The document discusses recent trends in private equity investment in the healthcare industry. It finds that while overall private equity deal activity declined during the recession, healthcare saw relatively strong investment levels. Healthcare services have been the most active sector for deals, accounting for 38% of deals in 2009. The removal of uncertainty from healthcare reform passage may catalyze increased dealmaking going forward. The fourth quarter of 2009 saw the largest quarterly value of healthcare deals closed since the recession began.
While recent attention on the U.S. healthcare industry has often focused on its inefficiencies,
private equity firms continue to view healthcare as an attractive industry for investment, and
healthcare companies continue to be willing partners. As the private equity industry has matured,
its ability to understand healthcare companies and their idiosyncratic operating models has
enabled investors to better maximize value after acquisitions and orchestrate successful exits.
The document provides an analysis of the Consumer Discretionary sector by the Dragon Fund for the third quarter of 2015. It identifies the Household Durables subsector as one to watch due to increasing housing starts, innovative home furnishings, and positive economic growth supporting home buying. However, risks include tight lending slowing housing demand. Overall, the sector declined in Q3 but outperforms based on fundamentals. Household Durables has above-average growth and trades at a below-sector multiple, making it an attractive investment opportunity.
This document summarizes a research study that assesses the variables affecting financial distress in state-owned enterprises (SOEs) in Indonesia. The study analyzed 19 SOEs from 2014 to 2017 using secondary data. The results found that investment, leverage, cash flow from operations, and firm size had a significant negative effect on financial distress, meaning increases in these variables reduced financial distress potential. Working capital did not have a significant effect as it is a temporary and dynamic measure. Management of SOEs receiving subsidies can increase profitable investment and leverage to boost revenue and reduce financial distress. Higher cash flow from operations also decreases financial distress.
This document summarizes the debate around India issuing sovereign bonds for the first time. It notes that India already has high levels of domestic debt totaling Rs. 350-400 lakh crore. Issuing dollar-denominated sovereign bonds would expose India to currency and inflation risks given its lower-medium credit rating. While sovereign bonds could raise large funds, India may struggle to find projects that generate enough return to pay the estimated 6-7% coupon rate required due to these risks. The document argues for reforms like reducing government ministries, increasing foreign portfolio investment limits, and privatizing some state projects before relying too heavily on sovereign bonds.
The introduction of the Adviser Charging (AC) regime in the UK will significantly change how customers and financial advisers interact. A survey found that 32% of customers will do their own financial planning instead of paying for advice, while 24% will reduce how often they use an adviser. This will leave up to 5.5 million customers disenfranchised from financial advice. There will be opportunities for investment product providers to target these customers directly. Four potential target customer segments in the advice gap are identified: the disenfranchised wealthy, tech-savvy savers, mass affluent orphans, and mass market orphans.
The document provides an outlook for the UK financial services sector from the ITEM Club. It discusses challenges facing the banking, insurance, and asset management industries.
The key points are:
1) The weakened UK economic outlook presents challenges for banks, which are already struggling with regulatory changes. Bank profits will remain under pressure, forcing more cost cutting and layoffs.
2) Insurance premium growth is expected to be subdued in line with weaker demand, intensifying competition. Asset management growth is also forecast to be modest.
3) Loan demand is expected to be weak given economic uncertainties, and bank loan growth is forecast to turn negative in 2012, with write-offs expected to rise on worsening credit quality
Global Money Management _II_Article SamplesAmrita Sareen
This document discusses the potential for increased investment in U.S. infrastructure by institutional investors like pension funds. While infrastructure investments could provide stable long-term returns to match pension liabilities, commitments from investors to rebuild America's infrastructure have so far been limited. One challenge is the lack of a consistent regulatory framework and definitions for public-private partnerships (PPPs) in the U.S., unlike countries like Canada and Australia where PPP markets are more mature. The document suggests that pooled investments and efforts to reduce transaction costs, like those undertaken by the West Coast Infrastructure Exchange, could help attract more private investment to rebuild critical smaller-scale infrastructure projects in the U.S.
While recent attention on the U.S. healthcare industry has often focused on its inefficiencies,
private equity firms continue to view healthcare as an attractive industry for investment, and
healthcare companies continue to be willing partners. As the private equity industry has matured,
its ability to understand healthcare companies and their idiosyncratic operating models has
enabled investors to better maximize value after acquisitions and orchestrate successful exits.
The document provides an analysis of the Consumer Discretionary sector by the Dragon Fund for the third quarter of 2015. It identifies the Household Durables subsector as one to watch due to increasing housing starts, innovative home furnishings, and positive economic growth supporting home buying. However, risks include tight lending slowing housing demand. Overall, the sector declined in Q3 but outperforms based on fundamentals. Household Durables has above-average growth and trades at a below-sector multiple, making it an attractive investment opportunity.
This document summarizes a research study that assesses the variables affecting financial distress in state-owned enterprises (SOEs) in Indonesia. The study analyzed 19 SOEs from 2014 to 2017 using secondary data. The results found that investment, leverage, cash flow from operations, and firm size had a significant negative effect on financial distress, meaning increases in these variables reduced financial distress potential. Working capital did not have a significant effect as it is a temporary and dynamic measure. Management of SOEs receiving subsidies can increase profitable investment and leverage to boost revenue and reduce financial distress. Higher cash flow from operations also decreases financial distress.
This document summarizes the debate around India issuing sovereign bonds for the first time. It notes that India already has high levels of domestic debt totaling Rs. 350-400 lakh crore. Issuing dollar-denominated sovereign bonds would expose India to currency and inflation risks given its lower-medium credit rating. While sovereign bonds could raise large funds, India may struggle to find projects that generate enough return to pay the estimated 6-7% coupon rate required due to these risks. The document argues for reforms like reducing government ministries, increasing foreign portfolio investment limits, and privatizing some state projects before relying too heavily on sovereign bonds.
The introduction of the Adviser Charging (AC) regime in the UK will significantly change how customers and financial advisers interact. A survey found that 32% of customers will do their own financial planning instead of paying for advice, while 24% will reduce how often they use an adviser. This will leave up to 5.5 million customers disenfranchised from financial advice. There will be opportunities for investment product providers to target these customers directly. Four potential target customer segments in the advice gap are identified: the disenfranchised wealthy, tech-savvy savers, mass affluent orphans, and mass market orphans.
The document provides an outlook for the UK financial services sector from the ITEM Club. It discusses challenges facing the banking, insurance, and asset management industries.
The key points are:
1) The weakened UK economic outlook presents challenges for banks, which are already struggling with regulatory changes. Bank profits will remain under pressure, forcing more cost cutting and layoffs.
2) Insurance premium growth is expected to be subdued in line with weaker demand, intensifying competition. Asset management growth is also forecast to be modest.
3) Loan demand is expected to be weak given economic uncertainties, and bank loan growth is forecast to turn negative in 2012, with write-offs expected to rise on worsening credit quality
Global Money Management _II_Article SamplesAmrita Sareen
This document discusses the potential for increased investment in U.S. infrastructure by institutional investors like pension funds. While infrastructure investments could provide stable long-term returns to match pension liabilities, commitments from investors to rebuild America's infrastructure have so far been limited. One challenge is the lack of a consistent regulatory framework and definitions for public-private partnerships (PPPs) in the U.S., unlike countries like Canada and Australia where PPP markets are more mature. The document suggests that pooled investments and efforts to reduce transaction costs, like those undertaken by the West Coast Infrastructure Exchange, could help attract more private investment to rebuild critical smaller-scale infrastructure projects in the U.S.
Etude PwC sur le secteur de l’énergie et des énergies renouvelables (2013)PwC France
http://pwc.to/W1uG17
Selon la nouvelle édition de l’étude mondiale « Power & Renewable deals » de PwC, le montant total des transactions dans le secteur de l’électricité et du gaz s’est élevé à 154 milliards de $ en 2012, diminuant de 27% en valeur et de 15% en volume.
Harris Interactive’s UK financial services newsletter.
In this Aug-09 edition we take a look at consumers’ perceptions of the financial services industry given the crisis the industry has faced over the past 18 months. In addition, we explore how
the industry has and continues to adapt and change as it seeks to develop and restore levels of trust and confidence.
The document provides an overview of the Indian government's budget for 2012-2013. Key points include:
- GDP growth is projected at 7.6% for 2012-13 with the 12th five-year plan aiming for faster, sustainable and inclusive growth.
- The government plans to reduce the fiscal deficit through several revenue measures and end the year with a deficit of 5.1%.
- Sectors like power, infrastructure and aviation are open to more foreign investment which could boost growth.
- Several bills related to financial sectors are expected to pass which would strengthen sectors like banking and microfinance.
- Measures to boost key sectors like power, subsidies and tax changes aim to balance expenditures and
Global insurance industry outlook for 2014Prayukth K V
The document provides an outlook for the global insurance industry in 2014. It begins with an introduction from the author, David Lomas, and a review of their predictions for 2013. Several of the 2013 predictions proved accurate, including increased use of ETFs by insurers and the introduction of more managed volatility funds. The document then outlines seven predictions for trends in the insurance industry in 2014, including that low interest rates will drive insurers to seek new sources of income and that regulations will continue to evolve.
The market for sustainable investments has grown to over $12 trillion in the U.S. and the movement of investable assets into sustainable strategies is expected to accelerate. The update reviews the growth of sustainable investing over the last decade and considers the valuation implications for your RIA.
This is the week of predictions, whether it’s the year of the Tiger or the year of Tax the first week of January is awash with crystal balls and hopes of joy and worries of doom.
Defensive Contractor Industry Analysis 2013Sid Aggarwal
This document analyzes the financial performance of four major defense contractors: Boeing, General Dynamics, Lockheed Martin, and Raytheon. It examines each company's profitability, short-term liquidity, and long-term solvency based on financial ratios. While most companies showed strong profitability, Boeing had significant issues with its capital structure due to extremely low shareholder equity leading to very high debt-to-equity ratios, posing major long-term solvency risks. Generally, the defense contracting industry demonstrated good short-term liquidity but faces uncertainties from potential changes in government spending.
