $204.53 $216.01 $130.05 $3,289 $3,389 $1,617 $227 14.0% 4.7% 2.1x 15.0x Amedisys, Inc. 62.81 65.91 34.58 2,118 2,163 1,455 106 7.3% 6.9% 1.5x 20.5x LHC Group, Inc. 67.89 69.35 32.04 1,241 1,332 962 92 9.6% 12.9% 1.4x 14.5x Almost Family, Inc. 61.65 62.95 35.21 859 1,010 716 40 5.6% 18.5% 1.4x 25.0x Addus HomeCare Corporation 37.20 40.75 17.35 428 433 411 33 8.1% 12.9% 1.1x 13.0x Median 8.1% 12.9% 1.4x 15.0x Surgicenters / Rehabilitation Envision Healthcare Corporation $62.67 $81.34 $53.12 $7,275 $13,722 $6,038 $983 16.3% 77.6% 2.3x 14.0x HealthSouth Corporation 48.40 49.71 36.97 4,333 7,578 3,773 817 21.7% 17.9% 2.0x 9.3x Select Medical Holdings Corporation 15.35 15.60 10.08 2,038 5,342 4,258 475 11.2% 12.8% 1.3x 11.3x U.S. Physical Therapy, Inc. 60.40 78.00 51.96 760 880 377 60 16.0% 10.7% 2.3x 14.6x Median 16.1% 15.4% 2.1x 12.6x Assisted Living / Long-Term Care Facilities Brookdale Senior Living Inc. $14.71 $18.62 $10.65 $2,739 $7,847 $4,078 $759 18.6% 16.1% 1.9x 10.3x Kindred Healthcare, Inc. 11.65 12.55 5.65 998 4,359 7,081 471 6.6% 13.4% 0.6x 9.3x Capital Senior Living Corporation 15.21 19.92 12.65 441 1,442 458 78 17.0% 8.8% 3.1x 18.5x The Ensign Group, Inc. 21.77 23.18 16.51 1,104 1,334 1,751 122 7.0% 22.4% 0.8x 11.0x National HealthCare Corporation 70.14 78.99 62.58 1,066 1,033 948 102 10.7% 4.5% 1.1x 10.2x Five Star Senior Living Inc. 1.50 3.04 1.45 75 107 1,130 13 1.2% 1.0% 0.1x 8.1x Median 8.8% 11.1% 0.9x 10.3x Psychiatric Hospitals / Management Universal Health Services, Inc. $122.08 $138.77 $99.72 $11,804 $15,715 $10,111 $1,711 16.9% 9.9% 1.6x 9.2x Magellan Health, Inc. 72.90 84.71 49.50 1,729 2,083 5,280 243 4.6% 12.2% 0.4x 8.6x The Providence Service Corporation 50.61 51.06 34.89 682 677 1,606 68 4.2% 16.6% 0.4x 9.9x Median 4.6% 12.2% 0.4x 9.2x Acute-Care Hospitals HCA Healthcare, Inc. $87.20 $91.03 $67.00 $31,994 $64,373 $42,267 $8,203 19.4% 6.1% 1.5x 7.8x Tenet Healthcare Corp. 19.34 31.84 14.06 1,944 19,684 19,324 2,074 10.7% 10.7% 1.0x 9.5x Community Health Systems, Inc. 9.96 13.59 4.15 1,113 16,815 17,478 1,780 10.2% 4.5% 1.0x 9.4x Universal Health Services, Inc. 122.08 138.77 99.72 11,804 15,715 10,111 1,711 16.9% 9.9% 1.6x 9.2x LifePoint Health, Inc. 67.15 70.95 50.60 2,711 5,660 6,416 760 11.9% 18.0% 0.9x 7.4x Median 11.9% 9.9% 1.0x 9.2x Healthcare Staffing On Assignment, Inc. $54.15 $55.15 $32.05 $2,860 $3,453 $2,530 $263 10.4% 14.5% 1.4x 13.1x Cross Country Healthcare, Inc. 12.91 16.38 10.54 470 494 854 39 4.5% 23.1% 0.6x 12.7x Alta Natural Herbs & Supplements Ltd. 0.03 0.05 0.02 1 1 1 (0) (5.3%) 27.9% 1.2x NM Median 4.5% 23.1% 1.2x 12.9x Sub-Sector Median 10.3x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 8
