ealthcare market report - brentwood capital...the year were erased by weak 4q16 results .qoq,...

HEALTHCARE MARKET REPORTFY2016

1

-10%-5%0%5%

10%15%20%25%30%35%

2014 - 2016 Market Performance

NASDAQ Composite Index S&P 500 Index Dow Jones Industrial Average

FY2016 OVERALL MARKET UPDATE AND ECONOMIC REVIEW

Empirically, M&A activity appears to be slowing. For the year, total transaction valuewas essentially flat at $1.5T while the number of deals declined ~15% from 3,329 in2015 to 2,829. Most of the gains achieved in volume and value of transactions earlier inthe year were erased by weak 4Q16 results. QoQ, transaction volume was down 15%and total deal value declined almost 20%.

FY2016 M&A UPDATE

Anecdotally, most sell-side advisors and strategic and financial buyers gathered at the2017 JPM Healthcare Conference complained about the dearth and quality of deal flow.Seller valuation expectations remain high, and buyers seem reluctant to pay theseprices, particularly this late in a business cycle. Many companies are deferring thelaunch of processes until they are confident financial results can clear the highoperating performance and diligence bar that justifies a premium valuation. Oncebuyers and sellers reach terms, hungry capital markets, particularly bank and non-banklenders, remain eager to finance deals.

Source: Capital IQ.

Amidst this undercurrent of scarce deal flow, investors remain intensely interested inthe healthcare sector, particularly outsourced physician services, behavioral healthcareand value-based healthcare. There was very little discussion of Trump’s pendingdismantling of Obamacare. Despite these sentiments, BCA’s deal flow remains fairlystrong. This month we launched ophthalmology, tech-enabled revenue cyclemanagement and SaaS value-based performance management analytics transactions.

STOCK MARKET

All major indices continue their upward climb fueled largely by historically low interestrates (ZIRP). YoY, the S&P 500 was up 11.2%; NASDAQ, 9.8%; and DJIA, 15.2%. Aftershaking off U.S. election night jitters and significant volatility, the “Trump Bump” hashelped all indices rebound strongly, hitting record highs and culminating with the DJIAcrossing through the 20,000 threshold in late January. Markets are rallying aroundoptimism for lower tax rates, fewer regulations and other pro-business initiativespromised by the new Trump administration.

Some of this optimism is grounded in better corporate earnings growth. If companiescontinue to report positive earnings for 4Q16, it will mark the first time in two yearsthat there have been two consecutive quarters of YoY earnings growth. However, withonly 3% earnings growth, these markets continue to be priced for perfection. U.S.equities have only been more expensive than current levels 10% of the time in thepost-WW2 period. To support current market levels, the U.S. economy must accelerateand put some wind in the sails of corporate earnings.

602

788

859 985

824 826 849 869

738 682

761 647

$0

$50

$100

$150

$200

$250

$300

$350

$400

$450

-100

100

300

500

700

900

1,100

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2014 2015 2016

Total Transaction Value($ in billions)

Tran

sact

ion

Volu

me

Middle-Market Quarterly M&A Activity - All Sectors

$25 - $100 $101 - $250 $251 - $500

$501 - $750 Over $750 Total Transaction Value

2

FY2016 OVERALL MARKET UPDATE AND ECONOMIC REVIEW

Job growth remains subdued and may actually be slowing. Non-farm payroll growthaveraged 165K per month in 4Q16 versus 197K in 3Q16. Job growth has also trendeddownward over the last three years, averaging 258K per month in 2014, 210K in 2015 and182K in 2016. As a reference, non-farm payroll would have to average 300K per month toachieve 3% GDP growth and 400K per month for 4% GDP growth.

NON-FARM PAYROLL

Unemployment, as measured by U-3, finished 2016 at 4.7% and was below 5% for most ofthe year. U-6 unemployment finished the year at 9.2% and was below 10% for the entireyear. Both measures are near 10-year lows. A good part of the decline in unemployment hasbeen driven by a decline in the labor participation rate, which at 62.7% in Decemberrepresents one of the lowest levels since the mid 1970s. Although some of this decline canbe attributed to an aging population, 15 million people have left the workforce since early2009 and a significant percentage of these workers are discouraged and have either stoppedlooking for work or are underemployed.

