Quarterly Review 2015 - CCC Investment...

Healthcare Industry

Quarterly Review – Q1 2015

Contents:

M&A Trends

Public Market Valuation Metrics

Select Company Trading & Operating Metrics

Featured Transactions

North American Announcements

Canadian Banking and Private Equity Trends

Bill Rogers, ICD.DManaging Director & CEO416‐619‐[email protected]

Robert Bird, CPA, CA, CFAManaging Director416‐619‐[email protected]

Hugh NotmanManaging Director604‐689‐[email protected] June 2015

2

Q1 2015

CCC’s Healthcare specialists can help to add value to your business. Please contact Bill Rogers, Rob Bird or Hugh Notman or visit www.cccinvestmentbanking.com.

Introduction

Welcome to CCC Investment Banking’s Healthcare Industry Review covering the first quarter of 2015.

M&A Activity Levels – There were 116 announced or completed North American Healthcare transactions in thefirst quarter of 2015 which equals the average quarterly transaction volume for calendar 2014. This result isslightly above the 105 total deals announced in the previous quarter, but well below the 138 deals in Q1 2014.There were three Healthcare sectors that saw an increase in deal volume compared to the previous quarter withthe Services sector increasing by 75% followed by Technology at 12% and Distribution at 10%. Three sectorsexperienced moderate declines in volume with the Supplies sector dropping the most by 27% to eight dealsfollowed by Facilities at 9% and Equipment at 6%. Both the Facilities (10 deals) and Equipment (15 deals) sectorswitnessed their lowest quarterly total in over two years.

Overall Canadian M&A activity across all industries dropped for the third straight quarter to 258 change ofcontrol transactions in Q1 2015 which compares to Q4 2014 (267 deals), Q3 2014 (270 deals) and Q2 2014 (295deals) but represents a slight increase when compared to Q1 2014 (256 deals).

Buyer Composition – There were eight announced Healthcare Private Equity (“PE”) deals in Q1 2015representing 7% of the total deal activity in the quarter. This result matches the quarterly average of eight dealsrecorded throughout 2014. There were also an additional three non PE financial transactions while theremaining 105 deals were all completed by strategic acquirers.

Canadian Deals – There were 12 Canadian‐based Healthcare deals announced in Q1 2015 representingapproximately 10% of the North American Healthcare deal activity. This is slightly higher than the two yearquarterly averages when Canadian deals represented between 7% and 8% of the North American Healthcaretransaction volume. During Q1 2015, there was a significant concentration of technology deals completed.

Public Market Valuations and Profit Margins – The Healthcare market experienced another strong gain inoverall market value. The CCC Healthcare Index increased by approximately 22.6% during Q1 2015 which followsa 20.2% gain in Q4 2014. These past two quarterly results are fairly significant when compared to the NASDAQand S&P/TSX which only rose slightly at 6.2% and 2.0% respectively. Index growth has been principally driven byrevenue growth in the underlying companies. Enterprise Value/EBITDA1 multiples in only two subsectorsexperienced an increase compared to Q4 2014 with the Facilities sector increasing the most (+3.3x) followed byEquipment (+0.6x), resulting in its highest recorded multiple in three years. Sectors to experience a slightdecrease involved Technology (‐0.4x), Distribution (‐0.2x) and Services (‐0.1x) while the Supplies sectorremained unchanged. Overall profitability margins, as defined by sector median EBITDA1/Revenue, experiencedincreases in the following sectors of Technology (+2.9%), Supplies (+1.3%) and Distribution (+0.4%) while theServices (‐1.1%), Facilities (‐0.5%) and Equipment sectors (‐0.4%) all experienced declines.

Thank you,

William (Bill) F. Rogers Robert Bird, CPA, CA, CFAManaging Director and CEO Managing Director

1) EBITDA: Earnings before interest, taxes, depreciation and amortization

3

Q1 2015

Historical Quarterly North American Healthcare Deal Volume by Size(1) and Geography

• 116 majority stake transactions were announced in Q1 2015, a slight increase compared to the 105 announced deals inQ4 2014 and 101 in Q3 2014, however, it represents a decrease of 26% compared to Q1 2014 (138 deals).

• Three of the six Healthcare sectors saw an increase in deal volume compared to the previous quarter. The largest increaseinvolved the Services sector with announced deals increasing by 71% to 24 transactions (the sector’s highest deal totaldating back to Q2 2011) followed by Technology and Distribution with 12% and 10% increases respectively. Sectors withdecreasing deal volume included Supplies which fell by 27% to 8 transactions followed by Facilities at 9% and Equipmentat 6% (both the Facilities and Equipment sectors witnessed their lowest quarterly total in over two years).

• Average transaction value for all deals with disclosed values under US$500M equaled US$41M which is a substantialdecrease compared to the Q4 2014 average of US$86M. This result is the lowest average reported over the past twoyears and is well below the 2014 quarterly average of US$69M. This is attributed to a high volume (81%) of discloseddeals below US$50M.