Corporate funding reached near-record levels in 2015 despite volatility in financial markets. The largest source of funding was investment grade loans which increased 6% to $1.65 trillion, driven by mergers and acquisitions. Short-term bridge financing made up 38% of the top 20 investment grade deals. While investment grade lending increased, other markets like leveraged loans declined due to deteriorating oil and commodity sectors. Overall, companies had more options for raising funds in 2015 than ever before.
Mercer Capital's Bank Watch | October 2020 | Low Rates and Tighter NIMs Spur ...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Mercer Capital's Bank Watch | December 2021 | Bank M&A 2022 | Gaining AltitudeMercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
- Healthcare venture investment declined as a percentage of total venture dollars but remained strong at $6.7 billion in 2013, driven by IPO activity and later-stage financing rounds.
- Venture fundraising stabilized around $3.5-4 billion annually, maintaining a healthy level of funding for innovation. Investment is expected to decline slightly to $5-5.5 billion as IPO activity cools.
- Biopharma saw increased corporate venture participation in Series A financings, bolstering early-stage funding levels. Device Series A investment remained low due to less overall funding and focus on later stages.
Venture Capital Investments Q1 ’06 – MoneyTree Release mensa25
Venture capital investing was $5.6 billion in Q1 2006, a 12% increase from the same period in 2005. Biotechnology investing declined 24% from the previous quarter while media and entertainment investing increased 80%. Later stage company valuations reached a 4-year high of $92 million on average. The document provides details on investments by sector, stage of development, first-time investments, and company valuations. It also includes contacts for additional information.
Venture capital has funded the creation of many new industries in the US. Some examples include:
- Healthcare industries like biotechnology, medical devices, electronic medical records, and healthcare IT.
- Technology industries like semiconductors, personal computers, the internet, software, social media and clean technology.
- Other industries include agricultural products, lighting systems, energy storage, and advanced building materials. Venture capital has played a key role in the founding of thousands of companies in these and other sectors.
This document summarizes a journal article that examines the relationship between private capital formation and public investment in Sudan from 1970-1998. It finds that both private and public investment stimulated economic growth, but private investment had a more pronounced impact. Public investment appears to have negatively impacted private physical capital expansion, implying crowding-out of private investment by public sector investment. This crowding-out effect weakened the positive impact of public investment on growth by reducing private sector capital undertakings.
• •Intensity of service• •Charges for specific procedures.docxanhlodge
• •Intensity of service
• •Charges for specific procedures
(Cleverley 243-254)
Cleverley, William O. Essentials of Health Care Finance, 7th Edition.
Jones & Bartlett Learning, 20101022. VitalBook file.
Chapter 12 Financial Analysis of Alternative
Healthcare Firms
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
• 1.List some of the major nonhospital and nonphysician
sectors of the healthcare industry.
• 2.Discuss the sources of revenue for the nursing home
industry.
Average Case Weight =
36
30
=
1.2
• 3.Discuss the major sources of revenue and expenses of
medical groups.
• 4.List and describe the major organizational types of
physician groups.
• 5.Describe alternative health maintenance organization
arrangements.
REAL-WORLD SCENARIO
Laura Rose has been recently appointed to the Board of ElderCare, a
large, for-profit operator of skilled nursing facilities (SNFs) around the
country. Laura’s first committee assignment is to the Treasury
Committee because of her prior business experience. Although Laura
had extensive experience as a hospital administrator, she had
relatively little familiarity with the SNF industry. Upon reviewing
ElderCare’s recent financial statements, she was concerned about the
dramatically declining financial position. She noticed that revenues
were declining on per facility and per patient bases. Meanwhile, the
company’s debt had been downgraded, and its borrowing costs had
risen substantially.
She is aware that Medicare implemented a SNF prospective payment
system as part of the Balanced Budget Act of 1997. Payment
increases by Medicare and Medicaid have not kept pace with
increases in costs in recent years. She wonders whether this might be
a factor in the company’s financing issues. In general, profitability in
the long-term care industry has declined significantly in recent years,
and several industry leaders had filed for bankruptcy protection.
Although some believe that SNF prospective payment systems were
largely to blame, other factors, such as ill-advised acquisitions,
excessive long-term debt, and poor balance sheets, probably
contributed as well. In essence, she is unsure whether ElderCare’s
financing difficulties are unique to management issues at ElderCare or
whether they reflect more general market conditions and economic
and reimbursement trends.
To understand the issue better, Laura needs to estimate the direct
financial impact of SNF reimbursement. She asked the ElderCare
treasury and controller’s office staff to prepare an analysis of the
financial performance of selected long-term care facilities over the
period 2006 to 2010. In particular, she wants to know how SNF-bond
ratings have been affected by prospective payment systems and what
other factors might have contributed to the industry’s deteriorating
financial performance.
In Chapter 11 we discussed the measures and concepts of financial
analysis in some .
1) Infrastructure assets support economic growth by providing essential services and facilities through stable cash flows that appeal to equity and debt investors. Infrastructure investments can be accessed through various public and private markets.
2) Listed infrastructure equities may outperform the broader market in returns but also correlate highly with market sentiment. Given current high valuations, listed infrastructure is only expected to provide mid single digit returns.
3) Unlisted infrastructure equity offers greater diversification but high fundraising and low asset sales have pushed prices up, lowering expected returns to 6-8%. Infrastructure debt provides stable income but access is mainly through private rather than public markets.
Venture capital investment in Q2 2007 reached its highest level since 2001, with $7.1 billion invested across 977 deals. This was driven by increased investment in seed and early stage companies. While the number of deals increased, the average deal size decreased, indicating venture capitalists are taking a measured approach. The software sector saw the strongest quarter since 2001. Life sciences also had a very active quarter, while internet deals declined from Q1 2007.
institutional investment in infrastructure development in developing countriesArslan Shani
This document discusses the potential for institutional investors to help fill the infrastructure financing gap in developing countries. It finds that while infrastructure projects could deliver long-term returns for institutional investors, investments in emerging markets require careful structuring. The document analyzes the types of institutional investors and their current limited allocations to emerging market infrastructure. It also examines challenges to increasing such allocations, like sovereign risk and a lack of investable projects. Finally, it considers models for institutional investor involvement in infrastructure in developing countries.
Venture capital investing totaled $4.6 billion in 674 companies in Q1 2005, below the previous quarter but within the $4-6 billion range seen over the past two years. First-time funding increased to $1.2 billion while life sciences investing declined for the first time in two years. Later stage deals accounted for 40% of funding while early stage deals received 16% of funding, similar to previous quarters. The software industry received the most funding of any sector at $1.1 billion.
Cost of Capital for State Owned Enterprises Stephen Labson slEconomicsStephen Labson
slEconomics is a boutique economics consulting firm based in Sydney, Australia that provides specialized advice to governments, regulators, and corporate clients in the areas of utilities and infrastructure. The document summarizes a workshop on estimating the cost of capital for regulated state-owned enterprises in South Africa. It discusses key determinants of the cost of debt and equity and how they apply in the context of state-owned enterprises, focusing on risk-adjusted rates of return and benchmarking to private sector costs of capital.
This years review is a super summary of events I did follow closely leaving much unmentioned such as the Diversity Investment Movement. Partly because I did not see it materialized in inclusive impact investments …. yet :)
A year ago I stated: the understanding of the impact of investing is evolving. 2020 turned out to be a pressure cooker. Lockdown's focusing on essential, vital services reflect the importance of Basic Needs, ImpactTech & Societal infrastructure. Supporting my prediction of a sectoral shake down built on Columbia Threadneedles Social Bond Fund strategy & Bob Eccles, Betti & Consolandi paper 'Contributing to the Global Goals is easier than you think' (MITSloan Review 2018 & Bob Eccles Forbes.com series with detailed (sub)sector and Global Goals analysis.).
Traditionally omnipotent companies & sectors fell from grace, the negative price for oil futures made history. 'Healthcare' stock boomed as the vaccine & cure race accelerated and 'Tech' saw shifts in demand & consumption surge its equity. Supply Chain & Risk Management awareness of possibilities over probabilities boomed.
NO DIVESTING NEEDED
I had no reason to divest when global money markets were crashing and with my portfolio holding it's stance. So no released capital to invest in Corona champions. I wasn't very brave with a minute investment in a HealthTech ETF.
Once market's morale bounced back and always a sucker for Impact IPOs I found one this year that was also sold through a SPAC Special Purpose Acquisition Company with very exciting EdTech and even an inclusive impact investment Fintech. And diversification is always a good strategy. Please note that some see the surge of SPACs as a Bubble Warning sign. But for Impact Investors catalytic change mostly has to come from new innovative companies, so why not ride the surf?
Also such Inclusive Pre IPO impact investing is of course my cup of tea, so when I found another SPAC holding a vegan company I couldn't resist. Especially as I am an early #BYND Beyond Meat investor.
All in all, a quiet investment year for me with the satisfaction that my inclusive impact investing portfolio strategy worked.
Etude PwC sur le secteur de l’énergie et des énergies renouvelables (2013)PwC France
http://pwc.to/W1uG17
Selon la nouvelle édition de l’étude mondiale « Power & Renewable deals » de PwC, le montant total des transactions dans le secteur de l’électricité et du gaz s’est élevé à 154 milliards de $ en 2012, diminuant de 27% en valeur et de 15% en volume.
Harris Interactive’s UK financial services newsletter.
In this Aug-09 edition we take a look at consumers’ perceptions of the financial services industry given the crisis the industry has faced over the past 18 months. In addition, we explore how
the industry has and continues to adapt and change as it seeks to develop and restore levels of trust and confidence.
The document provides an overview of the Indian government's budget for 2012-2013. Key points include:
- GDP growth is projected at 7.6% for 2012-13 with the 12th five-year plan aiming for faster, sustainable and inclusive growth.
- The government plans to reduce the fiscal deficit through several revenue measures and end the year with a deficit of 5.1%.
- Sectors like power, infrastructure and aviation are open to more foreign investment which could boost growth.
- Several bills related to financial sectors are expected to pass which would strengthen sectors like banking and microfinance.