GROSS DOMESTIC PRODUCTWith almost $20T in debt, achieving higher GDP growth is the biggest challenge facing theU.S. and the only way to right size its balance sheet. Entitlements spending now consumesapproximately 75% of the U.S.’ annual budget. When FDR introduced Social Security in1935 and LBJ enacted Medicare in 1965, the average beneficiaries’ life expectancy expiredprior to being eligible for benefit and represented a small cost to U.S. taxpayers. Now, withthe average life expectancy of 79 years old, these entitlements are consuming an everincreasing percentage of the budget. The only way to afford these entitlements is to eitherreduce benefits, raise taxes or grow the size of the economy.

Between WW2 and 2008, U.S. GDP grew 3.1% per year on average. Post 2009’s GreatRecession, GDP growth has averaged 2.1% despite record levels of fiscal and monetarystimulus. Although the economy created 11.5 million jobs of various quality over this period,the number of new jobs required by population and immigration growth is 15 to 17 millionover the same period. The net effect is very little real job growth. Perhaps a more tellingstatistic is average household income, which remains stubbornly 2-3% below the 1999 peakof $57.9K.

Although 3Q16 GDP’s headline growth was 2.9%, most of the increase was due to asignificant, one-time increase in soybean exports to South America and China that accountedfor almost 1% of the quarter’s total. Baseline GDP growth remains mired at 2%. Without anyone-time increases in exports, 4Q16 GDP was 1.9% and 1.6% for the whole year.

UNEMPLOYMENT

Source: Bureau of Labor Statistics

Source: Bureau of Labor Statistics

050

100150200250300350400

Jan

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

ptN

ov Jan

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

pN

ov Jan

Mar

May Ju

lSe

pN

ov

2012 2013 2014 2015 2016

(in th

ousa

nds)

Historical Change in Non-Farm Payrolls

3%

6%

9%

12%

15%

18%

Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct Jan

Apr

Jul

Oct

2009 2010 2011 2012 2013 2014 2015 2016

Unemployment

U-6 Unemployment Traditional Unemployment

-10.0%-8.0%-6.0%-4.0%-2.0%0.0%2.0%4.0%6.0%

Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GDP Growth

The Obama Administration has dealt President Trump a mediocre economic hand. The U.S.is in the seventh year of the worst economic recovery in the post-WW2 era. Our nationaldebt has nearly doubled, 15 million Americans have left the workforce and 43 million peopleare on food stamps. However, for the third time in the same period, Republicans nowcontrol both Houses of Congress and the Executive Branch. The pro-business TrumpAdministration will have a chance to enact real legislative and fiscal reform, and perhapseven attain their goal of 4% GDP growth and the creation of 25 million jobs over the nexteight years.

3

(dollars in millions)Announced Enterprise

Date Private Equity Firm Target Value(1)

12/21/16 BBH Capital Partners American Physician Partners $208.412/20/16 TPG Capital, L.P. Mediware Information Systems, Inc. N/A12/19/16 Bain Capital Private Equity Epic Health Services, Inc. N/A12/19/16 Thomas H. Lee Partners, L.P. Professional Physical Therapy N/A11/25/16 CC Capital Management, LLC Constellation Healthcare Technologies $273.010/31/16 The BlackStone Group Team Health Holdings, Inc. 6,020.110/14/16 GTCR, LLC Riverchase Dermatology N/A8/20/16 Summit Partners LLP HealthSun Health Plans Inc. 1,000.08/9/16 EQT Partners AB Press Ganey Holdings, Inc. 2,382.28/4/16 BBH Capital Partners Haven Behavioral Healthcare, Inc. 39.58/1/16 Pritzker Group Private Capital; Vesey

Street Capital Partners, L.L.C.PathGroup, Inc. N/A

7/13/16 ThomaBravo, LLC Imprivata, Inc. 496.95/18/16 Harvest Partners, LP Advanced Dermatology & Cosmetic Surgery

Inc.N/A

5/5/16 Hellman & Friedman LLC; Leonard Green & Partners, LP; GIC Pte.

MultiPlan, Inc. 7,500.0

4/25/16 Veritas Capital Verisk Health; MediConnect Global, Inc. 820.03/23/16 GI Partners, LLC Netsmart Technologies Inc. 950.0

(1) Data from SEC fi l ings and Capital IQ.