Healthcare M&A Highlights

M&A Trends

Q1 2015 North American Healthcare Deal Volume by Sector


Equipment: Medical equipment, home Healthcare equipment, testing,analyzing and diagnostic equipment, therapeutic devices and dentalequipment

Distribution: Healthcare equipment and product distribution

Facilities: Assisted living facilities

Technology: Technology products and services targeting theHealthcare industry

Services: Medical laboratories and rehabilitation centres

Supplies: Medical consumables, instruments and optical supplies

Sector Definitions

(1) Average transaction value for all deals with disclosed values under US$500M

Technology41% Distribution

9%

Equipment13%

Facilities9%

Supplies7%

Services21%

116

Q1 13 Q2 13 Q3 13 Q4 13Annual

2013Q1 14 Q2 14 Q3 14 Q4 14

Annual

2014Q1 15

Technology 30 30 31 37 128 34 43 38 43 158 48

Distribution 10 6 12 11 39 13 10 10 10 43 11

Equipment 29 27 26 28 110 35 20 21 16 92 15

Facilities 20 31 70 40 161 31 28 15 11 85 10

Supplies 6 6 9 10 31 9 8 9 11 37 8

Services 15 14 13 22 64 16 12 8 14 50 24

Total 110 114 161 148 533 138 121 101 105 465 116

100

151136 125 112

94 100 104

14

1012

139

7 512

0

20

40

60

80

100

120

140

160

180

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

Canada US

$63 $48

$76

$49

$79

$62

$86

$41

$0

$10

$20

$30

$40

$50

$60

$70

$80

$90

Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015

4

Q1 2015

Median Q1 2015 LTM EBITDA/Revenue

The charts below show North American Q1 2015 EV/EBITDA and EBITDA/Revenue by sector.

Public Market Valuation Metrics

Median Q1 2015 LTM EV/EBITDA by Sector

* The index is comprised of 51 Healthcare stocks selected by the CCC Healthcare team

Below is a chart comparing the CCC Healthcare Index to the performance of the NASDAQ Composite Index and theS&P/TSX Composite Index. This chart depicts the percentage change in the index value from January 1, 2011 toMarch 31, 2015.


(1) # of publicly traded companies identified

(1) # of publicly traded companies identified

‐20%

‐10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

120%

CCC Healthcare Index S&P/TSX Composite Index ‐ Index Value NASDAQ Composite Index (^COMP) ‐ Index Value

18.6x

14.8x

14.6x

14.4x

12.3x

9.7x

0.0x 2.0x 4.0x 6.0x 8.0x 10.0x 12.0x 14.0x 16.0x 18.0x 20.0x

Services

Distribution

Supplies

Equipment

Facilities

Technology

20.6%

18.7%

17.0%

12.4%

9.1%

4.9%

0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 16.0% 18.0% 20.0% 22.0%

Distribution

Facilities

Services

Technology

Equipment

Supplies

#(1) Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15Services 12 7.7x 8.4x 8.7x 8.9x 9.8x 9.7xDistribution 9 11.7x 12.6x 11.1x 11.6x 12.5x 12.3xSupplies 24 15.0x 13.9x 14.0x 12.2x 14.4x 14.4xEquipment 49 13.5x 13.7x 13.0x 12.0x 14.0x 14.6xFacilities 14 13.0x 15.6x 10.7x 10.4x 11.5x 14.8xTechnology 21 15.5x 16.5x 18.1x 17.2x 19.0x 18.6x

#(1) Q4 13 Q1 14 Q2 14 Q3 14 Q4 14 Q1 15Distribution 9 3.4% 3.4% 4.3% 4.5% 4.5% 4.9%Facilities 14 13.8% 10.9% 10.1% 9.6% 9.6% 9.1%Services 12 14.1% 14.4% 14.9% 14.9% 13.5% 12.4%Technology 21 13.8% 14.3% 13.4% 15.1% 14.1% 17.0%Equipment 49 17.4% 17.0% 17.7% 18.9% 19.1% 18.7%Supplies 24 20.0% 19.5% 18.6% 20.1% 19.3% 20.6%

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Q1 2015

Stock Price31-Mar-15 High Low

Technology

NasdaqGS: ATHN athenahealth, Inc. $119.39 $168.18 $97.30 $4,654 $266 $796 $62 8% 4.27x 5.85x 74.86xTSX:CCT Catamaran Corporation $59.55 $60.19 $32.00 $12,773 $1,416 $22,647 $898 4% 1.58x 0.56x 14.23xNasdaqGS:CERN Cerner Corporation $73.26 $74.83 $48.39 $23,807 $130 $3,313 $962 29% 0.14x 7.19x 24.75xNasdaqGS:MDAS MedAssets, Inc. $18.82 $25.57 $17.00 $2,011 $876 $735 $214 29% 4.09x 2.74x 9.39xNasdaqGS:QSII Quality Systems Inc. $15.98 $18.89 $13.01 $839 $0 $490 $51 10% ‐ 1.71x 16.47x

Avg. 3.61x 27.94x

Equipment

NYSE:BDX Becton, Dickinson and Company $143.59 $149.98 $111.07 $31,331 $13,838 $8,448 $2,170 26% 6.38x 3.71x 14.44xNYSE:BSX Boston Scientific Corporation $17.75 $18.17 $11.10 $27,442 $4,268 $7,302 $1,719 24% 2.48x 3.76x 15.96xNasdaq:CNMD CONMED Corporation $50.49 $52.24 $35.85 $1,567 $258 $730 $126 17% 2.05x 2.15x 12.44xNasdaqGS:HOLX Hologic Inc. $33.03 $33.34 $20.24 $12,656 $3,940 $2,580 $932 36% 4.23x 4.91x 13.58xNYSE:RMD ResMed Inc. $71.78 $72.80 $44.26 $9,658 $461 $1,641 $490 30% 0.94x 5.89x 19.72x