- Measures to boost key sectors like power, subsidies and tax changes aim to balance expenditures and
Global insurance industry outlook for 2014Prayukth K V
The document provides an outlook for the global insurance industry in 2014. It begins with an introduction from the author, David Lomas, and a review of their predictions for 2013. Several of the 2013 predictions proved accurate, including increased use of ETFs by insurers and the introduction of more managed volatility funds. The document then outlines seven predictions for trends in the insurance industry in 2014, including that low interest rates will drive insurers to seek new sources of income and that regulations will continue to evolve.
The market for sustainable investments has grown to over $12 trillion in the U.S. and the movement of investable assets into sustainable strategies is expected to accelerate. The update reviews the growth of sustainable investing over the last decade and considers the valuation implications for your RIA.
This is the week of predictions, whether it’s the year of the Tiger or the year of Tax the first week of January is awash with crystal balls and hopes of joy and worries of doom.
Defensive Contractor Industry Analysis 2013Sid Aggarwal
This document analyzes the financial performance of four major defense contractors: Boeing, General Dynamics, Lockheed Martin, and Raytheon. It examines each company's profitability, short-term liquidity, and long-term solvency based on financial ratios. While most companies showed strong profitability, Boeing had significant issues with its capital structure due to extremely low shareholder equity leading to very high debt-to-equity ratios, posing major long-term solvency risks. Generally, the defense contracting industry demonstrated good short-term liquidity but faces uncertainties from potential changes in government spending.
Corporate funding reached near-record levels in 2015 despite volatility in financial markets. The largest source of funding was investment grade loans which increased 6% to $1.65 trillion, driven by mergers and acquisitions. Short-term bridge financing made up 38% of the top 20 investment grade deals. While investment grade lending increased, other markets like leveraged loans declined due to deteriorating oil and commodity sectors. Overall, companies had more options for raising funds in 2015 than ever before.
Mercer Capital's Bank Watch | October 2020 | Low Rates and Tighter NIMs Spur ...Mercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
Mercer Capital's Bank Watch | December 2021 | Bank M&A 2022 | Gaining AltitudeMercer Capital
Brought to you by the Financial Institutions Team of Mercer Capital, this monthly newsletter is focused on bank activity in five U.S. regions. Bank Watch highlights various banking metrics, including public market indicators, M&A market indicators, and key indices of the top financial institutions, providing insight into financial institution valuation issues.
- Healthcare venture investment declined as a percentage of total venture dollars but remained strong at $6.7 billion in 2013, driven by IPO activity and later-stage financing rounds.
- Venture fundraising stabilized around $3.5-4 billion annually, maintaining a healthy level of funding for innovation. Investment is expected to decline slightly to $5-5.5 billion as IPO activity cools.
- Biopharma saw increased corporate venture participation in Series A financings, bolstering early-stage funding levels. Device Series A investment remained low due to less overall funding and focus on later stages.
Venture Capital Investments Q1 ’06 – MoneyTree Release mensa25
Venture capital investing was $5.6 billion in Q1 2006, a 12% increase from the same period in 2005. Biotechnology investing declined 24% from the previous quarter while media and entertainment investing increased 80%. Later stage company valuations reached a 4-year high of $92 million on average. The document provides details on investments by sector, stage of development, first-time investments, and company valuations. It also includes contacts for additional information.
Venture capital has funded the creation of many new industries in the US. Some examples include:
- Healthcare industries like biotechnology, medical devices, electronic medical records, and healthcare IT.
- Technology industries like semiconductors, personal computers, the internet, software, social media and clean technology.
- Other industries include agricultural products, lighting systems, energy storage, and advanced building materials. Venture capital has played a key role in the founding of thousands of companies in these and other sectors.
This document summarizes a journal article that examines the relationship between private capital formation and public investment in Sudan from 1970-1998. It finds that both private and public investment stimulated economic growth, but private investment had a more pronounced impact. Public investment appears to have negatively impacted private physical capital expansion, implying crowding-out of private investment by public sector investment. This crowding-out effect weakened the positive impact of public investment on growth by reducing private sector capital undertakings.
• •Intensity of service• •Charges for specific procedures.docxanhlodge
• •Intensity of service
• •Charges for specific procedures
(Cleverley 243-254)
Cleverley, William O. Essentials of Health Care Finance, 7th Edition.
Jones & Bartlett Learning, 20101022. VitalBook file.
Chapter 12 Financial Analysis of Alternative
Healthcare Firms
LEARNING OBJECTIVES
After studying this chapter, you should be able to do the following:
• 1.List some of the major nonhospital and nonphysician
sectors of the healthcare industry.
• 2.Discuss the sources of revenue for the nursing home
industry.
Average Case Weight =
36
30
=
1.2
• 3.Discuss the major sources of revenue and expenses of
medical groups.
• 4.List and describe the major organizational types of
physician groups.
• 5.Describe alternative health maintenance organization
arrangements.
REAL-WORLD SCENARIO
Laura Rose has been recently appointed to the Board of ElderCare, a
large, for-profit operator of skilled nursing facilities (SNFs) around the
country. Laura’s first committee assignment is to the Treasury
Committee because of her prior business experience. Although Laura
had extensive experience as a hospital administrator, she had
relatively little familiarity with the SNF industry. Upon reviewing
ElderCare’s recent financial statements, she was concerned about the
dramatically declining financial position. She noticed that revenues
were declining on per facility and per patient bases. Meanwhile, the
company’s debt had been downgraded, and its borrowing costs had
risen substantially.
She is aware that Medicare implemented a SNF prospective payment
system as part of the Balanced Budget Act of 1997. Payment
increases by Medicare and Medicaid have not kept pace with
increases in costs in recent years. She wonders whether this might be
a factor in the company’s financing issues. In general, profitability in
the long-term care industry has declined significantly in recent years,
and several industry leaders had filed for bankruptcy protection.
Although some believe that SNF prospective payment systems were
largely to blame, other factors, such as ill-advised acquisitions,
excessive long-term debt, and poor balance sheets, probably
contributed as well. In essence, she is unsure whether ElderCare’s
financing difficulties are unique to management issues at ElderCare or
whether they reflect more general market conditions and economic
and reimbursement trends.
To understand the issue better, Laura needs to estimate the direct
financial impact of SNF reimbursement. She asked the ElderCare
treasury and controller’s office staff to prepare an analysis of the
financial performance of selected long-term care facilities over the
period 2006 to 2010. In particular, she wants to know how SNF-bond
ratings have been affected by prospective payment systems and what
other factors might have contributed to the industry’s deteriorating
financial performance.
In Chapter 11 we discussed the measures and concepts of financial
analysis in some .
1) Infrastructure assets support economic growth by providing essential services and facilities through stable cash flows that appeal to equity and debt investors. Infrastructure investments can be accessed through various public and private markets.
2) Listed infrastructure equities may outperform the broader market in returns but also correlate highly with market sentiment. Given current high valuations, listed infrastructure is only expected to provide mid single digit returns.
3) Unlisted infrastructure equity offers greater diversification but high fundraising and low asset sales have pushed prices up, lowering expected returns to 6-8%. Infrastructure debt provides stable income but access is mainly through private rather than public markets.
Venture capital investment in Q2 2007 reached its highest level since 2001, with $7.1 billion invested across 977 deals. This was driven by increased investment in seed and early stage companies. While the number of deals increased, the average deal size decreased, indicating venture capitalists are taking a measured approach. The software sector saw the strongest quarter since 2001. Life sciences also had a very active quarter, while internet deals declined from Q1 2007.
institutional investment in infrastructure development in developing countriesArslan Shani
This document discusses the potential for institutional investors to help fill the infrastructure financing gap in developing countries. It finds that while infrastructure projects could deliver long-term returns for institutional investors, investments in emerging markets require careful structuring. The document analyzes the types of institutional investors and their current limited allocations to emerging market infrastructure. It also examines challenges to increasing such allocations, like sovereign risk and a lack of investable projects. Finally, it considers models for institutional investor involvement in infrastructure in developing countries.
Venture capital investing totaled $4.6 billion in 674 companies in Q1 2005, below the previous quarter but within the $4-6 billion range seen over the past two years. First-time funding increased to $1.2 billion while life sciences investing declined for the first time in two years. Later stage deals accounted for 40% of funding while early stage deals received 16% of funding, similar to previous quarters. The software industry received the most funding of any sector at $1.1 billion.
Cost of Capital for State Owned Enterprises Stephen Labson slEconomicsStephen Labson
slEconomics is a boutique economics consulting firm based in Sydney, Australia that provides specialized advice to governments, regulators, and corporate clients in the areas of utilities and infrastructure. The document summarizes a workshop on estimating the cost of capital for regulated state-owned enterprises in South Africa. It discusses key determinants of the cost of debt and equity and how they apply in the context of state-owned enterprises, focusing on risk-adjusted rates of return and benchmarking to private sector costs of capital.
This years review is a super summary of events I did follow closely leaving much unmentioned such as the Diversity Investment Movement. Partly because I did not see it materialized in inclusive impact investments …. yet :)
A year ago I stated: the understanding of the impact of investing is evolving. 2020 turned out to be a pressure cooker. Lockdown's focusing on essential, vital services reflect the importance of Basic Needs, ImpactTech & Societal infrastructure. Supporting my prediction of a sectoral shake down built on Columbia Threadneedles Social Bond Fund strategy & Bob Eccles, Betti & Consolandi paper 'Contributing to the Global Goals is easier than you think' (MITSloan Review 2018 & Bob Eccles Forbes.com series with detailed (sub)sector and Global Goals analysis.).
Traditionally omnipotent companies & sectors fell from grace, the negative price for oil futures made history. 'Healthcare' stock boomed as the vaccine & cure race accelerated and 'Tech' saw shifts in demand & consumption surge its equity. Supply Chain & Risk Management awareness of possibilities over probabilities boomed.
NO DIVESTING NEEDED
I had no reason to divest when global money markets were crashing and with my portfolio holding it's stance. So no released capital to invest in Corona champions. I wasn't very brave with a minute investment in a HealthTech ETF.