BCA Proprietary Data


$422 $477

$512

$650

$737

$649 3,036

3,423 3,321

4,098 4,131

3,538

0

600

1,200

1,800

2,400

3,000

3,600

4,200

$0

$200

$400

$600

$800

2011 2012 2013 2014 2015 2016

# of Transactions

($ in

bill

ions

)

Capital Invested # of Deals Closed

$87 $104

$205 $195 $193 $180

190 204

295 311

287 252

0

50

100

150

200

250

300

350

$0

$50

$100

$150

$200

$250

$300

2011 2012 2013 2014 2015 2016

# of Transactions

($ in

bill

ions

)

Capital Raised # of Funds Closed

PRIVATE EQUITY ACTIVITY

TOTAL PRIVATE EQUITY FUNDRAISING ACTIVITYTOTAL PRIVATE EQUITY ACQUISITION ACTIVITY

Source: Pitchbook Source: Pitchbook

SELECT PRIVATE EQUITY TRANSACTIONS Private equity funds invested $649 billion in 3,538 transactions in 2016,

significantly down from $737 billion invested in 4,131 transactions in 2015.

− Transaction volume declined 14.4% in 2016 compared to 2015.

The decline in PE-backed transactions is accelerating due to continued highvaluations, market uncertainty and a lack of quality acquisition targets.

Many sponsors are unable to justify paying the high valuation multiples that sellersare demanding when growth prospects are low, further fueling the activity decline.

Exit activity continues to decrease as PE firms garnered $316 billion in proceedsfrom 1,097 transactions in 2016, representing a 22.1% YoY decrease in value and a18.0% decrease in the number of exits.

Total PE fundraising decreased in 2016 with $180 billion in capital raised across252 funds. A majority of the activity continues to be from LPs committing to mega-funds. In 2016, 89% of funds hit their stated fundraising target, marking thehighest point in the last decade.

4

$0$3$6$9

$12$15$18$21$24

Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2011 2012 2013 2014 2015 2016Loan

Vol

ume

by Q

uart

er ($

billi

ons)

Institutional Pro Rata

L+

L+ 100

L+ 200

L+ 300

L+ 400

L+ 500

2011 2012 2013 2014 2015 YTD 2016

Aver

age

Spre

ad O

ver L

IBO

R

Revolving Credit / Term Loan A Weighted-Average Institutional

LEVERAGED LOAN MARKET

SELECT RECENT HEALTHCARE DEBT DEALS

RECENT LEVERAGED LOAN STATISTICS (1) The capital markets remain hungry and competitive for high quality transaction acrossa broad range of industries.

Opportunistic loan activity (i.e. refinancings and dividend recapitalizations) accountedfor 55% of market volume in 3Q16, marking the highest level in over three years.

Refinancing activity drove 2H16 new business, representing approximately 70% of allnew issuances in the 2nd half of the year. Middle market sponsored loan volumeremains light due to the slowdown in M&A activity.

Unitranche loans continue to gain popularity as the structure provides more flexibilityand greater certainty to close.

The Fed announced a 0.25% rate increase at its December FOMC meeting, only thesecond time in a decade that the Fed has raised rates. The rate hike signifies the Fed’sconfidence in the improving domestic economy. The Fed signaled that there are likelyto be three rate increases in 2017.

Low transaction volume relative to lender demand is expected to sustain favorablemiddle market credit conditions in 2017.

Healthcare ServicesHealthcare ITNon-Healthcare

Debt as a Multiple of EBITDASenior Debt Total Debt

3.0x5.0x3.5x

4.0x6.0x4.5x

PricingFloorUpfront FeesUnused

Leverage Pricing and Fees

25 - 37.5 bps25 - 37.5 bps50 bps

-L + (4.0 - 4.75%)

Bank Non - Bank

L + (5.0 - 6.0%)-

100 bps

(1) Indicative debt multiples are for borrowers with at least $10 million of EBITDA.

AVERAGE SPREAD ON HEALTHCARE LOANSQUARTERLY HEALTHCARE LOAN VOLUME

Date Borrower Industry Tranche Type Rating Spread11/30/2016 Acadia Healthcare Psychiatric hospitals 900$ Term Loan A NR / NR L+40011/4/2016 Valley Stream Operator I LLC Skilled nursing care facilities 106 Term Loan NR / NR NA10/19/2016 Community Care Health Network Inc. Hospital/medical services plan 208 Term Loan B NR / NR L+55010/17/2016 Select Rehabilitation Inc Home health care services 156 Term Loan A NR / NR L+3759/28/2016 Providence Health & Services General med'l/surgical hospitals 550 Revolver/Line >= 1 Yr. NR / NR L+557/1/2016 Envision Healthcare Health and allied services, nec 6,300 Term Loan NR / NR NA6/7/2016 CHG Healthcare Services Health and allied services 1,365 Term Loan NR / NR L+375

3/18/2016 HCA Inc General med'l/surgical hospitals 1,500 Term Loan B Ba1 / BBB- L+325

5

(dollars in millions)Announced Enterprise

Date Acquiror Target Value(1)

12/21/16 Brown Brothers Harriman & Co. American Physician Partners $208.412/12/16 Fujian Thailot Investment Co., Ltd. Alliance Healthcare Services, Inc. $710.710/31/16 The BlackStone Group Team Health Holdings, Inc. 6,020.18/20/16 Summit Partners LLP HealthSun Health Plans; Wellmax

Medical Centers; Pasteur Medical1,000.0

8/9/16 EQT Partners AB Press Ganey Holdings, Inc. 2,382.28/1/16 Brown Brothers Harriman & Co. Haven Behavioral Healthcare, Inc.