Avg. 4.08x 15.23x

Supplies

NasdaqGS:ATRI ATRION Corp. $345.51 $355.91 $261.53 $623 $0 $143 $50 35% ‐ 4.37x 12.41xNasdaq:XRAY DENTSPLY International Inc. $50.89 $56.25 $43.83 $8,184 $1,329 $2,849 $579 20% 2.30x 2.87x 14.14xNYSE:HAE Haemonetics Corporation $44.92 $45.43 $29.86 $2,616 $428 $910 $127 14% 3.38x 2.87x 20.66xNasdaqGS:UTMD Utah Medical Products Inc. $59.86 $63.98 $44.52 $210 $0 $41 $20 47% 0.00x 5.07x 10.71xNYSE:WST West Pharmaceutical Services, Inc. $60.21 $60.30 $39.11 $4,417 $334 $1,411 $279 20% 1.20x 3.13x 15.81x

Avg. 3.66x 14.75x

Distribution

NYSE:ABC AmerisourceBergen Corporation $113.67 $114.73 $62.55 $24,660 $4,007 $128,195 $1,501 1% 2.67x 0.19x 16.42xNYSE:CAH Cardinal Health, Inc. $90.27 $91.59 $63.06 $30,896 $4,003 $97,877 $2,544 3% 1.57x 0.32x 12.14xNYSE:OMI Owens & Minor Inc. $33.84 $36.35 $31.55 $2,688 $575 $9,575 $246 3% 2.33x 0.28x 10.92xNYSE:MCK McKesson Corporation $226.20 $232.69 $162.90 $60,010 $9,844 $179,045 $4,096 2% 2.40x 0.34x 14.65xNYSE:PMC PharMerica Corporation $28.19 $30.48 $19.42 $1,168 $326 $1,954 $131 7% 2.49x 0.60x 8.91x

Avg. 0.34x 12.61x

Facilities

TSX:ACC Amica Mature Lifestyles Inc. $5.69 $6.25 $5.06 $578 $403 $114 $31 27% 12.91x 5.13x 18.75xNYSE:BKD Brookdale Senior Living Inc. $37.76 $38.96 $29.50 $13,092 $6,473 $3,753 $676 18% 9.57x 3.49x 19.36xNYSE:CSU Capital Senior Living Corp. $25.94 $26.85 $20.33 $1,388 $706 $388 $67 17% 10.59x 3.58x 20.84xNYSE:KND Kindred Healthcare Inc. $23.79 $26.81 $16.94 $3,379 $3,282 $5,431 $375 7% 8.74x 0.62x 9.00xTSX:SIA Sienna Senior Living Inc. $11.71 $12.04 $9.40 $894 $491 $361 $51 14% 9.63x 2.47x 17.53x

Avg. 3.06x 17.10x

Services

NasdaqGS:BRLI Bio‐Reference Laboratories Inc. $35.24 $36.75 $24.19 $1,012 $55 $860 $115 13% 0.48x 1.18x 8.76xNYSE:CIVI Civitas Solutions, Inc. $20.94 $21.12 $11.88 $1,418 $654 $1,315 $139 11% 4.72x 1.08x 10.23xNYSE:LH Laboratory Corp. of America Holdings $126.09 $131.19 $95.12 $15,114 $6,946 $6,353 $1,270 20% 5.47x 2.38x 11.90xNasdaqGS:LHCG LHC Group, Inc. $33.03 $35.40 $19.69 $611 $48 $745 $66 9% 0.73x 0.82x 9.27xNYSE:DGX Quest Diagnostics Inc. $76.85 $78.33 $54.90 $14,717 $4,736 $7,528 $1,462 19% 3.24x 1.96x 10.07x

Avg. 1.48x 10.05x

Notes:

(1) All trading multiples based upon trading currency

Source: Capital IQ

As at March 31, 2015

(US$ millions)

TEV / LTM EBITDA(1)

Total Enterprise

Value (TEV)

Total Debt to

LTM EBITDA

EBITDA Margin

(US$)

Company Total Debt

52 Week LTM Revenue

LTM EBITDATicker

TEV / LTM Revenue(1)

Select Company Trading and Operating Metrics


Sector: Facilities

Location: Louisville, Kentucky, United States

Website: www.kindredhealthcare.com

Description: Kindred Healthcare, Inc. is a Healthcare facilities company that through its subsidiaries operates hospitals, nursing centers, home health, hospiceand non‐medical home care locations and a contract rehabilitation services business across the U.S. As of March 31, 2015, Kindred had approximately 102,600employees providing healthcare services in 2,787 locations in 47 states, including 97 transitional care hospitals, 16 inpatient rehabilitation hospitals, 90nursing centers, 21 sub‐acute units, 664 Kindred at home health, hospice and non‐medical home care sites of service, 100 inpatient rehabilitation units(hospital‐based) and a contract rehabilitation services business, RehabCare, which served 1,799 non‐affiliated sites of service.