Once market's morale bounced back and always a sucker for Impact IPOs I found one this year that was also sold through a SPAC Special Purpose Acquisition Company with very exciting EdTech and even an inclusive impact investment Fintech. And diversification is always a good strategy. Please note that some see the surge of SPACs as a Bubble Warning sign. But for Impact Investors catalytic change mostly has to come from new innovative companies, so why not ride the surf?
Also such Inclusive Pre IPO impact investing is of course my cup of tea, so when I found another SPAC holding a vegan company I couldn't resist. Especially as I am an early #BYND Beyond Meat investor.
All in all, a quiet investment year for me with the satisfaction that my inclusive impact investing portfolio strategy worked.
Venture capital investing reached its highest level since 2002 in Q2 2006, with $6.3 billion invested across 856 deals. This represented a 2% increase in dollars and 5% increase in deals from the previous quarter. Biotechnology saw the largest gains, with 112 deals and 34% more dollars than Q1. Seed/early stage deals and expansion stage dollars both grew from Q1 as well. The number of first-time financings reached a five-year high.
Life Sciences Regain Prominence in Venture Capital Arenamensa25
Venture capital investments in biotechnology and medical device companies totaled $4.7 billion in 2002, accounting for 22% of all venture capital investing. This was the highest proportion in seven years. While life sciences investing increased 70% from 1998, investing in other industries decreased 12% in the same period. Venture capital has played an important role in developing the life sciences industries for decades by providing patient capital and supporting companies through development. Valuations of life sciences companies have steadily increased over the past five years, unlike other industries where valuations fluctuated or declined.
The document summarizes a report from the Deloitte Center for the Edge about long-term trends fundamentally reshaping business landscapes called "The Big Shift". It finds that return on assets for U.S. public companies has declined 75% since 1965, suggesting the current way of doing business is broken. The report provides industry-level analysis of these trends for nine major U.S. industries. It finds few safe harbors from increasing performance pressures and that industries are experiencing these pressures earlier and more severely depending on their involvement with digital technologies. The report also discusses how customers and creative talent are benefiting from these trends more than companies are.
This document summarizes a case study on the impact of the global financial crisis on four large Australian construction companies. It finds that all four companies - Centro Properties Group, Valad Property Group, Raptis Group Limited, and CEC Group - reported losses from 2008-2010 after experiencing rapid growth during the real estate boom earlier in the decade. Centro Properties Group in particular is discussed in depth, showing how it expanded aggressively through acquisitions but then faced a collapse in its share price in 2007 when it could not refinance debt. By 2010, Centro's financial ratios indicated severe declines in profitability and efficiency. The crisis overwhelmed these companies and either led to receivership, buyouts, or liquidation of
The SVB M&A Healthcare Report 2013 examines the merger and acquisition behavior of private, venture capital-backed biotech and medical device companies.
Based on an analysis of private merger or acquisition transactions of US-based, venture capital-backed companies between 2005 and 2012, Silicon Valley Bank found continued growth in the number of “Big Exits” among biotech, healthcare services and medical device companies. Big Exits were defined as acquisitions where the upfront payment totaled in excess of $50 million for device and service companies and $75 million for biotech companies.
Highlights
- 38 Big Exits in 2012 -- 8 year high
- Estimated $16 billion in payouts to investors in private Big Exit M&A in last three years
- 44% of achievable milestones hit in structured biotech and device deals
Indian Healthcare Sector report meg strat consultingRahul Arora
The Indian healthcare industry is highly fragmented and dominated by private players. It is expected to grow at 24.1% annually until 2020, fueled by investments from hospital chains and private equity firms. Demand will rise exponentially due to demographics, lifestyle diseases, incomes, and health insurance. However, India's current infrastructure cannot meet this demand. The private sector is expected to contribute 80-85% of the $86 billion required investment until 2025. The industry offers opportunities to expand infrastructure, though challenges around quality and access remain. Government support will be important for overall development.
Similar to Astor Group Health Care White Paper (20)
Indian Healthcare Sector report meg strat consulting
Astor Group Health Care White Paper
1. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
ABSTRACT
Although the recent
pull quote
Investment in the Healthcare Industry
2 0 1 0 O U T L O O K
1
Centers for Medicare & Medicaid Services, NHE Fact Sheet Chris Dimitropoulos
2
Irvin Levin Associates
Seth Zalkin
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2. INVESTMENT IN THE HEALTHCARE INDUSTRY:
2010 OUTLOOK
Chris Dimitropoulos (Dimitropoulos@theastorgroup.com)
Seth Zalkin (Zalkin@theastorgroup.com)
ABSTRACT
Although the recent recession has affected investment levels across all industries, the
relative investment in healthcare companies suggests that investors remain optimistic about
opportunities within the industry. Healthcare services remain the most attractive targets,
particularly those companies in the clinic/outpatient services setting. We believe healthcare
investments will comprise an increasingly larger percentage of private equity portfolios over the
next several years, driven by investors’ increasing familiarity with industry operating models,
above-market growth in numerous subsectors, opportunities for improved business models and
favorable demographic trends.
INTRODUCTION
While recent attention on the U.S. healthcare industry has often focused on its inefficiencies,
private equity firms continue to view healthcare as an attractive industry for investment, and
healthcare companies continue to be willing partners. As the private equity industry has matured,
its ability to understand healthcare companies and their idiosyncratic operating models has
enabled investors to better maximize value after acquisitions and orchestrate successful exits.
In many ways, the U.S. In many ways, the U.S. healthcare industry has never been healthier. The industry currently
healthcare industry has generates approximately $2.3 trillion in revenue annually, or 17% of U.S. GDP1, and that
never been healthier. number is expected to grow to 20% by the end of this decade. Despite challenging economic
conditions, the aggregate dollar amount of healthcare mergers and acquisitions in 2009 was the
second highest year ever recorded.2
Although investors are unable to completely mitigate against the regulatory and reimbursement
risk associated with much of the healthcare industry, with increased knowledge private equity
investors have found the risk-reward profile appealing. Increasingly, private equity investors
believe they can generate above-market returns by acquiring companies with strong operating
models, removing costs from the healthcare system and presenting a platform for growth. As a
result, owners of healthcare companies have found private equity firms to be attractive partners
to support growth or provide owner liquidity, and they have often received generous valuations
for their businesses.
In this paper, we analyze recent trends in private equity investment and share our outlook for
the coming years.
1
Centers for Medicare & Medicaid Services, NHE Fact Sheet
2
Irvin Levin Associates
www.theastorgroup.co m PA G E 1
3. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
PART 1: RECENT DEAL ANALYSIS
The recent recession has had a profound effect on private equity investments across most industries
around the world. The confluence of a constrained global banking system that has limited the
amount of debt available to support investments and lower valuations of portfolio companies
has caused many private equity firms to stay on the sidelines until the dust clears. Private equity
investment in the U.S. has plummeted from its apex in 2007, as measured by deal count, aggregate
deal value and average deal size (Exhibit 1). While the most recent data suggests a modest uptick
in private equity investments in 2010, it is still too early to predict a swift return to 2007 levels.
EXHIBIT 1: U.S. PRIVATE EQUITY DEAL FLOW
AND COUNT (2005-2009)
Today’s private equity landscape reflects a new paradigm. Fiscal pragmatism has replaced the
exuberance of the previous era as a result of a more conservative lending culture and a lower
appetite for risk. Deals typically take longer to close, rely less on leverage and have lower
valuations. As a result, private equity investments have largely shifted to smaller deals that
complement existing platforms or deals that provide a platform to enter high-growth markets.
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4. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
DEAL ACTIVITY
In addition to a challenging economy, the uncertainty surrounding healthcare reform gave many
investors pause in 2009. Interestingly, although the healthcare debate kept many equity investors
on the sidelines and led to sector underperformance for healthcare equities3, total healthcare
M&A and private equity investment in healthcare held up quite well relative to other sectors. In
fact, total healthcare M&A (strategic companies and financial entities) recorded its second largest
year ever with transactions valued at $233 billion, up 3% year-over-year4. The overall healthcare
market was driven by record deal value totals in the pharmaceuticals industry, while private equity
investment rebounded sharply in the fourth quarter of 2009.
EXHIBIT 2: U.S. HEALTHCARE MERGERS AND
ACQUISITIONS (2008-2009)
TOTAL HEALTHCARE M&A, 2008 2009
Deal Volume Dollar Volume
2009 2008 Change 2009 2008 Change
Biotechnology 194 148 31% $47,533,049,000 $93,879,257,000 -49%
Pharmaceuticals 140 140 0% $147,223,447,000 $40,644,108,000 262%
Medical devices 175 167 5% $13,734,984,000 $69,305,608,000 -80%
Healthcare technology 68 69 -1% $11,301,925,000 $4,168,424,000 171%
Healthcare services
Long-term care 75 96 -22% $4,286,183,000 $1,835,065,000 134%
Hospitals 52 60 -13% $1,676,000,000 $2,579,600,000 -35%
Home health 42 47 -11% $114,697,000 $2,381,082,000 -95%
Physician medical groups 41 53 -23% $44,900,000 $274,540,000 -84%
Laboratories, MRI, dialysis 30 41 -27% $66,757,000 $635,266,000 -89%
Managed care 15 16 -6% $761,500,000 $1,982,710,000 -62%
Rehabilitation 11 27 -59% $22,085,000 $43,305,000 -49%
Behavioral health 11 14 -21% $46,759,000 $166,650,000 -72%
Other 78 123 -37% $6,064,530,000 $8,944,252,000 -32%
Total 355 477 -26% $13,083,411,000 $18,842,470,000 -31%
TOTAL HEALTHCARE M&A 932 1,001 -7% *$232,876,816,000 *$226,839,867,000 3%
*Dollar volume totals are not complete as many deal values are not disclosed
Source: Levin Associates
We expect that the removal Despite healthcare reform uncertainty, healthcare deals increased from 12% of U.S. private equity
of the market uncertainty deals in 2008 to 13% in 2009, up sharply from less than 10% in 2004 and an average of 10.5% over
arising from the passage of the past 8 years (Exhibit 3). Early returns in 2010 indicate that this trend will continue; 19% of
healthcare reform should
all closed investments in early 2010 were in healthcare companies. We expect that the removal of
act as a catalyst for more
industry activity.
the market uncertainty arising from the passage of healthcare reform should act as a catalyst for
more industry activity. The addition of more than 30 million new customers to the system and
an established regulatory framework will allow investors to more confidently analyze healthcare
opportunities.
