Healthcare

PCE Industry Update
Healthcare
2nd Quarter 2014
Insights on Healthcare Industry Trends – Q2 2014
Global M&A deals across all industries exceeded $1.0 trillion during the second quarter of 2014, the highest level since 2007, according to
Thompson Reuters. Corporations and private equity groups, sitting on stockpiles of cash coupled with the ability to borrow at record low
rates, are driving the acquisition spree. The healthcare industry appears to be riding the coattails of the market activity. Through the first
half of 2014 the healthcare sectors tracked by the “PCE Industry Update – Healthcare” reported that 729 M&A transaction deals were
announced or closed compared to only 631 in the same period 2013.
Equipment & Supplies – Manufacturing & Distribution
Pharmaceuticals, Biotechnology & Life Sciences
The 106 merger and acquisition transaction volume among
manufacturers and distributors of medical equipment & supplies
for the first half of 2014 is relatively flat compared to the first
half of 2013. However, the median total enterprise value for
public companies in this sector, when measured as a multiple of
EBITDA (“TEV/EBITDA”), has continued an upward trend.
As of 6-30-2014 the median value had risen to 13.2x.
The publicly held companies in this sector have continued to
generate a negative to flat trend in operating margin results. In
spite of these lack luster margin results, the public markets have
continued to drive valuations upward for this segment of the
healthcare industry.
Facilities
Services & E-Health Tech
Merger and acquisition transaction activity of 191 is relatively flat
for the first half of 2014 as compared to the same period in 2013.
Despite the flat volume in transactions, multiples among publicly
held hospitals, urgent care centers, skilled nursing homes and
other facilities had increased by nearly two turn upward in value
over the past year. As of 6-30-2014 the median value as
measured by TEV/EBITDA had risen to 10.2X.
The sectors that support the healthcare industry with services and
operational technology continues to attract the greatest number
of M&A transactions. Through the first half of 2014, these
sectors’ 296 deals represents over 40% of all healthcare
transactions. Tracking this upward trend in transaction activity,
valuations among public companies have increased during the
same period.
Healthcare - For the Quarter Ended 06/30/14
Transaction Volume as % of Industry
Industry Trends During Quarter
Sector
Transaction Volume
TEV/ Revenue
TEV/EBITDA
Equipment & Supplies Manufacturing &
Distribution
Facilities
14%
Equipment & Supplies Manufacturing & Distribution
41%
Facilities
26%
Pharmaceuticals, Biotechnology &
Life Sciences
15%
38%
Pharmaceuticals,
Biotechnology & Life
Sciences
Services & E-Health
Technology
29%
19%
19%
Quarter
Services & E-Health Technology
Rolling 12-Month
* Based on transactions with reported financial data only; historically ~ 30% to 40% of transactions report financial data
Largest Transactions Announced or Closed During Quarter by Transaction Value
Rolling 12-Month Transaction Volume Trends by Buyer Origin
1,600
1,400
177
157
1,200
1,000
171
154
166
800
1,228
600
400
1,144
953
1,321
1,243
200
6/30/2010
6/30/2011
6/30/2012
# of United States Transactions
6/30/2013
6/30/2014
# of Foreign Transactions
* Results exclude transactions that did not disclose buyer information
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
($ in millions)
Target
Equipment & Supplies Manufacturing & Distribution
Pharmaceuticals, Biotechnology &
Life Sciences
LVB Acquisition, Inc.
Idenix Pharmaceuticals Inc.
(NasdaqGS:IDIX)
Merck & Co. Inc. (NYSE:MRK)
$3,849.0
Services & E-Health Technology
Sheridan Healthcare, Inc.
AmSurg Corp. (NasdaqGS:AMSG)
$2,350.0
Services & E-Health Technology
Gentiva Health Services Inc.
(NasdaqGS:GTIV)
Kindred Healthcare Inc.
(NYSE:KND)
$1,703.8
Pharmaceuticals, Biotechnology &
Life Sciences
Furiex Pharmaceuticals, Inc.
Forest Laboratories, Inc.
$1,558.0
Services & E-Health Technology
Healogics, Inc.
Clayton, Dubilier & Rice, Inc.