* Quarterly Company Featured: Kindred Healthcare Inc.

*

6

Q1 2015

Technology (cont’d)– New York‐based eHealth Solutions, Inc., doing business asSigmaCare, acquired Georgia‐based Homecare CRM, LLC onMarch 9, 2015. Homecare CRM offers customer relationshipmanagement software for home Healthcare providers.

– Philadelphia‐based eResearchTechnology, Inc., agreed toacquire Boston‐based PHT Corporation from various investorson February 27, 2015. PHT is the eClinical innovator leading theadoption of patient‐driven apps for improved clinical research.

– Chicago‐based developer of Healthcare software solutionsMerge Healthcare Incorporated (NasdaqGS:MRGE) acquired SanDiego‐based DR Systems, Inc., a provider of Healthcare imagingand information solutions, from various investors for US$76.2Mon February 25, 2015. The deal represents a Total EnterpriseValue (“TEV”) to Last Twelve Months (“LTM”) EBITDA of 5.8xand a TEV to LTM Revenue of 1.4x.

– California‐based Navigant Healthcare Cymetric Corporationacquired Georgia‐based RevenueMed, Inc. for US$26M onFebruary 23, 2015. RevenueMed provides Healthcare revenuecycle solutions to the Healthcare market in the U.S.

– San Diego‐based ResMed Inc. (NYSE:RMD), a manufacturer ofmedical equipment with a focus on sleep‐disordered breathing,acquired Tennessee‐based Jaysec Technologies, LLC onFebruary 10, 2015. Jaysec provides GoJaysec, a referral andpatient management software.

– Arizona‐based Sunquest Information Systems, a subsidiary ofRoper Industries, Inc., agreed to acquire Data Innovations, LLCfrom Battery Ventures on February 5, 2015. Data Innovationsdevelops Web based solutions for information management inthe clinical and blood laboratory environment.

– U.S. PE firm Vitruvian Partners LLP acquired Pennsylvania‐basedCRF Health, Inc. from Verdane Capital and others on February 2,2015. CRF develops electronic clinical outcome assessment(eCOA) solutions for home and site‐based phase I‐IV clinicaltrials throughout the U.S. and internationally.

– San Francisco‐based Prosper Marketplace, Inc. acquired Utah‐based American HealthCare Lending, LLC (AHL), for US$21M incash on January 23, 2015. AHL operates an online financingplatform that provides patient financing services in the U.S.

– Florida‐based Roper Industries Inc. (NYSE:RPO) acquired Illinois‐based Strata Decision Technology, L.L.C., from Veronis SuhlerStevenson on January 23, 2015. Strata develops Software‐as‐a‐Service solutions for financial analytics and decision supportneeds in the Healthcare industry.

– Massachusetts‐based athenahealth, Inc. (NasdaqGS:ATHN)acquired Atlanta‐based RazorInsights, LLC from Bluff PointAssociates and others for US$40M in cash on January 13, 2015.RazorInsights develops cloud based Electronic Health Recordssolutions for the Healthcare Industry.

Featured Transactions

Technology– North Carolina‐based Software‐as‐a‐Service/cloud basedsoftware solutions provider Dude Solutions Inc. acquiredToronto‐based Windmill Software Inc. on March 24, 2014.Windmill designs operations software for senior livingcommunities in North America.

– Quebec‐based TELUS Health Solutions Inc. acquired LCG MedicalInc. on March 19, 2015. LCG offers Medesync, a web‐based toolfor scheduling appointments, billing, prescribing drugs, accessinglaboratory results and creating notes.

– California‐based 8K Miles Software Services Inc. agreed to acquireToronto‐based Mindprint Inc. for US$0.4M on March 9, 2014.Mindprint designs cloud‐based enterprise software solutions forthe clinical research market.

– Toronto‐based neurosurgical solutions developer SynaptiveMedical Inc. acquired Toronto‐based medical imaging informaticssoftware and solutions provider ClearCanvas Inc. in March 2015.

– Montreal‐based Healthcare information technology (IT) companyLogibec Inc. acquired Quebec‐based IT services providerMédiaMed Technologies Inc. on March 9, 2015.

– Vancouver‐based Expedition Mining Inc. agreed to acquireVancouver‐based MMJ Medical Marijuana Solutions Inc. forCAD$0.2M in stock on February 26, 2015.

– Vancouver‐based Invictus MD Strategies Corp. acquiredVancouver‐based Cannabis Health Sciences Inc. for CAD$0.18Mon February 11, 2015.

– Kentucky‐based Lexmark International Inc. (NYSE:LXK) acquiredsubstantially all assets of Toronto‐based Claron Technology Inc.for US$37M in cash on January 2, 2015. Claron develops OEMmedical image processing solutions.

– Victoria‐based Develus Systems, Inc., doing business as Procura,acquired California‐based Indura Systems, Inc. on March 12,2015. Indura develops cloud‐based home Healthcare software.

– Winnipeg‐based developer of pharmacy automation andworkflow solutions Intelligent Hospital Systems, Inc. acquiredBuffalo‐based AmerisourceBergen Technology Group, a providerof workflow and scheduling software, from AmerisourceBergenCorporation (NYSE:ABC) on March 6, 2015.