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Equipment and Supplies Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Medical Devices and Products Johnson & Johnson $132.29 $137.00 $109.32 $356,367 $349,731 $72,174 $25,120 34.8% 0.2% 4.8x 13.9x Medtronic plc 88.75 89.72 69.35 120,614 140,480 29,710 9,217 31.0% 20.7% 4.7x 15.2x Abbott Laboratories 48.61 49.59 37.38 84,351 99,742 23,607 5,140 21.8% 6.3% 4.2x 19.4x Thermo Fisher Scientific Inc. 174.47 176.92 139.07 68,256 84,729 18,744 4,686 25.0% 10.7% 4.5x 18.1x Stryker Corporation 138.78 145.62 106.48 51,871 55,764 11,957 3,285 27.5% 8.8% 4.7x 17.0x Boston Scientific Corporation 27.72 28.51 19.67 37,960 43,318 8,714 2,312 26.5% 6.8% 5.0x 18.7x Intuitive Surgical, Inc. 935.37 963.54 610.71 34,460 32,995 2,870 1,082 37.7% 12.2% 11.5x 30.5x Baxter International Inc. 60.54 61.52 43.13 32,914 32,832 10,283 2,227 21.7% (8.1%) 3.2x 14.7x C. R. Bard, Inc. 316.11 316.95 203.63 22,954 23,815 3,828 1,185 31.0% 6.4% 6.2x 20.1x Hologic, Inc. 45.38 46.80 33.67 12,707 14,872 2,894 1,012 35.0% 5.4% 5.1x 14.7x Varian Medical Systems, Inc. 103.19 106.70 76.94 9,485 9,330 3,273 643 19.6% 2.9% 2.9x 14.5x Arabtec Holding PJSC 0.78 1.76 0.74 1,172 1,592 2,244 (414) (18.4%) 9.6% 0.7x NM Hanger, Inc. 11.90 15.15 7.20 419 937 1,012 70 6.9% 3.7% 0.9x 13.5x Hargreaves Services Plc 4.37 4.53 2.30 140 188 443 19 4.2% (26.7%) 0.4x 10.1x Zemach Hammerman Ltd. 3.32 4.33 3.18 60 104 134 12 8.8% 44.6% 0.8x 8.9x Median 25.0% # 6.4% 4.5x 15.0x Durable Medical Equipment ResMed Inc. $77.87 $79.44 $56.59 $11,043 $11,385 $2,067 $569 27.5% 9.9% 5.5x 20.0x Steris Plc 81.50 83.54 63.80 6,929 8,136 2,582 521 20.2% 15.9% 3.2x 15.6x Hill-Rom Holdings, Inc. 79.61 81.33 49.42 5,236 7,427 2,711 465 17.2% 18.1% 2.7x 16.0x Invacare Corporation 13.20 16.65 8.00 433 505 980 (14) (1.4%) (9.0%) 0.5x NM Median 18.7% 12.9% 2.9x 16.0x Dental Products 3M Company $208.19 $214.57 $163.85 $124,339 $133,790 $30,533 $8,531 27.9% (1.0%) 4.4x 15.7x DENTSPLY SIRONA Inc. 64.84 65.68 55.00 14,863 16,063 3,844 824 21.4% 9.2% 4.2x 19.5x Median 24.7% 4.1% 4.3x 17.6x Medical / Surgical / Dental Supplies McKesson Corporation $164.54 $199.43 $114.53 $34,793 $42,060 $199,851 $3,943 2.0% 10.4% 0.2x 10.7x Cardinal Health, Inc. 77.92 85.52 62.70 24,613 28,842 129,976 3,069 2.4% 12.6% 0.2x 9.4x AmerisourceBergen Corporation 94.53 97.85 68.38 20,642 22,693 151,584 2,426 1.6% 10.5% 0.1x 9.4x Henry Schein, Inc. 91.51 93.50 73.12 14,519 16,582 11,782 1,005 8.5% 6.7% 1.4x 16.5x Varian Medical Systems, Inc. 103.19 106.70 76.94 9,485 9,330 3,273 643 19.6% 2.9% 2.9x 14.5x Patterson Companies, Inc. 46.95 50.05 36.46 4,446 5,425 5,593 408 7.3% 16.0% 1.0x 13.3x Owens & Minor, Inc. 32.19 38.28 30.43 1,970 2,407 9,378 230 2.5% 0.8% 0.3x 10.5x Median 2.5% 10.4% 0.3x 10.7x Sub-Sector Median 15.0x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 9