6/15/16 Envision Healthcare Holdings, Inc. AmSurg Corp. 7,609.55/25/16 Urgent Team Physicians Care, P.C.5/5/16 Hellman & Friedman LLC; Leonard

Green & Partners, LP; GIC Pte.MultiPlan, Inc. 7,500.0

5/5/16 Encompass Home Health Camellia Healthcare5/3/16 Quintiles Transnational Holdings IMS Health Holdings, Inc. 13,170.5

4/28/16 Abbott Laboratories St. Jude Medical Inc. 29,840.83/8/16 Nordic Capital; Novo A/S eResearchTechnology, Inc. 1,800.0

2/29/16 MAXIMUS, Inc. Ascend Management Innovations2/18/16 IBM Watson Health Truven Holding Corp. 3,593.01/11/16 Shire plc Baxalta Incorporated 35,218.9

(1) Data from SEC filings and Capital IQ.

BCA Proprietary

BCA Proprietary

BCA Proprietary

BCA Proprietary

BCA Proprietary

80%

90%

100%

110%

120%

1/1/2016 4/1/2016 7/1/2016 10/1/2016 1/1/2017

NASDAQ S&P 500 S&P Healthcare Index

HC, 339

All Other,

719

IPO, 46

Follow-on, 293

HEALTHCARE INDUSTRY OVERVIEW

FY 2016 HEALTHCARE PUBLIC OFFERINGSLTM HEALTHCARE INDEX VS. S&P & NASDAQ

SELECT 2016 HEALTHCARE M&A TRANSACTIONS For the last twelve months ended December 31, 2016, healthcare stocks’ 2.5%decrease significantly underperformed the NASDAQ’ 9.8% increase and S&P500’s 11.2% increase.

The stock market has recovered from 1Q16 losses that were driven by thesuspension of QE and decreased oil prices, though the announcement of Britain’sdecision to leave the EU caused volatility in the equity markets in June 2016.− Healthcare stocks ended 4.3% lower for 4Q16 primarily due to the post-

election uncertainty surrounding the future of the ACA. The S&P 500 andNASDAQ were up 3.6% and 1.6%, respectively.

339 of the 1,058 announced public offerings in 2016 were healthcare-related,including 46 IPOs and 293 follow-on offerings.− IPOs announced in 2016 included Cotiviti Holdings, Inc., NantHealth, Inc.,

Tactile Systems Technology, Inc. and iRhythm Technologies, Inc.

Large healthcare transactions continued to lead 2016 M&A activity including TheBlackstone Group’s announced acquisition of Team Health Holdings, Inc. for $6.0billion and Envision’s merger with AmSurg Corp. for $7.6 billion.

2016 healthcare M&A activity declined relative to 2015, with 2016 value andvolume lower than levels achieved in 2015.

Source: Capital IQ. Source: Capital IQ.

$ in billions$ Value # Offerings HC # by Offering Type

HC, $24,261

All Other, $171,228 Select Public Offerings ($ in millions)

Offer Date Issuer Industry IPO/Follow-on Trans. Value

11/10/16 K2M Group Holdings, Inc. Healthcare Equipment Follow-on $83

9/23/16 iRhythm Technologies, Inc. Healthcare Equipment IPO 107

9/6/16 Evolent Helath, Inc. Healthcare Technology Follow-on 169

5/6/16 NantHealth, Inc. Healthcare Technology IPO 91

4/29/16 Cotiviti Holdings, Inc. Healthcare Technology IPO 238

1/25/16 Tactile Systems Technology, Inc. Healthcare Equipment IPO 40

1/5/16 Acadia Healthcare Company, Inc. Behavioral Healthcare Follow-on 610

6

159

64

34

12

113

43

34

19

0 20 40 60 80 100 120 140 160 180

$25 - $100

$101 - $250

$251 - $500

$501 - $750

Tran

sact

ion

Volu

me

FY2016 FY2015

QUARTERLY HEALTHCARE M&A ACTIVITY

QUARTERLY MIDDLE MARKET HEALTHCARE M&A – VALUEQUARTERLY MIDDLE MARKET HEALTHCARE M&A – VOLUME

YEAR-OVER-YEAR M&A VOLUME BY TRANSACTION SIZE

Overall, 2016 middle market healthcare M&A volume was lower versus 2015with 209 and 269 transactions, respectively.