3
2009 S&P500 return of +23% vs. +18% for healthcare components of S&P500
4
IMS Health: Pharmerging Shake-up: New Imperatives in a re-defined world, March 2010, by David Campbell and Mandy Chui
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5. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
EXHIBIT 3: U.S. PRIVATE EQUITY HEALTHCARE DEALS
AS A % OF OVERALL DEALS (2004-2009)
HEALTHCARE DEALS BY SUBSECTOR
When looking back at Although the pharmaceuticals & biotechnology and medical device subsectors have attracted
healthcare deals over the majority of industry headlines, the most popular investment subsector has consistently been
the past five years, healthcare services. Of the 125 U.S. healthcare private equity deals made in 2009, 38% were
the healthcare services
made in the healthcare services subsector (Exhibit 4). In fact, when looking back at healthcare
subsector has consistently
deals over the past five years, the healthcare services subsector has accounted for the majority
accounted for the majority
of closed deals. of closed deals. As set forth in further detail below, we expect this trend to continue over the
coming years.
After healthcare services, the pharmaceuticals & biotechnology subsector was the next most
active subsector in 2009 (26% of private equity deals—up sharply from 16% a year ago),
followed by devices & supplies (25% of private equity deals). We view 2009 private equity
investment levels in the pharmaceuticals & biotechnology as particularly striking given the
strong levels of strategic M&A that also occurred during the past year. Healthcare technology
deals have also been a source of strength for the industry, as investors have been and continue to
be keen on acquiring companies that remove costs from the healthcare system. We believe that
this appetite will continue as investors focus on companies that will benefit from the recently
passed healthcare reform legislation. Well-positioned healthcare technology companies are
currently attracting upwards of 12-13x EBITDA upon acquisition, at the top end of the range
for healthcare companies.
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6. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
EXHIBIT 4: U.S. PRIVATE EQUITY DEALS IN HEALTHCARE
SUBSECTORS AS A % OF HEALTHCARE DEALS
(2004-2009)
TRENDS
The fourth quarter of Taking a closer look at the data, deal activity in 2009 was dominated by lower- and middle-market
2009 saw the value of deals, accounting for over 90% of completed transactions. As previously detailed, this trend can
deals closed reach its largely be attributed to tight credit and investors’ low appetite for risk. Recognizing that yearly deal
first sequential increase value totals and year-over-year comps are imprecise given the selective disclosure of deal amounts,
in more than a year at available data shows that total invested capital declined from $205 billion in 2008 to $43 billion in
$15.3 billion, the highest
2009. The majority of this year-over-year drop can be attributed to the decline in deals valued at over
quarterly result of the
year.
$1 billion. Encouragingly, these larger investments demonstrated preliminary signs of recovery
in the second half of 2009 with four completed deals over $1 billion compared to just one in the first
half of the year. Moreover, the fourth quarter of 2009 saw the value of deals closed reach its first
sequential increase in more than a year at $15.3 billion, the highest quarterly result of the year.
Upon analyzing the types of deals that closed in 2009, private equity growth capital posted
the highest growth while private placements also grew dramatically (Exhibits 5 and 6).
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8. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
INVESTORS
The list of the most Private equity investors are allocating an increasing amount of their portfolio assets to the
active private equity healthcare industry. There is substantial room for growth as many established private equity
investors illustrates a firms have only recently begun to invest in the healthcare space. The list of the most active
mix of generalist funds private equity investors illustrates a mix of generalist funds and dedicated healthcare funds.
and dedicated healthcare In 2009, the following three firms tied for the most closed deals in the healthcare industry,
funds. each making five investments: RoundTable Healthcare Partners, The Riverside Company and
Welsh, Carson, Anderson & Stowe. The next tier of investors each made four investments:
Galen Partners, Parthenon Capital Partners and Water Street Healthcare Partners. Looking at
the past several years, five of the six most active healthcare investors of 2009 also ranked among
the most active private equity firms of the past three years. Warburg Pincus was the second most
active private equity investor in healthcare over the past three years, completing nineteen deals,
second only to Welsh, Carson, Anderson & Stowe’s twenty-nine investments.
EXHIBIT 7: MOST ACTIVE PRIVATE EQUITY FIRMS
IN HEALTHCARE
2009 2007–2009
PE Firm Number of HC Deals PE Firm Number of HC Deals
RoundTable Healthcare Partners 5 Welsh, Carson, Anderson & Stowe 29
The Riverside Company 5 Warburg Pincus 19
Welsh, Carson, Anderson & Stowe 5 Parthenon Capital Partners 16
Galen Partners 4 RoundTable Healthcare Partners 14
Parthenon Capital Partners 4 Water Street Healthcare Partners 14
Water Street Healthcare Partners 4 The Riverside Company 13
Aurora Capital Group 3 MTS Health Partners 12
Caltius Equity 3 The Blackstone Group 12
Cortec Group 3 TPG Capital 12
JLL Partners 3 Ferrer Freeman & Company 10
Lee Equity Partners 3 GS Capital Partners 10
Marlin Equity Partners 3 Oaktree Capital Management 10
Perseus 3 Thoma Bravo 10
SV Life Sciences 3 DW Healthcare Partners 9
Telegraph Hill Partners 3 Galen Partners 9
The Carlyle Group 3 GTCR Golder Rauner 9
Thoma Bravo 3 Riverside Partners 9
SV Life Sciences 9
Source: Pitchbook
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9. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
SPOTLIGHT ON EMERGING MARKETS
The exceptional returns enjoyed by investors in emerging market equities coupled
with a domestic recession have led many U.S. private equity investors and acquisitive
multinationals to make investments abroad. Investments in the developing BRIC
countries (Brazil, Russia, India and China) offer favorable consumer socioeconomic
trends and expansive industry growth. Although more elaborate due diligence and
trusted local professionals are required, we believe that emerging markets represent
a compelling opportunity for private equity investors to achieve near-term market
outperformance in the healthcare industry.
Historically, healthcare companies in emerging markets have often been
underrepresented in private equity and multinational companies’ portfolios. But
recent trends suggest that this is about to change. Large pharmaceutical companies
such as Novartis, Sanofi-Aventis and GlaxoSmithKline have been leading the charge
by acquiring local companies, increasing their local partnerships and making major
investments in R&D and manufacturing in emerging markets.
Within the BRIC countries, we view the Brazilian healthcare market as the most
attractive, and we anticipate that private equity investment in the industry will lead
to above-market returns. According to a recent report by IMS Health, Brazilian
The Brazilian healthcare consumers will buy more medications than consumers in the U.K. in 2010, with
industry presents consumer growth in the Brazilian healthcare market coming from the swelling middle-
abundant opportunities class5. Moreover, the Brazilian healthcare industry presents abundant opportunities
for consolidation,
for consolidation, where most subsectors are extremely fragmented and dominated
where most subsectors
are extremely fragmented
by private companies. Unlike the U.S., where healthcare services and branded
and dominated by pharmaceuticals & biotechnology are the most active subsectors, the Brazilian market
private companies. has seen the majority of industry consolidation occur in its most mature industries:
managed care, diagnostics, generics and retail pharmacy subsectors.
The majority of consolidation has come from local strategic companies, due in large part
to limited competition from the underrepresented domestic private equity industry and
limited foreign private equity investment. Without competitive bidding, acquisition
multiples in Brazil have historically been less than those in the U.S. market. Local private
equity investors do, however, enjoy stakes in some of Brazil’s large healthcare companies,
including diagnostics company Fleury Labs, pharmaceutical distributor Droga Raia and
biotechnology company Setiba Participacoes. We expect the relative significance of local
strategic companies to gradually decline as the Brazilian private equity industry matures,
foreign private equity firms increase their exposure to the market and foreign companies
continue to seek growth opportunities abroad.
With increased demand, we anticipate rising valuations and easier exit opportunities for
Brazilian entrepreneurs and investors. We also expect competition to be especially fierce
in the generic drug space, where global branded pharmaceutical manufacturers are very
enthusiastic about acquiring Brazilian companies. For the reasons set forth above, we
anticipate a significant window for worldwide private equity firms to take advantage of
opportunities in the Brazilian healthcare industry and achieve above-market returns.
5
IMS Health: Pharmerging Shake-up: New Imperatives in a re-defined world, March 2010, by David Campbell and Mandy Chui
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10. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
EXIT STRATEGIES
Successful private equity exits, which include corporate sales, IPOs and secondary transactions,
largely mirrored the overall private equity market in 2009, declining 50% from 2008 and 67%
compared to 2007. The main causes were the global recession, a cool IPO market, portfolio
company underperformance and the lack of available leverage.
As conditions began to improve in the second half of 2009, exit activity increased by 33%
compared to the first half of the year. In total, there were twenty-five completed PE-backed
IPO’s during the year (including four in the healthcare industry), netting $6.7 billion. It
Many private equity
investors have instead opted should be noted that a number of these IPOs did not represent full exits, but rather were
to focus on improving recapitalizations used to pay down debt and provide investors with partial returns compared to
portfolio company balance the first half of the year.
sheets and performance in Corporate acquisitions of private equity-backed companies also faced a difficult 2009, as
preparation for better exit strategic companies protected their war chests and debt financing was not readily available.
opportunities in 2010 and
Additionally, private equity firms were reluctant to sell companies they acquired during the
2011.
peak valuation period (2006-2007) at reduced multiples. One clear exception was Stryker
Corporation’s December 2009 purchase of Ascent Healthcare Solutions from RoundTable
Healthcare Partners for $525 million, which earned RoundTable 8.5 times its invested capital
(Ascent formed in December 2005).
