Quarterly Review 2015 - CCC Investment Banking .Healthcare Industry Quarterly Review...

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  • HealthcareIndustry

    QuarterlyReview Q12015

    Contents:

    M&ATrends

    PublicMarketValuationMetrics

    SelectCompanyTrading&OperatingMetrics

    FeaturedTransactions

    NorthAmericanAnnouncements

    CanadianBankingandPrivateEquityTrends

    BillRogers,ICD.DManagingDirector&CEO4166199120brogers@cccinvestmentbanking.com

    RobertBird,CPA,CA,CFAManagingDirector4166199117rbird@cccinvestmentbanking.com

    HughNotmanManagingDirector6046892495hnotman@cccinvestmentbanking.com June2015

  • 2

    Q1 2015

    CCCsHealthcarespecialistscanhelptoaddvaluetoyourbusiness.PleasecontactBillRogers,RobBirdorHughNotmanorvisitwww.cccinvestmentbanking.com.

    Introduction

    WelcometoCCCInvestmentBankingsHealthcareIndustryReviewcoveringthefirstquarterof2015.

    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 Canadianbased 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.

    Thankyou,

    William(Bill)F.Rogers RobertBird,CPA,CA,CFAManagingDirectorandCEO ManagingDirector

    1) EBITDA:Earningsbeforeinterest,taxes,depreciationandamortization

  • 3

    Q1 2015

    HistoricalQuarterlyNorthAmericanHealthcareDealVolumebySize(1)andGeography

    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 sectors 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.

    HealthcareM&AHighlights

    M&A Trends

    Q12015NorthAmericanHealthcareDealVolumebySector

    CCCsHealthcarespecialistscanhelptoaddvaluetoyourbusiness.PleasecontactBillRogers,RobBirdorHughNotmanorvisitwww.cccinvestmentbanking.com.

    Equipment: Medical equipment, home Healthcare equipment, testing,analyzing and diagnostic equipment, therapeutic devices and dentalequipmentDistribution: Healthcare equipment and product distributionFacilities: Assisted living facilities

    Technology: Technology products and services targeting theHealthcare industryServices: Medical laboratories and rehabilitation centresSupplies: Medical consumables, instruments and optical supplies

    SectorDefinitions(1)AveragetransactionvalueforalldealswithdisclosedvaluesunderUS$500M

    Technology41% Distribution

    9%

    Equipment13%

    Facilities9%

    Supplies7%

    Services21%

    116

    Q113 Q213 Q313 Q413 Annual2013

    Q114 Q214 Q314 Q414 Annual2014

    Q115

    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

    151 136 125 112 94 100 104

    14

    1012

    139

    7 512

    020406080100120140160180

    Q22013 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015

    Canada US

    $63$48

    $76

    $49

    $79$62

    $86

    $41

    $0$10$20$30$40$50$60$70$80$90

    Q22013 Q32013 Q42013 Q12014 Q22014 Q32014 Q42014 Q12015

  • 4

    Q1 2015

    MedianQ12015LTMEBITDA/Revenue

    ThechartsbelowshowNorthAmericanQ12015EV/EBITDAandEBITDA/Revenuebysector.

    Public Market Valuation Metrics

    MedianQ12015LTMEV/EBITDAbySector

    *Theindexiscomprisedof51HealthcarestocksselectedbytheCCCHealthcareteam

    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.

    CCCsHealthcarespecialistscanhelptoaddvaluetoyourbusiness.PleasecontactBillRogers,RobBirdorHughNotmanorvisitwww.cccinvestmentbanking.com.

    (1)#ofpubliclytradedcompaniesidentified

    (1)#ofpubliclytradedcompaniesidentified

    20%

    10%

    0%

    10%

    20%

    30%

    40%

    50%

    60%

    70%

    80%

    90%

    100%

    110%

    120%

    CCCHealthcareIndex S&P/TSXCompositeIndexIndexValue NASDAQCompositeIndex(^COMP)IndexValue

    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

    ServicesDistributionSuppliesEquipmentFacilitiesTechnology

    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%

    DistributionFacilitiesServicesTechnologyEquipmentSupplies

    #(1) Q413 Q114 Q214 Q314 Q414 Q115Services 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) Q413 Q114 Q214 Q314 Q414 Q115Distribution 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%

  • 5

    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 CatamaranCorporation $59.55 $60.19 $32.00 $12,773 $1,416 $22,647 $898 4% 1.58x 0.56x 14.23xNasdaqGS:CERN CernerCorporation $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 QualitySystemsInc. $15.98 $18.89 $13.01 $839 $0 $490 $51 10% 1.71x 16.47x

    Avg. 3.61x 27.94x

    Equipment

    NYSE:BDX Becton,DickinsonandCompany $143.59 $149.98 $111.07 $31,331 $13,838 $8,448 $2,170 26% 6.38x 3.71x 14.44xNYSE:BSX BostonScientificCorporation $17.75 $18.17 $11.10 $27,442 $4,268 $7,302 $1,719 24% 2.48x 3.76x 15.96x