$910.0
Pharmaceuticals, Biotechnology &
Life Sciences
Pharmaceuticals, Biotechnology &
Life Sciences
Equipment & Supplies Manufacturing & Distribution
Pharmaceuticals, Biotechnology &
Life Sciences
INSIGHT Pharmaceuticals, LLC
Medtech Products, Inc.
$750.0
iPierian, Inc.
Bristol-Myers Squibb Company
(NYSE:BMY)
$725.0
Ulthera, Inc.
Merz North America, Inc.
$600.0
DAVA Pharmaceuticals, Inc.
Generics International (US), Inc.
$600.0
* Detail above includes announced transactions
Buyer
Zimmer Holdings, Inc.
(NYSE:ZMH)
Transaction
Value
Sector
$13,926.1
Equipment & Supplies - Manufacturing & Distribution - For the Quarter Ended 06/30/14
0.3%
0.4%
1.0%
Summary of Sector Transactions During Quarter ($ in millions)
Transactions <$50MM
Transactions $50MM - $100MM
49
$17,265.20
$863.30
$117.50
Transaction Volume
Transaction Value*
Average Transaction Value*
Median Transaction Value*
Transactions by Value & Volume
40.0%
Transactions $100MM - $150MM
Transactions $150MM - $200MM
Transactions $200MM - $250MM
97.0%
Transactions > $250MM
*Based on transactions with reported financial data only; historically ~ 30% to 40% of transactions report
financial data.
5.0%
Private Sector Value and EBITDA Multiple Trends
Rolling 12-Month Value & Multiple Trends
20.0x
18.0x
16.0x
14.0x
40
12.0x
30
10.0x
8.0x
20
6.0x
4.0x
10
2.0x
-
0.0x
6/30/2011
LTM Median Values
6/30/2012
6/30/2013
LTM Median TEV / EBITDA
* Values and multiples may be skewed given data includes reported information only. While ~ 30% - 40% of transactions disclose values, only ~ 3% - 5%
disclose EBITDA multiples. As a result, data may be a poor indicator of overall market performance.
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2014
TEV / EBITDA
Transaction Value ($ in millions)
50
6/30/2010
5.0% 5.0%
% Transaction
Volume During
Quarter
% Transaction
Value During
Quarter
60
45.0%
Equipment & Supplies - Manufacturing & Distribution - For the Quarter Ended 06/30/14
Summary of Public Comparables as of Quarter End ($ in millions)
Market Cap
TEV
Revenue
EBITDA
EBIT
Average
$3,847
7.5x
19.0x
26.3x
Median
$474
3.0x
13.2x
17.8x
LTM 6/30/2014 Trends
TEV/Revenue
TEV/EBITDA
Gross Profit
Margins
EBITDA
EBIT
Average
49.9%
-7.1%
-11.4%
Median
51.6%
7.8%
4.6%
TEV/EBIT
LTM 6/30/2014 Trends
Gross Margin
EBITDA Margin
EBIT Margin
Valuation Trends
Margin Trends
20.0x
60.0%
18.0x
50.0%
16.0x
14.0x
40.0%
12.0x
10.0x
30.0%
8.0x
20.0%
6.0x
4.0x
10.0%
2.0x
0.0x
6/30/2010
6/30/2011
TEV/Revenue
6/30/2012
TEV/EBITDA
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2013
TEV/EBIT
6/30/2014
0.0%
6/30/2010
6/30/2011
Gross Margin
6/30/2012
EBITDA Margin
6/30/2013
EBIT Margin
6/30/2014
Facilities - For the Quarter Ended 06/30/14
Transactions by Value & Volume
Summary of Sector Transactions During Quarter ($ in millions)
Transactions <$50MM
90
$755.50
$22.90
$14.60
Transaction Volume
Transaction Value*
Average Transaction Value*
Median Transaction Value*
3.0% 3.0%
3.0%
Transactions $50MM - $100MM
24.6%
Transactions $100MM - $150MM
18.0%
50.3%
Transactions $150MM - $200MM
90.9%
Transactions $200MM - $250MM
Transactions > $250MM
*Based on transactions with reported financial data only; historically ~ 30% to 40% of transactions report
financial data.