Despite pressure from their limited partners to provide distributions, many private equity
investors have instead opted to focus on improving portfolio company balance sheets and
performance in preparation for better exit opportunities in 2010 and 2011. The year ahead
holds promise for an increased number of exits, where nearly 50 U.S. PE-backed companies are
currently in IPO registration, backed by improving equity markets.
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11. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
EXHIBIT 8: U.S. PRIVATE EQUITY EXITS (2002-2009)
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12. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
PART 2: SPOTLIGHT ON HEALTHCARE SERVICES
HISTORY
In the late 1980’s and early 1990’s, private equity firms often avoided making investments in
healthcare services companies. To these investors, regulatory idiosyncrasies and reimbursement
risks appeared daunting, and the potential rewards did not justify the risks. Few firms possessed
enough investment experience to comfortably commit resources to the sector. For those
investors willing to try, they did so with a limited understanding of how to challenge existing
businesses or establish new business models that could supplant other services. Consequently,
they found it hard to grow companies, add value and generate above-market returns.
Recognizing the potential As the private equity industry matured during the late 1990’s, more and more firms dedicated
rewards, investors the time needed to understand the nuances of healthcare services companies. Recognizing the
developed, hired and
potential rewards, investors developed, hired and expanded their expertise in the space, while
expanded their expertise in
the space, while deploying
deploying an increased amount of capital. As a result, private equity investment changed the
an increased amount of healthcare services landscape. Over the past five years, healthcare services have comprised over
capital. half of the 1,200+ private equity investments made in healthcare (Exhibit 9).
EXHIBIT 9: HEALTHCARE DEAL COUNT BY SUBSECTOR
(2004-2009)
PROFILE
For the purposes of this analysis, we classify healthcare services into eight subgroups, including: clinics/
outpatient services, distributors, elder & disabled care, hospital/inpatient services, laboratory services,
managed care, practice management and other. Transactions in the subsector’s most active subgroup,
clinic/outpatient services, have constituted 25% of all healthcare services transactions over the past five
years. While the data confirms that publicly-traded healthcare services firms comprise nearly 40% of
$1.1 trillion in U.S. healthcare sales, data on private firms is more difficult to come by.
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13. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
EXHIBIT 10: HEALTHCARE SERVICES DEAL COUNT
BY SUBGROUP (2004-2009)
Looking beyond the statistics, it is important to understand why investors find the space
attractive and what the future holds for the subsector.
OPPORTUNITIES
We believe that the following factors are the most compelling for private equity investors:
• Opportunity for Improved Business Models. The fragmented competitive landscape of the
Investors are drawn to the
opportunity to improve healthcare services industry affords a multitude of opportunities for private equity investors
mature segments with to increase efficiencies and returns. Investors are drawn to the opportunity to improve mature
traditional models, to invest segments with traditional models, to invest in new business models that provide improved
in new business models that quality of care with lower costs to the healthcare system and to consolidate existing businesses.
provide improved quality • Diversity. Within the healthcare services subsector, diverse subgroups enjoy above-market
of care with lower costs
growth and afford attractive investment opportunities. These subgroups include ambulatory
to the healthcare system
and to consolidate existing surgical centers, dialysis centers, acute care hospitals, physician practices, specialty hospitals,
businesses. long-term care facilities, rehabilitation hospitals, radiation therapy centers, cancer centers,
distributors, managed care, skilled nursing facilities, physical therapy centers, clinical labs,
diagnostic imaging centers, ambulance services, home health services, hospice care, “storefront”
medicine, disease management, practice management and behavioral health.
• Platform for Growth. Traditionally, private equity investors are attracted to scalable platforms
with sound operating models and above-market growth prospects. Such opportunities can
be applied to fragmented geographical markets around the country. In particular, clinics/
outpatient centers, ambulatory surgical centers and dialysis centers are viewed as highly
leveragable platforms that satisfy these growth criteria.
• Risk Profile. Although most healthcare companies possess some degree of regulatory and
reimbursement risk, private equity investors gravitate towards companies that have large,
predictable cash flows and have a stable reimbursement environment, such as acute care
services. When possible, investments in companies that are less reliant on uncertain
reimbursement rates are preferred.
• Non-Cyclical. The overall healthcare industry is widely viewed as being well -insulated from
economic downturns. As a result, good companies that offer a better mix of quality and cost
should reap substantial profits, regardless of the economic climate.
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14. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
• Demographics. Like most healthcare subsectors, the healthcare services market is expected to
benefit from an aging population, particularly in the near-term. Additionally, an overburdened
hospital system has led many patients to seek alternative services, driven by both cost and
convenience. We expect this trend to continue in the near-term as healthcare reform is
implemented and over 30 million newly insured patients enter the system.
AMBULATORY SURGICAL CENTERS (ASCs)
Ambulatory surgical centers, or ASCs, represent an emerging target for private equity investment
within the healthcare industry. The rapid increase in ASCs’ profile can be attributed to the services
they offer patients and the profits they offer investors. Between 2000 and 2007, the number of
Medicare-certified ASCs in the U.S. increased by over 60%; today, there are more than 5,000 ASCs.
ASCs account for between 60% and 70% of all surgeries performed in the U.S. and perform more
than 22 million procedures annually6. We expect that recently enacted healthcare reform legislation
will also serve as a near-term catalyst for an increase in the number of ASCs. Specifically, healthcare
reform legislation prohibits the formation of physician-owned hospitals (by the end of 2010) and
places a freeze on new operating rooms and beds in grandfathered physician-owned hospitals, while
further restricting referrals to them. Below, we highlight the most attractive ASC platforms, ASC
financial metrics and how investors value ASCs.
Most Attractive Specialties:
• Orthopedics. This segment features the highest per treatment revenue of all ASC platforms.
Overall profitability is strong and reimbursement rates are attractive although the heavy use
of implants makes contract negotiation strategies crucial. The outlook appears favorable as
demand for these procedures is on the rise, and there is little threat of the procedures moving
into the office setting.
• Otolaryngology (Ear, Nose and Throat). These centers are best suited for multi-specialty ASC
sites given the moderate volume of procedures. While procedures generate solid revenue low
implant and supply costs contribute to high margins. We anticipate that this segment will
experience moderate but steady growth in the near-term.
• Gastroenterology. Gastroenterology represents the highest volume of procedures performed,
driven by Medicare reimbursement laws that pay for colonoscopy screenings. However,
margins are comparatively low and only volume growth and marketing efforts drive
profitability. Single-specialty gastroenterology centers with a limited number of active
physicians remains the best formula for maximizing returns.
• Spine. As technology improves, so to do the number of spinal procedures that can be performed
safely in the ASC setting. When communicated effectively, payors understand that significant
costs can be saved by shifting these procedures away from the hospital setting. High revenue
procedures also include expensive implants so contracting is critical.
• Ophthalmology. Ophthalmology is one of the top three volume procedures. Significant volume
is required to reach optimal profitability given moderate revenue per procedure and Medicare
reimbursement risk.
6
MedPac; Ambulatory Surgery Center Association
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15. Investment in th e Health car e Ind ustr y : 2010 O U TL O O K
OPERATING METRICS
A recent survey of approximately 175 domestic ASCs highlights data on key operational
metrics across all settings. As stated above, ASCs performing orthopedic procedures have
the highest median net revenue at $2,453 per case, followed by otolaryngology. Gynecology
and podiatry also scored well. At the other end of the spectrum, gastroenterology procedures
brought in the least revenue per procedure.
EXHIBIT 11: 2009 MEDIAN NET REVENUE
PER PROCEDURE FOR ASCS
Survey results indicate that scale is key to maximizing profitability. As seen in Exhibit 12, EBITDA
margins increase in a near step-like manner when analyzing centers of increasing revenues.
EXHIBIT 12: 2009 AVERAGE ASC EBITDA MARGIN
PROFILE OF A WELL-POSITIONED ASC
The most attractive ASCs include a combination of strong clinical care at a compelling price that
reduces costs for the overall healthcare system. Before making an investment, investors prefer
that an ASC has established best practices in some combination of clinical operations, continued
volume growth, supplies, labor and billing. Attractive ASCs have a plan for improving efficiency,
a diversified referral base, and are prepared to take advantage of scale. Ideally, the ASC is run by a
group of physicians who will continue working together to build the center after an investment is
made in the group and have considerable personal investments in the ASC.
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When investing in an ASC, proper due diligence is critical. Successful investors enjoy a thorough
understanding of potential reimbursement risks, successor liability issues and the overall
regulatory framework. The buyer must also appreciate existing contractual agreements such as
medical directorships and compensation arrangements, outstanding litigation issues, real estate
leases, ancillary services and joint venture agreements. Finally, all centers must comply with the
Stark Law and the Federal Anti-Kickback Statute, as well as all applicable state laws (including
Certificate of Need).
VALUATION
ASC owners continue to Despite the recent recession, the past several years have been characterized by a level of heightened
benefit from the current interest in the acquisition of ASCs, largely driven by the private equity industry. ASC owners
environment where continue to benefit from the current environment where increased competition between buyers
increased competition allows for higher valuations, a wider selection of potential partners and better transaction terms.
between buyers allows for
higher valuations, a wider Although all parts of a business are factored into a valuation analysis, certain operational metrics
selection of potential are more critical than others. These factors include cash flow, growth potential, long-term debt,
partners and better size of interest sold and quality of management. Negotiating leverage heavily influences a deal’s
transaction terms. terms, including the desire of a buyer to acquire the center, seller’s motivation to sell and an
advisor’s ability to negotiate.
The three most commonly applied approaches for valuation are recent comparable transactions,
EBITDA multiple and the cost approach. In the section below, we analyze these three valuation
techniques and describe their use in valuing ASCs.
1) Comparable Transactions. This method employs the use of valuation multiples derived from
transactions involving similar ASCs. The comparable transaction multiples are then adjusted
based on the strengths and weaknesses of the ASC relative to selected comparable centers. Value
is determined by multiply the trailing-twelve month cash flow or EBITDA by the valuation
multiple, subtracting long-term debt and adding cash and
cash equivalents.