− 4Q16 volume of 39 deals was 9.3% lower than the 43 deals in 3Q16 and50.6% lower than the 79 deals in 4Q15.

− Total transaction value in 4Q16 totaled $6.4 billion, a 36.6% decrease from3Q16 and a 45.8% decrease from 4Q15.

− A larger number of deals valued between $501 – 750 million allowed YoYM&A value to be comparable in 2016 even though the transaction volumedropped significantly.

Many anticipate that 2017 activity will continue to be lower and contain fewerlarge transactions as sellers’ high valuation expectations keep investors on thesideline.

Source: Capital IQ. Includes all disclosed, closed deals between $25 and $750 million, through December 31, 2016.

$9.2

$6.6

$11.3 $11.8 $12.9

$9.0 $10.1

$6.4

$0

$5

$10

$15

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2015 2016

Tran

sact

ion

Valu

e ($

in b

illio

ns)

$25 - $100 $101 - $250 $251 - $500 $501 - $750

64

55

71

79 79

4843

39

0

20

40

60

80

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2015 2016

Tran

sact

ion

Volu

me

$25 - $100 $101 - $250 $251 - $500

7

HEALTHCARE SECTORS COMPARISON

PUBLIC COMPANY ANALYSIS BY SECTOR4Q16 EBITDA MULTIPLES YEAR-OVER-YEAR

LTM EBITDA MULTIPLE COMPARED TO PROJECTED REVENUE GROWTH

BCA tracks publicly-traded companies within certain healthcare IT and servicessectors. The following is a summary of our findings.

Healthcare companies finished the quarter trading at a median of 10.4x LTMadjusted EBITDA.

− This represents a 5.5% decrease from 11.0x in 4Q15.

− The only sectors with an increase in valuation multiples were healthcareIT, home health, hospice, laboratory services and population healthmanagement.

− High healthcare valuation multiples are beginning to compress, thoughmost sectors remain at elevated levels.

Size of bubble indicates aggregate sector enterprise value.

Source: Capital IQ and SEC filings.Source: Capital IQ and SEC filings.

Source: Capital IQ and SEC filings. (1) Data from Capital IQ and SEC filings. Revenue and EBITDA for period ending September 30, 2016 and stock price as of December 31, 2016.

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

0% 5% 10% 15% 20%

Contract Services

Dialysis

Healthcare IT

Ambulatory Surgical Center

Healthcare Staffing

Hospital Management

Diagnostic Imaging

Laboratory Services

Hospice

Pharmacy Benefit Mgmt.

Home Health

Population Health Mgmt.

Psychiatric & Behavioral Health

Rehabilitation

17.4x

12.6x

7.2x

9.4x10.2x

12.3x 11.7x 12.2x

7.9x

10.4x10.3x

8.5x

12.2x

9.3x

12.8x

11.5x

7.0x

9.2x

12.3x10.9x

12.7x12.4x

7.8x

10.7x

7.7x

9.3x 10.2x8.9x

0.0x

4.0x

8.0x

12.0x

16.0x

20.0x

Q4 2015 Q4 2016

LTM LTM(1)

Price EBITDATrend Revenue EBITDA Revenue EBITDA Revenue EBITDA Margin

Ambulatory Surgical Center 1.9x 12.8x 1.7x 11.2x 25.2% 19.1% 14.9%Contract Services 1.5x 11.5x 1.7x 10.5x 11.7% 7.5% 10.6%Diagnostic Imaging 1.1x 7.0x 1.0x 6.7x 11.2% 9.9% 17.6%Dialysis 1.5x 9.2x 1.4x 8.0x 7.3% 6.3% 16.3%Healthcare IT 3.3x 12.3x 3.0x 11.5x 8.4% 6.0% 20.5%Healthcare Staffing 1.2x 10.9x 1.1x 9.9x 14.2% 23.7% 11.5%Home Health 1.0x 12.7x 0.9x 11.1x 14.2% 7.7% 8.3%Hospice 1.8x 12.4x 1.7x 11.3x 3.1% (0.7%) 14.3%Hospital Management 0.8x 7.8x 0.9x 7.4x 7.9% 3.4% 11.4%Laboratory Services 2.1x 10.7x 2.0x 9.8x 5.8% 2.5% 19.8%Pharmacy Benefit Mgmt. 0.6x 7.7x 0.6x 7.6x 0.5% 1.2% 7.9%Population Health Mgmt. 1.4x 9.3x 1.4x 7.9x 13.6% 11.8% 6.4%Psychiatric / Behavioral Health 1.8x 10.2x 1.7x 8.6x 20.3% (4.4%) 17.9%Rehabilitation 1.4x 8.9x 1.4x 8.4x 2.8% 8.7% 13.5%