7.1%
% Transaction
Volume During
Quarter
% Transaction
Value During
Quarter
Private Sector Value and EBITDA Multiple Trends
Rolling 12-Month Value & Multiple Trends
25
16.0x
12.0x
10.0x
15
8.0x
10
6.0x
4.0x
5
2.0x
-
0.0x
6/30/2010
6/30/2011
LTM Median Values
6/30/2012
6/30/2013
LTM Median TEV / EBITDA
* Values and multiples may be skewed given data includes reported information only. While ~ 30% - 40% of transactions disclose values, only ~ 3% - 5%
disclose EBITDA multiples. As a result, data may be a poor indicator of overall market performance.
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2014
TEV / EBITDA
Transaction Value ($ in millions)
14.0x
20
Facilities - For the Quarter Ended 06/30/14
Summary of Public Comparables as of Quarter End ($ in millions)
Market Cap
TEV
Revenue
EBITDA
EBIT
Average
$2,867
1.7x
12.4x
23.1x
Median
$1,555
1.6x
10.2x
15.8x
LTM 6/30/2014 Trends
TEV/Revenue
TEV/EBITDA
Gross Profit
Margins
EBITDA
EBIT
Average
32.2%
14.1%
9.3%
Median
34.3%
14.0%
8.1%
TEV/EBIT
LTM 6/30/2014 Trends
Gross Margin
EBITDA Margin
EBIT Margin
Valuation Trends
Margin Trends
18.0x
40.0%
16.0x
35.0%
14.0x
30.0%
12.0x
25.0%
10.0x
20.0%
8.0x
15.0%
6.0x
10.0%
4.0x
5.0%
2.0x
0.0x
6/30/2010
6/30/2011
TEV/Revenue
6/30/2012
TEV/EBITDA
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2013
TEV/EBIT
6/30/2014
0.0%
6/30/2010
6/30/2011
Gross Margin
6/30/2012
EBITDA Margin
6/30/2013
EBIT Margin
6/30/2014
Pharmaceuticals, Biotechnology & Life Sciences - For the Quarter Ended 06/30/14
0.4%
0.4% 0.1%
0.2%
Summary of Sector Transactions During Quarter ($ in millions)
40.0%
Transactions <$50MM
68
$94,052.30
$2,687.20
$110.00
Transaction Volume
Transaction Value*
Average Transaction Value*
Median Transaction Value*
Transactions by Value & Volume
42.9%
Transactions $50MM - $100MM
Transactions $100MM - $150MM
Transactions $150MM - $200MM
Transactions $200MM - $250MM
99.0%
Transactions > $250MM
*Based on transactions with reported financial data only; historically ~ 30% to 40% of transactions report
financial data.
2.9%
% Transaction
Volume During
Quarter
% Transaction
Value During
Quarter
Private Sector Value and EBITDA Multiple Trends
Rolling 12-Month Value & Multiple Trends
120
22.0x
20.0x
18.0x
16.0x
80
14.0x
12.0x
60
10.0x
8.0x
40
6.0x
4.0x
20
2.0x
-
0.0x
6/30/2011
LTM Median Values
6/30/2012
6/30/2013
LTM Median TEV / EBITDA
* Values and multiples may be skewed given data includes reported information only. While ~ 30% - 40% of transactions disclose values, only ~ 3% - 5%
disclose EBITDA multiples. As a result, data may be a poor indicator of overall market performance.
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2014
TEV / EBITDA
Transaction Value ($ in millions)
100
6/30/2010
5.7%
8.6%
Pharmaceuticals, Biotechnology & Life Sciences - For the Quarter Ended 06/30/14
Summary of Public Comparables as of Quarter End ($ in millions)
Market Cap
TEV
Revenue
EBITDA
EBIT
Average
$5,085
28.3x
32.5x
28.0x
Median
$333
9.6x
17.7x
22.2x
LTM 6/30/2014 Trends
TEV/Revenue
TEV/EBITDA
Gross Profit
Margins
EBITDA
EBIT
Average
35.1%
-39.6%
-44.1%
Median
53.9%
-7.4%
-9.4%
TEV/EBIT
LTM 6/30/2014 Trends
Gross Margin
EBITDA Margin
EBIT Margin
Valuation Trends
Margin Trends
25.0x
70.0%
60.0%
20.0x
50.0%
40.0%
15.0x
30.0%
20.0%
10.0x
10.0%
0.0%
5.0x
6/30/2010
6/30/2011
6/30/2012
6/30/2013
-10.0%
0.0x
6/30/2010
6/30/2011
TEV/Revenue
6/30/2012
TEV/EBITDA
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2013
TEV/EBIT
6/30/2014
-20.0%
Gross Margin
EBITDA Margin
EBIT Margin
6/30/2014
Services & E-Health Technology - For the Quarter Ended 06/30/14
1.9% 2.9%
4.5%
Summary of Sector Transactions During Quarter ($ in millions)
Transactions <$50MM
142
$7,423.10
$309.30
$37.10
Transaction Volume
Transaction Value*
Average Transaction Value*
Median Transaction Value*
Transactions by Value & Volume
29.2%
Transactions $50MM - $100MM
Transactions $100MM - $150MM
54.2%
Transactions $150MM - $200MM
Transactions $200MM - $250MM
90.7%
8.3%
Transactions > $250MM
*Based on transactions with reported financial data only; historically ~ 30% to 40% of transactions report
financial data.