– New York‐based MDeverywhere, Inc., a provider of revenue cyclemanagement (RCM) and electronic medical record (EMR)solutions for physicians, acquired Texas‐based AMT SolutionsInc. on March 30, 2015. AMT doing business as e‐MDs, Inc.,develops EMR’s and electronic health record and practicemanagement software solutions for physicians across the U.S.

– California‐based provider of medical cloud‐based software Kareo,Inc. acquired San Francisco‐based DoctorBase, Inc. on March 10,2015. DoctorBase offers a platform which allows patients tosearch U.S. family doctors, surgeons and dentists.


7

Q1 2015Featured Transactions

Technology (cont’d)– China‐based pharmaceutical and biotechnology services companyWuXi PharmaTech (Cayman) Inc. (NYSE:WX) acquiredMassachusetts‐based NextCODE Health LLC from variousinvestors for US$65M in cash on January 9, 2015. NextCODEoperates as a sequence‐based clinical diagnostics company.

– California‐based newborn care products manufacturer NatusMedical Incorporated (NasdaqGS:BABY) acquired Louisville‐basedNicView on January 7, 2015. NicView develops IP cameratechnology for real time viewing of babies in the neonatalintensive care unit by their families.

Equipment– Ontario‐based Prism Medical Ltd. (TSXV:PM), a manufacturer ofdurable medical equipment for mobility challenged individuals,acquired Victoria‐based Angel Accessibility Solutions Ltd. forCAD$3.7M in cash and stock on January 9, 2014. AngelAccessibility provides safe patient handling and elevatingproducts and services.

– Michigan‐based medical technology company StrykerCorporation (NYSE:SYK) acquired Ontario‐based CHG HospitalBeds, Inc. on January 5, 2015.

– Ireland‐based and global specialty pharmaceutical companyMallinckrodt plc (NYSE:MNK) acquired Wisconsin‐based Ikaria,Inc. from Madison Dearborn Partners, LLC, New MountainCapital, LLC and others for US$2.3B in cash on April 16, 2015.Ikaria is a global critical care company focused on thedevelopment and commercialization of innovative therapies anddelivery systems to address the needs of critically ill infants.

– Switzerland‐based connectivity and sensor solutionsmanufacturer TE Connectivity Ltd. (NYSE:TEL) acquired San Jose‐based AdvancedCath Inc. from Inverness Graham Investmentsfor US$190M in cash on April 13, 2015. AdvancedCathmanufactures advanced catheter systems for cardiovascular,peripheral vascular and neurovascular applications.

– New York‐based durable medical equipment manufacturerMedical Depot, Inc., doing business as Drive Medical, acquiredCalifornia‐based Columbia Medical Mfg., LLC from Triton PacificCapital Partners, LLC and others on March 31, 2015. ColumbiaMedical provides assistive products and daily living aids tosupport individuals with special needs/disabilities.

– Ireland‐based Healthcare solutions company Medtronic plc(NYSE:MDT) acquired Colorado‐based Sophono, Inc. on March26, 2015. Sophono, a medical device company, provides magneticbone conduction hearing devices for patients with conductivehearing loss and single‐sided deafness.

– Swedish‐based wheelchair manufacturer Permobil AB agreed toacquire Illinois‐based ROHO, Inc. on March 25, 2015. ROHOmanufactures skin protection and positioning solutions forwheelchair users.


Equipment (cont’d)– Atlanta‐based Medovex Corp. (NasdaqCM:MDVX), a developerof medical technology products, acquired Minnesota‐basedStreamline Inc. for US$9.58M in cash and stock on March 26,2015. Streamline develops intra‐hospital patient transportationsystems for Healthcare providers, hospitals and clinics acrossthe U.S.

– U.S. PE firm M. H. Carnegie & Co. acquired California‐basedSimplify Medical, Inc. in March 2015. Simplify Medicalmanufactures cervical artificial discs for use in the spine.

– San Diego‐based medical technology company CareFusionCorporation (NYSE:CFN), a subsidiary of Becton, Dickinson &Company, acquired Wisconsin‐based Surgical Site Solutions,Inc. on February 10, 2015. Surgical Site Solutions develops amedical device to remove patient’s body hair prior to surgery.

– Nashville‐based forensic toxicology and Healthcare scienceslaboratory Aegis Sciences Corporation acquired the assets ofNashville‐based Diagnovus, LLC from various investors onJanuary 6, 2015. Diagnovus operates as a molecular diagnosticscompany with a focus on identifying cancer.

Services– Illinois‐based Athletic & Therapeutic Institute of Naperville, LLC,doing business as ATI Physical Therapy and a subsidiary of ATIPhysical Therapy Holdings, LLC, acquired Illinois‐based FlexeonRehabilitation, Inc. on March 30, 2015. In a related transaction,ATI Physical Therapy Holdings, LLC also acquired Las Vegas‐basedMatt Smith Physical Therapy on March 23, 2015.

– Dallas‐based home Healthcare agency Encompass Home Healthof DFW, LLCs acquired Las Vegas‐based Integrity Home HealthCare, Inc. on March 25, 2015.