Average 1.6x 10.2x 1.5x 9.3x 10.5% 7.3% 13.6%Median 1.5x 10.4x 1.4x 9.2x 9.8% 6.9% 13.9%

Enterprise Value as Multiple of:LTM(1) NTM(1) LTM Growth(1)

8

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

(10.0%) 0.0% 10.0% 20.0% 30.0% 40.0%

EVHC

MD

TMH

AMN

CCRN

ASGN

HCSG

(dollars in millions, except per share data)

Current % of 52 EnterpriseCompany Ticker Price Week High Value Revenue EBITDA Revenue EBITDA

Contract ServicesEnvision Healthcare Holdings, Inc. EVHC $22.49 79.0% $7,357 1.2x 10.7x N/M N/MHealthcare Services Group Inc. HCSG $39.17 92.9% $2,777 1.8x 25.4x 1.7x 19.8xMedNax, Inc. MD $66.66 86.6% $7,923 2.6x 11.4x 2.3x 10.5xTeam Health Holdings, Inc. TMH $36.80 60.9% $5,432 1.2x 11.6x 1.1x 10.3x

Average 1.7x 14.8x 1.7x 13.5xMedian 1.5x 11.5x 1.7x 10.5x

Healthcare StaffingAMN Healthcare Service, Inc. AMN $38.45 85.5% $2,217 1.2x 9.9x 1.1x 9.0xCross Country Healthcare, Inc. CCRN $15.61 96.1% $565 0.7x 13.1x 0.7x 10.5xOn Assignment, Inc. ASGN $44.16 96.4% $2,991 1.2x 10.9x 1.2x 9.9x


Note 1: Data per SEC fi l ings and Capital IQ.Note 2: Stock price as of 12/31/2016 close and LTM financial results for Q3 2016.Note 3: EVHC / AMSG merger closed 12/2/16.Note 4: TMH take-private transaction by Tennessee Parent, Inc. (The Blackstone Group) announced 10/31/16.

Total Enterprise Value as Multiple of:LTM NTM

CONTRACT SERVICES AND STAFFING SECTOR OVERVIEW

SELECT CONTRACT SERVICES AND STAFFING M&A TRANSACTIONS FOR 2016

VALUATION ANALYSISPUBLIC COMPANY ANALYSIS

CONTRACT SERVICES & STAFFING INDICES STOCK PRICE PERFORMANCE

LTM EBITDA MULTIPLE COMPARED WITH LTM REVENUE GROWTH

60%

70%

80%

90%

100%

110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Contract Services Healthcare Staffing

(dollars in millions)TEV as a Multiple of:

Announced Enterprise LTM(1)

Date Acquiror Target Value(1) Revenue EBITDAContract Services12/21/16 Brown Brothers Harriman & Co. American Physician Partners, LLC N/A N/A N/A12/13/16 Envision Healthcare Corporation Desert Mountain Consultants in

AnesthesiaN/A N/A N/A

12/12/16 Fujian Thaihot Investment Co, Ltd. All iance Healthcare Services, Inc. $710.7 1.4x 6.0x10/20/16 MEDNAX, Inc. CNY Anesthesia Group, P.C. N/A N/A N/A10/11/16 American Physician Partners, LLC DeGarA, PLLC N/A N/A N/A8/18/16 Team Health Holdings, Inc. Anesthesia Associates of Cincinnati Inc. N/A N/A N/A8/8/16 MEDNAX, Inc. Associated Anesthesiologists of Reno N/A N/A N/A

Healthcare Staffing12/1/16 Cross Country Healthcare, Inc. US Resources Healthcare, LLC N/A N/A N/A

10/31/16 The BlackStone Group Team Health Holdings, Inc. 6,020.1 1.4x 15.0x9/15/16 Team Health Holdings, Inc. EmMed, P.C. N/A N/A N/A4/22/16 Schumacher Clinical Partners ECI Healthcare Partners, Inc. 140.0 N/A N/A