EBITDA multiples are highly dependent on current economic conditions and recent transactions,
but typically increase when a majority interest is sold. Numerous factors impact the multiple
including: growth potential of a company and how much CAPEX will be required to support
growth, quality of existing systems and management, local competition and whether the
physicians will continue on with the ASC after a transaction. Other factors can include the sources
and sustainability of revenue, the payor mix, out-of-network revenue and current capacity.
2) Income approach. The income approach attempts to project future cash flows and then adjust
these values to the present using a discount factor (discounted cash flow analysis). This is not as
common for ASCs as it is in other industries as it is very difficult to estimate future ASC revenue
and therefore not deemed reliable by most acquirers. Typically, not-for-profit hospitals use this
method to purchase physician-owned centers.
3) Cost approach – also known as the adjusted net assets methods. This approach is built upon the
premise that the ASC is worth the cost to build and/or replace the existing center(s), adjusted for
depreciated cost of the improvements. Additionally, an ASC’s fixed, financial and other assets are
netted against all existing and potential liabilities in determining a final value. The cost approach is
most commonly used for valuing centers that are break-even or not profitable.
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PRIVATE EQUITY INVESTMENT IN HEALTHCARE SERVICES
While the majority of healthcare services transactions recently executed by private equity firms have
been with small- to mid-sized companies, historically, the subsector has seen several megadeals. In
2006, HCA was acquired for $33 billion by a consortium of private equity firms, while later in 2007
The Carlyle Group acquired ManorCare for $6 billion. Despite restrictive credit markets, healthcare
services once again witnessed a large-scale leveraged buy-out when IMS Health, a leading provider
of market intelligence data for the healthcare industry, was taken private in late 2009 in a deal valued
at $5 billion.
In the chart below, we have highlighted private equity investments in 2009 in the healthcare services
subsector with a focus on deals in the settings of hospitals/inpatient services, clinics/outpatient
services, and elder & disabled care, where a majority of deals were targeted niche buy-outs
(Exhibit 13).
EXHIBIT 13: SELECT HEALTHCARE SERVICES
TRANSACTIONS BY PRIVATE EQUITY (2009)
Company Name Investors Deal Type Healthcare Services Subgroup
Acadiana Addiction Center Acadia Healthcare, Waud Capital Partners Buyout - LBO Hospitals/Inpatient Services
AppleWhite Dental Partners Tonka Bay Equity Partners, Individual Investor Acquisition Financing Clinics/Outpatient Services
Austin Surgical Hospital Symbion, Crestview Partners, Banc of America Capital Buyout - LBO Hospitals/Inpatient Services
Investors, Stone Point Capital
Castle Hill Retirement Village West Living, West Partners Buyout - LBO Elder & Disabled Care
EnduraCare Acute Care Services Fulcrum Ventures Buyout - LBO Clinics/Outpatient Services
Family Home Health Care Thoma Bravo, Encompass Home Health Buyout - LBO Hospitals/Inpatient Services
Healthcare Partners of East Texas (Certain Assets) Texas True Choice, Viant, Welsh, Carson, Buyout - LBO Managed Care
Anderson & Stowe
Homecare Solutions Group (Certain Assets) OMNI Home Care, MBF Healthcare Partners, Buyout - LBO Elder & Disabled Care
GS Capital Partners
IMS Health TPG Capital, Canada Pension Plan Investment Board Buyout - LBO Other Healthcare Services
JDC Healthcare Black Canyon Capital PE Growth/Expansion Clinics/Outpatient Services
Logan’s Linens Thompson Street Capital Partners PE Growth/Expansion Other Healthcare Services
Lord’s Dental Studio GeoDigm, Welsh, Carson, Anderson & Stowe Buyout - LBO Clinics/Outpatient Services
McDowell Village West Living, West Partners Buyout - LBO Elder & Disabled Care
One Call Medical Odyssey Investment Partners Buyout - LBO Managed Care
Parent Care SeniorBridge Family Companies, Caltius Equity Buyout - LBO Elder & Disabled Care
PRORehab P.C. Accelerated Rehabilitation Centers, Gryphon Investors Buyout - LBO Clinics/Outpatient Services
RegionalCare Hospital Partners Warburg Pincus, Individual Investor Acquisition Financing Hospitals/Inpatient Services
Senior Care Consulting SeniorBridge Family Companies, Caltius Equity Buyout - LBO Elder & Disabled Care
Senior Care of Plains Senior Care Centers of America, Clearview Capital Buyout - LBO Elder & Disabled Care
Sunwest Management Lone Star Funds Buyout - LBO Elder & Disabled Care
Therapy Services of Iowa Accelerated Rehabilitation Centers, Gryphon Investors Buyout - LBO Clinics/Outpatient Services
U.S. Dermatology Medical Management Vicente Capital Partners PE Growth/Expansion Clinics/Outpatient Services
Urgent Care Center of Gainesville Solantic, Welsh, Carson, Anderson & Stowe, Buyout - LBO Clinics/Outpatient Services
Richard L. Scott Investments
West Living West Partners Acquisition Financing Elder & Disabled Care
Willow Creek Dental Care Great Expressions Dental Centers, Audax Group Buyout - LBO Clinics/Outpatient Services
Source: Pitchbook, Company Reports
Looking at healthcare services private equity transactions over the past several years,
revenue and EBITDA multiple have a wide range. Publicly available data suggests lower-
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growth healthcare services firms have recently been sold at 1x revenue and 5-6x EBITDA,
while high growth platforms have been selling at upwards of 10-12x EBITDA (Exhibit 14).
EXHIBIT 14: SELECT HEALTHCARE SERVICES
TRANSACTIONS WITH DEAL TERMS (2008- 2009)
Company
Valuation Revenue EBITDA
(millions, (millions, Revenue (thousands, EBITDA
Deal Date Company Name Investors Healthcare Subsector USD) USD) Multiple USD) Multiple
11-Dec-09 Spectrum Laboratory Network Welsh, Carson, Anderson & Stowe Laboratory Services 230 125 1.8 - -
5-Nov-09 IMS Health TPG Capital, Canada Pension Plan IB, Other Healthcare Services 5,200 2,190 2.4 426,623 12.2
Leonard Green & Prtnrs
1-Nov-09 Castle Hill Retirement Village West Living, West Partners Elder & Disabled Care 14 4 3.7 - -
21-Oct-09 McDowell Village West Living, West Partners Elder & Disabled Care 24 - - - -
22-Sep-09 EnduraCare Acute Care Services Fulcrum Ventures Clinics/Outpatient Services 16 - - - -
28-Oct-08 Apria Healthcare Group The Blackstone Group Clinics/Outpatient Services 1,534 1,738 0.9 308,533 5.0
26-Sep-08 CareCentrix Water Street Healthcare Partners Other Healthcare Services 213 318 0.7 - -
5-Aug-08 Immediate Pharmaceutical Services Catalyst Health Solutions, Capital Z Partners, Other Healthcare Services 40 9 4.7 - -
New Capital Partners
31-Jul-08 Passport Health Communications Great Hill Partners, Spectrum Equity Investors, Other Healthcare Services 232 80 2.9 - -
Primus Capital Funds
5-Jun-08 Chamberlin Edmonds & Associates Charterhouse Group, MTS Health Partners, Managed Care 120 26 4.6 - -
Highlander Partners
21-Feb-08 Radiation Therapy Services Vestar Capital Partners, Quilvest Private Equity, Clinics/Outpatient Services 1,100 358 3.1 89,602 12.3
TCW/Crescent Mzznn.
1-Feb-08 Tender Loving Care Amedisys Elder & Disabled Care 395 300 1.3 65,000 6.1
24-Jan-08 Quintiles Transnational Bain Capital, 3i Group, TPG Capital, Other Healthcare Services 3,000 2,100.00 1.4 - -
Temasek Holdings
Source: Pitchbook, Company Reports
STRATEGIC INVESTMENTS IN HEALTHCARE SERVICES
Given the fragmented industry structure, large-scale strategic acquisitions are not very common
in the majority of healthcare services subsectors other than in managed care. In the managed
care space in 2009, the most noteworthy acquisitions included Express Scripts purchase of
Wellpoint’s PBM ($4.7 billion), UnitedHealth’s purchase of Health Net Northeast ($500 million)
and Magellan Health Services’ purchase of First Health Services Corporation ($100 million).
Other deals of note include RehabCare Group’s $570 million purchase of Triumph Healthcare
and Stericycle’s $185 million purchase of MedServe. On the smaller deal side, AMSURG
continues to be acquisitive in the ambulatory surgical center space, as do DaVita and Fresenius
in the dialysis space.
PRIVATE EQUITY DEAL TRENDS IN HEALTHCARE
SERVICES
Looking specifically at the types of healthcare deals being done by private equity investors, buyouts as
a percentage of overall transactions fell in the healthcare services subsector in 2009, while PE growth/
expansion increased year-over-year (Exhibit 15). Also in line with the broader industry was the
increase of add-on deals in 2009, as investors increased their focus on supporting existing investments.
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EXHIBIT 15: HEALTHCARE SERVICES TRANSACTIONS BY
TYPE AS A % OF TOTAL HEALTHCARE SERVICES DEALS
(2002-2009)
Healthcare Services 2002 2003 2004 2005 2006 2007 2008 2009
Acquisition Financing 7.0% 2.1% 5.2% 8.5% 6.3% 2.8% 5.7% 4.2%
Asset Acquisition 0.0% 0.0% 0.0% 1.1% 0.0% 0.7% 0.0% 0.0%
Bankruptcy Financing 0.0% 2.1% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0%
Buyout - LBO 72.4% 65.4% 67.1% 68.9% 70.6% 80.4% 72.1% 62.4%
Dividend Recapitalization 0.0% 0.0% 1.3% 1.1% 0.7% 0.7% 0.0% 2.1%
Management Buy-In 0.0% 0.0% 0.0% 0.0% 0.0% 0.7% 0.0% 0.0%
Management Buyout 0.0% 0.0% 0.0% 2.1% 1.4% 0.0% 0.0% 2.1%
PE Growth/Expansion 9.3% 17.0% 13.0% 14.9% 12.5% 9.1% 13.9% 16.7%
PIPE 0.0% 0.0% 1.3% 0.0% 0.7% 0.0% 0.8% 0.0%
Private Placement 0.0% 2.1% 1.3% 0.0% 0.7% 0.7% 0.0% 0.0%
Recapitalization 0.0% 0.0% 0.0% 1.1% 0.7% 1.4% 0.8% 2.1%
Sale-Lease back facility 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 4.2%
Add-On 27.6% 18.7% 27.5% 23.8% 31.0% 35.3% 28.8% 33.6%
Non-Add-On 69.8% 74.5% 70.1% 74.5% 66.0% 59.4% 63.1% 54.2%
Source: Pitchbook
Several investment themes within the space have gained prominence among private equity
investors over recent years. These themes include:
• Segments that offer an improvement in the delivery of clinical services through
enhanced quality and lower costs to the overall healthcare system. Although broadly
defined, this strategy encompasses the majority of investments in the space and is
prominently seen in the clinic/outpatient setting, physician group practices and in
behavioral health programs.