– U.S. PE firm J.H. Whitney & Co., LLC acquired Georgia‐basedPediatric Services of America, Inc., doing business as PSAHealthCare, from various investors on March 23, 2015. PSAprovides pediatric home care services for medically fragilechildren and adults in the U.S.

– California‐based Patient Home Monitoring Corp. (TSXV:PHM)acquired Virginia‐based West Home Health Care, Inc. forUS$3.2M on March 9, 2015. West Home provides homeHealthcare services including mobility solutions for the home.

– U.S. PE firms Cressey & Company, LP and Golub Capital acquireda majority stake in Minneapolis‐based Sentage Corporation onMarch 2, 2015. Sentage, doing business as Dental Service Group,operates a network of dental laboratories in North America.

– Louisville‐based home Healthcare services provider NationalHealth Industries, Inc. agreed to acquire Buffalo‐based Bracor,Inc., doing business as WILLCARE, from various investors forUS$50.9M on February 24, 2015. Bracor provides various homehealth services including skilled nursing and rehabilitation.

8

Q1 2015Featured Transactions

Services (cont’d)– Texas‐based VHA Inc., an operator of several not‐for‐profitHealthcare organizations, agreed to acquire Chicago‐basedUniversity HealthSystem Consortium, Inc. (UHC) on February 3,2015. UHC provides various solutions and services to nonprofitacademic medical centers delivering patient care.

– Washington‐based hospital and medical center Harrison MedicalCenter, a subsidiary of Franciscan Health System, Inc., acquiredWashington‐based Advanced Medical Imaging (AMI) andOlympic Radiology in January 2015. The new organization will benamed Harrison Imaging Centers.

– Colorado‐based medical supplies distributor Schryver MedicalSales and Marketing, Inc. acquired Nashville‐based QualityMobile X‐Ray Services, Inc. on January 26, 2015. Quality MobileX‐Ray provides mobile diagnostic services to patients inTennessee and Alabama.

– California‐based newborn care products manufacturer NatusMedical Incorporated (NasdaqGS:BABY) acquired Global Neuro‐Diagnostics, LP (GND) on January 26, 2015. GND provideselectroencephalography diagnostic services to physicians.

– Boston‐based Civitas Solutions, Inc. (NYSE:CIVI) acquiredMichigan‐based brain injury rehabilitation and therapy servicesprovider Cassell & Associates, LLC on January 13, 2015.

– Dallas‐based Healthcare services provider Epic Health Services,Inc. acquired New Jersey‐based Loving Care Agency, Inc. fromMTS Health Investors, LLC and others on February 18, 2015.Loving Care provides home Healthcare services to medicallyfragile children and adults.

– Illinois‐based Addus HomeCare Corporation (NasdaqGS:ADUS)acquired Ohio‐based home health agency operator PriorityHome Health Care, Inc. on January 5, 2015.

Supplies– Minnesota‐based technology company 3M Company(NYSE:MMM) acquired San Diego‐based Ivera MedicalCorporation on March 13, 2015. Ivera designs and manufacturesinfection control products that help Healthcare providers reducefacility‐acquired patient infections. The company has annual salesof approximately US$30M.

– Massachusetts‐based Thermo Fisher Scientific, Inc. (NYSE:TMO)acquired Pennsylvania‐based Advanced Scientifics, Inc. (ASI) forUS$300M in cash on February 5, 2015. ASI designs andmanufactures single‐use systems and equipment for thepreparation, processing, storage and transportation ofbiopharmaceuticals.

– Belgium‐based biopharmaceutical company Cardio3 BioSciencesSA (ENXTBR:CARD) acquired the Immuno‐Oncology, a portfolio ofcancer treatment products, of Celdara Medical, LLC for US$10Mon January 21, 2015.

Distribution– San Diego‐based X‐Ray imaging equipment distributor Merry X‐Ray Corporation acquired Ohio‐based Lupica Medical Systems,LLC on March 23, 2015. Lupica distributes and installs X‐Raysystems, film processors and digital solutions worldwide.

– Massachusetts‐based Boston Scientific Corporation (NYSE:BSX)agreed to acquire Men’s Health and Prostate HealthBusinesses from Endo International plc (NasdaqGS:ENDP) forUS$1.7B on March 2, 2015. The businesses involve thedistribution of medical devices to physicians for the treatmentof urological disorders. The deal represents a TEV to LTMRevenue of 4.1x.

– Michigan‐based Diplomat Pharmacy, Inc. (NYSE:DPLO) agreed toacquire Cincinnati‐based BioRx, LLC from Symmetric Capital,LLC, PCR Holdings, Inc. and others for US$350M on February 26,2015. BioRx distributes specialty pharmaceuticals, medicalsupplies and provides infusion services in the U.S. The dealrepresents a TEV to LTM EBITDA of 15.2x and a TEV to LTMRevenue of 1.5x.

– Utah‐based molecular imaging solutions supplier BC Technical,Inc. acquired New York‐based Virtual Medical Sales, Inc. onJanuary 21, 2015. Virtual Medical is a turnkey reseller of medicalimaging products, accessories and services.

– Pennsylvania‐based pharmaceutical product distributorAmerisourceBergen Corporation (NYSE:ABC) acquired Idaho‐based MWI Veterinary Supply, Inc. (NasdaqGS:MWIV), adistributor of veterinarian health products, for US$2.5B onFebruary 25, 2015. The deal represents a TEV to LTM EBITDA of18.5x and a TEV to LTM Revenue of 0.8x.