BCA Proprietary DataBCA Proprietary Data

9

HEALTHCARE IT SECTOR OVERVIEW

SELECT HEALTHCARE IT M&A TRANSACTIONS FOR 2016


HEALTHCARE IT INDEX STOCK PRICE PERFORMANCE




Advisory Board Co. ABCO $33.25 67.6% $1,842 2.3x 10.3x 2.2x 9.2xAllscripts Healthcare Solutions, Inc. MDRX $10.21 67.3% $3,046 1.9x 10.0x 1.8x 9.7xathenahealth, Inc. ATHN $105.17 62.8% $4,352 4.1x 18.9x 3.5x 15.3xBenefitfocus, Inc. BNFT $29.70 66.0% $936 4.2x N/M 3.6x N/MCastlight Health, Inc. CSLT $4.95 90.0% $408 4.4x N/M 3.4x N/MCerner Corporation CERN $47.37 70.2% $16,129 3.5x 10.8x 3.1x 9.5xCotiviti Holdings, Inc. COTV $34.40 94.4% $4,022 6.6x 17.4x 6.1x 16.0xComputer Programs & Systems, Inc. CPSI $23.60 39.9% $471 1.7x 10.2x 1.8x 9.4xEvolent EVH $14.80 63.9% $908 4.3x 23.3x 2.3x 18.7xHealthStream HSTM $25.05 77.6% $702 3.1x 19.3x 2.9x 18.2xHMS Holding Corp. HMSY $18.16 98.2% $1,593 3.2x 13.7x 3.1x 12.6xInovalon Holdings, Inc. INOV $10.30 36.8% $1,091 2.4x 8.9x 2.5x 10.3xMediData Solutions, Inc. MDSO $49.67 81.0% $2,792 6.4x 28.4x 5.3x 22.8xQuality Systems, Inc. QSII $13.15 75.1% $866 1.8x 10.5x 1.7x 9.4x


Note 1: Data per SEC fi l ings and Capital IQ.

Note 2: Stock price as of 12/31/2016 close and LTM financial results for Q3 2016.Note 3: MDRX, CPSI and HSTM adjusted for NetSmart, Healthland and Healthline Systems acquisitions, respectively.


70%

80%

90%

100%

110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Healthcare IT

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

(10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

ABCO

ATHN

CERN

MDRX

COTV

CPSI

HSTM

MDSO

QSII

HMSY

INOV



Date Acquiror Target Value(1) Revenue EBITDA

11/25/16 CC Capital Management, LLC Constellation Healthcare Technologies $273.0 2.7x 7.7x10/4/16 Wolters Kluwer Health, Inc. Emmi Solutions, LLC 170.0 N/A N/A9/12/16 Atos SE Anthelio Healthcare Solutions Inc. 275.0 1.4x N/A8/9/16 EQT Partners AB Press Ganey Holdings, Inc. 2,382.2 6.9x 22.7x

7/13/16 Evolent Health, Inc. Valence Health, Inc. 247.3 N/A N/A7/13/16 Thoma Bravo, LLC Imprivata, Inc. 496.9 3.8x N/A5/3/16 Quintiles Transnational Holdings IMS Health Holdings, Inc. 13,170.5 4.3x 17.7x

4/25/16 Veritas Capital Verisk Health; MediConnect Global 820.0 N/A N/A3/23/16 GI Partners, LLC Netsmart Technologies Inc. 950.0 N/A N/A3/8/16 Nordic Capital; Novo A/S eResearchTechnology, Inc. 1,800.0 6.0x N/A

2/22/16 Resmed Corp. Brightree LLC 800.0 7.1x 18.9x2/18/16 IBM Watson Health Truven Holding Corp. 3,593.0 5.9x 35.0x


10

HOME HEALTH AND HOSPICE SECTOR OVERVIEW

SELECT HOME HEALTH AND HOSPICE M&A TRANSACTIONS FOR 2016


HOME HEALTH AND HOSPICE INDEX STOCK PRICE PERFORMANCE




Home HealthAddus HomeCare Corporation ADUS $35.05 96.6% $399 1.0x 14.3x 0.9x 11.8xAlmost Family Inc. AFAM $44.10 97.0% $605 1.0x 11.5x 0.8x 9.0xAmedisys, Inc. AMED $42.63 77.3% $1,527 1.1x 13.6x 1.0x 12.0xLHC Group, Inc. LHCG $45.70 97.8% $915 1.0x 11.8x 0.9x 10.3x


HospiceChemed Corporation CHE $160.41 97.8% $2,786 1.8x 12.4x 1.7x 11.3x

Note 1: Data per SEC fi l ings and Capital IQ.Note 2: Stock price as of 12/31/2016 close and LTM financial results for Q3 2016.