• Segments with several dominant players but with room for upstart platform companies
to gain traction and eventually be consolidated by the industry leaders. These segments
include dialysis centers and clinical laboratories.
• Relatively mature segments with large, stable operating cash flows and a predictable
reimbursement environment. These segments include acute care hospitals, long-term care
facilities and ambulatory surgical centers. Their stable cash flows are particularly attractive
as they can safely support large amounts of additional invested capital over the long term.
• Segments that offer alternatives to traditional hospital-based care that in certain regions
may be associated with relatively low quality, poor outcomes and high costs. Hospice and
home health represent common private equity investments under this strategy, where for-
profit companies are gaining traction in the space.
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OUTLOOK FOR THE SUBSECTOR
We expect transactions in We expect that healthcare services, much like the overall healthcare industry, will comprise
the clinic/outpatient setting an increasingly large percentage of private equity portfolios over the coming years. Growth
to be particularly strong. in private equity investments in the industry will be fueled by the overlap in the types of
deals private equity firms are currently looking for (small- to mid-sized targeted deals that
complement existing platforms, or those deals that establish a platform in emerging, high-
growth markets) with more traditional growth opportunities. We expect transactions in the
clinic/outpatient setting to be particularly strong (supported by H.I.G. Capital’s January 2010
investment in Florida-based Surgery Partners), continuing past trends where it was the most
attractive subgroup in healthcare services.
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PART 3: OUTLOOK FOR 2010
As the debt markets continue to thaw, we anticipate increased private equity investment in the
healthcare industry in absolute dollars. However, the dramatic changes to the economy and
banking system over the previous several years may lead to a new paradigm for the private
equity industry. As a result, a near-term retrace to the heights of the 2007 private equity market
does not appear imminent. At the moment, both private equity firms and strategic acquirers
appear focused on small to medium-sized niche, or “tuck-in” deals, both overall and in the
healthcare industry, as they look to stabilize earnings and cash flow following a choppy 2009.
HEALTHCARE SERVICES
As discussed above, we expect private equity investment in the clinic/outpatient space to be
particularly strong in 2010.
BIOTECHNOLOGY
Regulatory Risk: We believe that the current regulatory risk associated with the biotechnology
industry is increasingly heightened. The past year saw a record number of missed FDA
approval actions and rejections from the FDA, advisory committee meetings for contested
applications, safety warning letters and products pulled from the market due to manufacturing
issues. We suspect that this represents a new reality with the FDA going forward.
M&A: Roche Holding AG’s $47 billion strategic acquisition of biotech group Genentech was by
far the largest acquisition in the history of the industry. Several additional strategic acquisitions
in the $1-$2 billion range also contributed to an active 2009, including Bristol-Myers Squibb’s
purchase of Medarex ($2 billion), Johnson & Johnson’s acquisition of an 18.5% stake in Elan
Corporation ($1.5 billion) and their acquisition of Cougar Biotechnology ($1 billion), and Gilead
Sciences acquisition of CV Therapeutics ($1.4 billion). We expect activity to continue, albeit to
a lesser extent, given difficult year-over-year comparisons. As mentioned above, companies also
appear extremely hesitant to purchase clinical assets outright (preferring marketed products),
as FDA approval risk is at an all-time high. Private equity investors may also seek exposure
through alternative investment types.
PHARMA
Pharmaceutical companies U.S. pharmaceutical companies are currently trading near historical trough valuations and
have turned to M&A as the are faced with a litany of obstacles, including major near-term patent expirations (2011-2015:
solution. $130B out of $320B total worldwide pharmaceutical branded sales), slowing drug approval
rates, drying pipelines, rising costs and slowing top-line growth. To cope with these obstacles,
pharmaceutical companies have turned to M&A as the solution. We expect somewhat of a pause
in activity in 2010, as leading pharmaceutical companies digest recent large-scale M&A.
M&A: Since the beginning of 2007, the world’s top 10 pharmaceutical companies have
completed 64 M&A deals, totaling $230B, including Pfizer’s purchase of Wyeth ($68 billion),
Merck’s purchase of Schering Plough ($41 billion) and Abbott Laboratories purchase of the
pharmaceutical unit of Solvay Pharmaceuticals ($6.6 billion). Other notable pharmaceuticals
transactions during 2009 include Warner Chilcott’s purchase of the Proctor & Gamble’s
prescription drug business ($3.1 billion), GlaxoSmithKline’s purchase of Stiefel Laboratories
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($2.9 billion) and Dainippon Sumitomo Pharma’s purchase of Sepracor ($2.6 billion). Swiss-
based Novartis’ acquisition of a 52% stake in Nestle’s Alcon ($28B) in January 2010 suggests
broad momentum in this subsector.
On the private equity side, investors have in recent years acquired many smaller pharmaceutical
companies, or divisions of large pharmaceutical companies that are considered non-core.
Although this activity pales in comparison to the deal size of intra-industry strategic
acquisitions, it represents a meaningful opportunity for private equity, given the large number
of recent mega-mergers. We expect private equity investors to continue to seek out companies
with older, established product lines and customer bases, as private equity has little to no interest
in engaging in drug development.
GENERICS/SPECIALTY PHARMACEUTICALS
Generics/specialty pharmaceuticals were one of the few healthcare subsectors to fully participate
in the equities rally of 2009. Unprecedented levels of branded patent expirations in the 2010-2013
timeframe coupled with higher generic utilization rates in key European and Asian markets
should result in significant volume and sales growth across sectors. We anticipate that the
manufacturing challenges faced by a number of generic competitors in 2008/2009 will continue to
be an issue for the industry going forward given stricter enforcement of FDA regulations.
M&A: The subsector has been active in strategic M&A in recent years, mainly as a target for large
We suggest exposure to pharmaceutical companies around the world who have scrambled to consolidate ahead of the large
emerging markets in patent cliff of 2010-2013, looked for growth in developing markets, and prepared for the eventual
Brazil, India, and China, introduction of generic biologics. In 2009, Watson expanded its operations by acquiring UK-based
where consolidation is The Arrow Group ($1.75 billion). Novartis also acquired the specialty generic injectables business
also occurring, but where
unit of Ebewe Pharma ($1.2 billion) and Hospira acquired the generic injectables business of
generic drugs have a much
higher share of overall Orchid Chemicals & Pharmaceuticals ($400 million). In 2008, Daiichi Sanko Co.’s purchase of a
volume and market growth controlling stake in India’s Ranbaxy Laboratories Ltd. for $5 billion and New York-based Pfizer
has more upside potential. Inc.’s agreement to license more than 150 generic treatments from India’s Aurobindo Pharma Ltd.
and Claris Lifesciences highlighted how consolidation is now a global phenomenon. We expect
consolidation to continue in this space. For private equity firms seeking exposure to small- to mid-
sized companies, we suggest exposure to emerging markets in Brazil, India, and China, where
consolidation is also occurring, but where generic drugs have a much higher share of overall
volume and market growth has more upside potential.
MEDTECH/DEVICES
The chief concern this subsector currently faces is hospital spending. Difficult economic times
combined with constrained hospital budgets have given investors reason to pause. Leading
medical device makers such as Stryker, Boston Scientific Corporation, Becton Dickinson, Johnson
& Johnson and Zimmer all view innovation as the key to growth despite a challenging hospital
spend environment. We believe the outlook for medical technology companies to be particularly
strong, however, given healthcare reform’s focus on the subsector.
M&A: As in the pharmaceutical industry, the largest capitalization companies face slowing
top-line growth, drying pipelines and cost containment issues, while dealing with their own
unique issues including flat hospital budgets. 2009 was highlighted by Abbott Laboratories’
purchase of Advanced Medical Optics ($2.8 billion), Agilent Technologies’ acquisition of Varian
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($1.5 billion) and Johnson & Johnson’s purchase of Mentor Corporation ($1.1 billion). We do not
expect a new wave of mega-mergers in 2010, as companies seek to stabilize and build operating
cash flow following a turbulent 2009. Instead, we anticipate that larger companies will continue
to acquire small-to mid-sized niche targets. We expect private equity investors to invest in
similar opportunities.
CONCLUSION
While the private equity community’s learning curve has been steep, over the past two
We anticipate that larger decades they have developed considerable expertise in healthcare transactions and have been
companies will continue to rewarded for their diligence. Current trends suggest that these investments will continue
acquire small-to mid-sized at an increasing rate. In particular, we believe that private equity investors have developed
niche targets. a level of sophistication in the healthcare services subsector that has enabled them to better
manage risks while selecting operating models that offer improved products and services and
real platforms for growth. We anticipate healthcare investments, and specifically, healthcare
services investments, will comprise an increasingly large percentage of private equity
portfolios, driven by increasing familiarity with the industry’s operating models, diverse
subsectors experiencing above-market growth, opportunities for improved business models
and favorable demographic trends. As a result, we expect that the partnership between
private equity and the healthcare industry will continue to gain strength in the coming years
and will continue to benefit both sides.
Astor Group is a global advisory firm that partners with companies to effect
mergers and acquisitions, raise capital, expand into new markets and solve
strategic challenges. Astor Group has offices in New York, Miami and
Rio de Janeiro.
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