Assisted Living facilities and Services– Dallas‐based senior living community operator Capital SeniorLiving Corp. (NYSE:CSU) acquired Texas‐based Remington Parkat Baytown for US$29.6M on March 27, 2015.

– Chicago‐based Kensington Realty Advisors, Inc. and SaudiArabia‐based real estate investment firm SEDCO Capitalacquired Texas‐based The Village at the Woodlands Waterway,a 207‐unit assisted living facility, in February 2015.

– Maryland‐based post‐hospital treatment services provider Mid‐Atlantic Health Care, LLC acquired Maryland‐based ForestHaven Nursing Home, Inc. for US$8.6M on February 6, 2015.

– Massachusetts‐based real estate investment trust (REIT) SeniorHousing Properties Trust (NYSE:SNH) acquired Wisconsin‐basedCoventry Village, a 176‐unit senior housing community, fromHarris Webber Ltd. for US$40.4M on January 30, 2015.

– California‐based retirement community operator Vintage SeniorHousing, LLC acquired Los Angeles‐based assisted living andretirement residence Vintage Grandview LLC on January 7,2015.


9

Q1 2015

Other Institutions;$22.2 ; 10.3%

Other Professionals; $21.8 ; 10.1%

Hospitals; $63.5 ; 29.6%

Prescribed Drugs;$28.8 ; 13.4%

Non‐Prescribed Drugs; $5.1 ; 2.4%

Physicians; $33.2 ; 15.5%

Capital;$8.9 ; 4.1%

Public Health;$11.5 ; 5.4%

Administration;$6.7 ; 3.1%

Other Health Spending; $13.0 ; 6.1%

$214.7

Overview of Canadian Drug Spending*Note: Most recent data is from 2013 so this is a 2014 forecast

• Total drug spending is forecast to be the second‐largest category ofhealth expenditure in Canada in 2014, at $33.9 billion, or $955 perperson.

• For the fourth year in a row, the rate of increase has slowed.

• Prescribed drugs are forecast to represent 85.0% of total drugexpenditure and 13.4% of total health expenditure in 2014.

• In 2014, the rate of annual growth in prescribed drug spending(0.9%) is expected to be at its lowest since 1975.

• Public‐sector drug spending in Canada is expected to have grown ata flattening rate of 0.4% ‐ the second‐lowest rate since 1997.

• For more than 2 decades, until 2010, pharmaceuticals were one ofthe fastest‐growing components of health care spending in Canada.In recent years, the savings resulting from a number of factors—drug price regulation, expiration of some major patents, increaseduse of less‐expensive generic drugs and the emergence of fewernew drugs on the market—have largely offset the increase involume and changes in the types of drugs used.

North American Announcements & Trends

Source: Canadian Institute of Health Information (May 2015)


The Substantial Increase in Child Emergency Department (ED) Visits forMental Disorders

• A recent study conducted by the Canadian Institute for Health Information(CIHI) reports that ER visits for mental health issues among Canadians agedfive to 24 jumped 45% between 2006‐2007 to 2013‐ 2014. Similarly, rates ofinpatient hospitalizations that involved at least one overnight stay increasedby 37% for Canadian children and youth over the same time period.

• The study found that the highest use of hospital services for mental disorderswas among youth aged 15 to 17, with ER visits rising by 53% and in‐patienthospitalizations up by 74%.

• While treatments for mental disorders continue to rise, hospital admissionsfor all other conditions affecting children, teens and young adults dropped by13% during the study period.

Total Health Expenditure, by Use of Funds, Canada2014 Expectations (CAD$B)

Source: Canadian Digital Media Network

8%

13%

16%

17%

17%

17%

21%

38%

38% Telephone based consultations

Administrative communication

Receiving data to monitor patient

Provide patients access to portions of their medical record

Drug adherence & other health related communication

Use of mobile device to explain / demonstrate during office visits

Text‐based consultations

Analysis of general health & wellness data gathered by mobile devices

Video consultations

Increase in

ED Visits

Increase in

Hospitalizations

Hospitalizations for

Other Conditions

2007‐08 1.4 1.3 ‐0.9

2008‐09 5.4 0.5 ‐3.0

2009‐10 7.3 1.3 ‐3.6

2010‐11 14.7 7.0 ‐7.8

2011‐12 30.4 16.2 ‐8.6

2012‐13 37.6 27.9 ‐11.4

2013‐14 44.9 36.9 ‐14.2

Trends Surrounding Canadian Healthcare Information Technology (I.T.)

• Health I.T. is a CAD$4B market in Canada with a projected growth rate of 15%over the next two years.

• The world’s Healthcare I.T. market is expected to grow from US$99.6B in 2010to US$162.2B in 2015.

• The global mobile health application market is projected to grow 61% by 2017,reaching US$26B.

• 65% of Healthcare professionals believe that secure text messaging can cutdischarge times by 50 minutes.

• The top 10 mobile health applications have generated nearly four million freedownloads and three hundred thousand paid downloads.

