Quarterly Healthcare Market Report - Brentwood 2015-11-12¢  Quarterly Healthcare Market...

download Quarterly Healthcare Market Report - Brentwood 2015-11-12¢  Quarterly Healthcare Market Report 2Q14

of 17

  • date post

    28-Jun-2020
  • Category

    Documents

  • view

    1
  • download

    0

Embed Size (px)

Transcript of Quarterly Healthcare Market Report - Brentwood 2015-11-12¢  Quarterly Healthcare Market...

  • Quarterly Healthcare Market Report 2Q14 & 3Q14

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

  • 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

    To tal Tran

    sactio n

    V alu

    e ($

    in b

    illio n

    s)

    Tr an

    sa ct

    io n

    V o

    lu m

    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%

    Oct 2013

    Nov 2013

    Dec 2013

    Jan 2014

    Feb 2014

    Mar 2014

    Apr 2014

    May 2014

    Jun 2014

    Jul 2014

    Aug 2014

    Sep 2014

    Oct 2014

    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%

    Ja n

    A p

    r

    Ju l

    O ct

    Ja n

    A p

    r

    Ju l

    O ct

    Ja n

    A p

    r

    Ju l

    O ct

    Ja n

    A p

    r

    Ju l

    O ct

    Ja n

    A p

    r

    Ju l

    O ct

    Ja n

    A p

    r

    Ju l

    O ct

    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

    Ja n

    M ar

    M ay Ju

    l

    Se p

    N o

    v

    Ja n

    M ar

    M ay Ju

    l

    Se p

    N o

    v

    Ja n

    M ar

    M ay Ju

    l

    Se p

    t

    N o

    v

    Ja n

    M ar

    M ay Ju

    l

    Se p

    N o

    v

    2011 2012 2013 2014

    (i n

    t h

    o u

    sa n

    d s)

    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 Tran sactio

    n s(

    $ in

    b ill