COMPARABLE PUBLIC COMPANY ANALYSIS ($ in Millions Except Per Share Amounts) Pharmaceutical and Life Sciences Market Data LTM Financial and Performance Data (1) Valuation Multiples Price 52-Week Equity EBITDA 3 Yr. Revenue TEV/LTM: Company 6/30/2017 High Low Value TEV (2) Revenue EBITDA Margin CAGR % Revenue EBITDA Contract Pharma Manufacturing West Pharmaceutical Services, Inc. $94.52 $99.91 $70.17 $6,952 $7,012 $1,544 $318 20.6% 3.3% 4.5x 22.1x Cambrex Corporation 59.75 62.95 38.30 1,946 1,847 515 167 32.4% 14.4% 3.6x 11.0x Median 26.5% 8.8% 4.1x 16.6x Contract Research Organizations Charles River Laboratories International $101.15 $102.32 $67.20 $4,819 $5,898 $1,772 $424 23.9% 14.7% 3.3x 13.9x ICON Public Limited Company 97.79 100.87 69.05 5,259 5,288 1,718 394 22.9% 6.8% 3.1x 13.4x PAREXEL International Corporation 86.91 87.50 51.16 4,437 4,852 2,118 340 16.1% 3.0% 2.3x 14.3x Albany Molecular Research, Inc. -- NA NA 923 1,529 681 73 10.8% 38.7% 2.2x 20.9x Medpace Holdings, Inc. 29.00 38.94 21.76 1,182 1,341 379 110 29.1% 0.0% 3.5x 12.2x Median 22.9% 6.8% 3.1x 13.9x Life Sciences Tools Becton, Dickinson and Company $195.11 $196.59 $161.29 $44,359 $54,106 $12,158 $3,190 26.2% 13.4% 4.5x 17.0x Agilent Technologies, Inc. 59.31 61.15 42.92 19,059 18,716 4,324 983 22.7% (6.9%) 4.3x 19.0x PerkinElmer, Inc. 68.14 68.91 45.35 7,498 8,265 2,132 410 19.2% (0.8%) 3.9x 20.2x Median 22.7% (0.8%) 4.3x 19.0x Sub-Sector Median 15.6x Footnotes: (1) LTM refers to the most recent twelve-month period for which data was available (2) Total enterprise value equals equity value plus minority interest, preferred stock and net debt; net debt equals total debt less cash and cash equivalents 10
HEALTHCARE PRODUCTS & SERVICES COVERAGE TEAM Kelly Katterhagen Managing Director Office: (704) 414-6304 Mobile: (704) 607-2048 Katterhagen@ BlackArchPartners.com Founder of BlackArch Partners and head of Healthcare Products & Services practice Completed over 60 middle-market M&A transactions and multi-year advisory engagements President of IOA Corp. advised privatelyheld businesses on equity maximization and liquidity planning Director at Bowles Hollowell Conner & Co. Officer at J.P. Morgan & Co. Ryan Jackson Vice President Office: (704) 414-6339 Mobile: (704) 650-6298 Jackson@ BlackArchPartners.com BlackArch Partners, Vice President Concentric Equity Partners, Associate Morgan Joseph & Co., Analyst M.B.A. from The University of Chicago Booth School of Business, with honors B.S. from University of North Carolina, with distinction M.B.A. from Harvard Business School and B.A. from Colgate University, magna cum laude BlackArch Partners, Associate M&T Bank, Officer LifeNet International, Co-Founder JOHNNY CONKLIN JULIE NEVELEFF CNL Financial Group Managing Director Analyst Jonathan O Connor Associate Office: (704) 414-6322 Mobile: (407) 443-7087 OConnor@ BlackArchPartners.com M.B.A. from University of Virginia s Darden School of Business B.S. in Finance from Southeastern University Office: (704) 414-6316 Mobile: (704) 930-8311 Conklin@BlackArchPartners.com Office: (704) 414-6348 Mobile: (301) 257-3090 Neveleff@BlackArchPartners.com 11