Percentage of Doctors who Offer Services Via Mobile Devices

Percentage Change in Number of Hospitalized Patients Ages 5 to 24 per 100,000 Population

Source: Canadian Institute of Health Information (May 2015)

10

Q1 2015

• Lenders continue to aggressively deploy capital into high quality deals. Outside of the quality of the borrower,lenders differentiate deals by size, relationship & sponsored vs. standalone transactions.

• Incumbent lenders will often significantly improve their pricing and terms in competitive refinancingsituations.

• Large mid‐market deals can receive up to 4.25x (senior) / 6.00x (total) Debt / EBITDA; “typical” mid‐marketfinancings are up to 3.00x‐3.75x senior / 4.25x‐4.75x total Debt / EBITDA range. Senior debt is now up to 50%‐70%of the capital structure.

• Senior pricing is at Bankers’ Acceptance (0.91% on 15/06/15) + 1.50%‐3.50% at moderate to high leverage.Mezzanine pricing is at 12%‐17% total rate of return.

• Conventional senior debt will have a 3‐7 year amortization with a 3‐5 year term. Mezzanine debt is normally a“bullet” with a 3‐5 year term.

Current Canadian Debt Terms

We are including some general Canadian PE and banking trends. Although some of the trends may not be specific to Healthcare, they are a barometer of M&A and financing activity in the general Canadian mid‐market.

North American Private Equity (“PE”) Trends

Healthcare

• PE firms participated in eight North American M&A transactions related to the Healthcare sector in Q1 2015 whichequals the quarterly average recorded throughout 2014. These eight deals or 7% of the total deal activity remainsconsistent with 2013/2014 quarterly averages which generally range between 6% – 9% of total deal activity. Therewere an additional three non PE financial transactions while the remainder were considered strategic.

General (1)

• The number of Canadian buyout and PE transactions across all industries in Q1 2015 (99 deals announced andcompleted) represents the most active first quarter period ever recorded in Canada.

• The value of disclosed transactions (announced and completed) totaled CAD$6.0B in Q1 2015, the strongest firstquarter on record, which is up 9% from Q4 2014 and 27% year over year. Four large‐cap deals sized CAD$500M ormore captured half of all disclosed disbursements, CAD$100M to CAD$500M took 34% and deals less thanCAD$100M took the rest.

• Of the Canadian PE transactions in Q1 2015 (announced and completed), 43% were based in Quebec followed byOntario at 33%. Alberta, however, attracted the largest amount of disclosed deal values totaling CAD$3.6B which ismore than all other provinces combined. Quebec came next with a total value of CAD$1.5B while Ontario reported arelatively low CAD$900M due to more than half of their deals having undisclosed values.

• In the international market, Canadian buyout and related PE funds led or participated in a total of 39 deals whichwere valued at approximately CAD$34B. This compares to a total of 28 deals valued at CAD$2.2B reported in the firstquarter of last year.

Canadian Banking and Private Equity Trends

Sources: (1) Canadian Venture Capital & Private Equity Association & Thomson Reuters


11

Q1 2015

We welcome your feedback. Let us know what you’d like to see in our next quarterly review.For more information on CCC, please visit: www.cccinvestmentbanking.com.

Please see information on CFI’s Healthcare experience on our website.

– CCC is the exclusive Canadian member of Corporate Finance International (“CFI”), a global network of leading independent middle‐market investment banking firms with members or partners in North America, Western & Eastern Europe, Asia and South America

– CFI specializes in cross‐border transactions and has significant experience in the Healthcare sector

About CCC Investment Banking

CCC Investment Banking

Established in 1975, CCC is Canada’s leading independent middle market investment bank. CCC has a specialization in the North American Healthcare Industry. CCC provides advisory services in:

Mergers & Acquisitions Management Buy‐outs Divestitures Financing Strategy and Placement Restructurings Strategic Reviews Valuations and Fairness Opinions

This market overview is not an offer to sell or solicit an offer to buy any security. It is not intended to be directed to investors as a basis for making an investment decision. This market overview does not rate or recommend securities of individual companies, nor does it contain sufficient

information upon which to make an investment decision.

The information provided in this market overview was obtained from sources believed to be reliable, but its accuracy cannot be guaranteed. It is not to be construed as legal, accounting, financial, or investment advice. Information, opinions, and estimates reflect CCC’s judgment as of the

date of publication and are subject to change without notice. CCC undertakes no obligation to notify any recipient of this market overview of any such change. The charts and graphs used in this market overview have been compiled by CCC solely for illustrative purposes. All financial data and

transaction summaries were collected from Capital IQ.

This market overview is not directed to, or intended for distribution to, any person in any jurisdiction where such distribution would be contrary to law or regulation, or which would subject CCC to licensing or registration requirements in such jurisdiction.

Contact UsCFI Network

– To find out how CCC can add value to your business, please contact our Healthcare coverage team:

Bill Rogers, Managing Director and CEO• 416‐619‐9120• [email protected]

Rob Bird, CPA, CA, CFA, Managing Director• 416‐619‐9117• [email protected]

Hugh Notman, Managing Director• 604‐689‐2495• [email protected]


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Toronto, Ontario M5H 1J9

T: 416 599 4206 F: 416 599 9250

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Vancouver, B.C. V6C 3A6

T: 604 689 2495

www.cccinvestmentbanking.com

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