8.3%
% Transaction
Volume During
Quarter
% Transaction
Value During
Quarter
Private Sector Value and EBITDA Multiple Trends
Rolling 12-Month Value & Multiple Trends
30
14.0x
12.0x
10.0x
20
8.0x
15
6.0x
10
4.0x
5
2.0x
-
0.0x
6/30/2010
6/30/2011
LTM Median Values
6/30/2012
6/30/2013
LTM Median TEV / EBITDA
* Values and multiples may be skewed given data includes reported information only. While ~ 30% - 40% of transactions disclose values, only ~ 3% - 5%
disclose EBITDA multiples. As a result, data may be a poor indicator of overall market performance.
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
6/30/2014
TEV / EBITDA
Transaction Value ($ in millions)
25
Services & E-Health Technology - For the Quarter Ended 06/30/14
Summary of Public Comparables as of Quarter End ($ in millions)
Market Cap
TEV
Revenue
EBITDA
EBIT
Average
$4,844
3.2x
22.4x
30.3x
Median
$628
1.6x
11.9x
15.5x
LTM 6/30/2014 Trends
TEV/Revenue
TEV/EBITDA
Gross Profit
Margins
EBITDA
EBIT
Average
37.3%
9.8%
5.1%
Median
34.3%
8.9%
6.2%
TEV/EBIT
45.0%
16.0x
40.0%
14.0x
35.0%
12.0x
30.0%
10.0x
25.0%
8.0x
20.0%
6.0x
15.0%
4.0x
10.0%
2.0x
5.0%
0.0x
TEV/Revenue
6/30/2012
TEV/EBITDA
Source: S&P Capital IQ as of 7/18/2014 and PCE Proprietary Data
EBITDA Margin
Margin Trends
18.0x
6/30/2011
Gross Margin
EBIT Margin
Valuation Trends
6/30/2010
LTM 6/30/2014 Trends
6/30/2013
TEV/EBIT
6/30/2014
0.0%
6/30/2010
6/30/2011
Gross Margin
6/30/2012
EBITDA Margin
6/30/2013
EBIT Margin
6/30/2014
Data Assumptions
David Jasmund
At PCE, we consider transaction activity as mergers & acquisitions,
consolidations, restructurings and spin-offs. Targets are defined as U.S.
based companies with either foreign or U.S. based buyers. Transaction
information provided is based on announced dates.
PCE
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Direct: 407-621-2111
Main: 407-621-2100
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Glossary
About PCE
EBIT - Earnings Before Interest and Taxes
Seventeen years ago, PCE was formed to provide professional investment banking,
business valuation and advisory services to middle market companies. We determined
from our experience as business owners that there was a need that was not being
professionally fulfilled.
EBITDA - Earnings Before Interest, Taxes, Depreciation and Amortization
LTM - Last Twelve Months
TEV - Total Enterprise Value
We understand the importance of creating a relationship and the value of trust when
providing our services. PCE’s professionals are successful business owner,
entrepreneurs, lenders, former Federal Reserve board members, CPA’s, CFA’s,
national & international valuation experts, international analysts and investors. PCE
offers senior level attention, sound advice, skilled execution and personalized attention
you can trust.
Our mission is to be the premier investment bank serving middle market companies.
PCE is committed to providing individualized strategies throughout your business lifecycle, focused on maximizing shareholder value.
PCE Holdings, Inc. is the parent of PCE Investment Bankers, Inc. – member FINRA and SIPC;
PCE Valuations, LLC; PCE Advisory, LLC

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