70%

80%

90%

100%

110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Home Health Hospice

0.0x

5.0x

10.0x

15.0x

20.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0%

AFAM

AMED

ADUS

LHCG

CHE




12/19/16 Bain Capital Private Equity, LP Epic Health Services, Inc. N/A N/A N/A12/19/16 Associated Home Care Inc. Home Staff, LLC N/A N/A N/A11/29/16 Blue Wolf Capital Partners LLC Great Lakes Home Health Services, Inc. N/A N/A N/A10/13/16 Altaris Capital Partners, LLC SH Franchising, LLC N/A N/A N/A7/12/16 Geneva Glen Capital, LLC Southeastern Home Health Services of PA N/A N/A N/A6/20/16 Kindred Healthcare Inc. Arkansas Department of Health & Human

Services, In-Home Health Care $39.0 N/A N/A

5/5/16 Encompass Home Health Camellia Healthcare3/9/16 Hospice Compassus, Inc. Genesis Healthcare, Inc.; Majority of Home

Health and Hospice Operations84.0 1.2x 9.3x

3/2/16 LHC Group, Inc. Heartlite Hospice, Inc. N/A N/A N/A2/11/16 Amedisys Inc. Associated Home Care Inc. 38.1 1.0x N/A2/10/16 One Equity Partners LLC All Metro Aids Inc. N/A N/A N/A1/28/16 Blue Wolf Capital Partners LLC National Home Health Care Corp. 103.0 N/A N/A1/27/16 Curo Health Services, LLC New Century Hospice, Inc.




11

HEALTHCARE FACILITIES SECTOR OVERVIEW

SELECT HEALTHCARE FACILITIES M&A TRANSACTIONS FOR 2016


HEALTHCARE FACILITIES INDEX STOCK PRICE PERFORMANCE




Hospital ManagementCommunity Health Systems, Inc. CYH $5.59 20.5% $15,918 0.8x 7.9x 0.9x 8.3xHCA Holdings, Inc. HCA $74.02 88.4% $59,095 1.4x 7.6x 1.4x 7.2xLifepoint Hospitals, Inc. LPNT $56.80 75.0% $4,989 0.8x 7.1x 0.8x 6.6xTenet Healthcare Corp. THC $14.84 43.5% $15,338 0.8x 7.8x 0.8x 7.4xUniversal Health Services, Inc. UHS $106.38 76.1% $14,143 1.5x 8.4x 1.4x 7.8x


Psychiatric / Behavioral HealthAAC Holdings, Inc. AAC $7.24 29.7% $348 1.4x 9.6x 1.2x 6.9xAcadia Healthcare Company, Inc. ACHC $33.10 50.2% $6,530 2.3x 10.7x 2.3x 10.3x


RehabilitationHealthSouth Corporation HLS $41.24 95.1% $6,678 1.9x 8.6x 1.7x 8.2xKindred Healthcare, Inc. KND $7.85 50.1% $3,776 0.5x 7.3x 0.5x 7.5xSelect Medical Holdings Corporation SEM $13.25 92.7% $4,363 1.0x 9.2x 1.0x 8.5xUS Physical Therapy, Inc. USPH $70.20 96.6% $906 2.7x 16.5x 2.4x 14.4x


Note 1: Data per SEC fi l ings and Capital IQ.Note 2: Stock price as of 12/31/2016 close and LTM financial results for Q3 2016.Note 3: KND and SEM adjusted for Gentiva and Concentra acquisitions, respectively.


50%

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100%

110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500Hospital Management Psychiatric / Behavioral HealthRehabilitation

0.0x

5.0x

10.0x

15.0x

20.0x

(10.0%) (5.0%) 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0%

CYH

HCA

LPNT

THC

UHS

ACHC

HLS

KND

SEM

USPH

AAC


Announced Enterprise LTMDate Acquiror Target Value(1) Revenue EBITDA

Hospital Management10/26/16

SSM Health Care Of Oklahoma, Inc.; University Hospitals Authority and Trust OU Medical Center $750.0 N/A N/A

8/20/16 Summit Partners LLP HealthSun Health Plans; Wellmax Medical Centers; Pasteur Medical

1,000.0 N/A N/A

5/2/16 Universal Health Services Inc. Valley Health System LLC 1,618.2 N/A N/ABehavioral Facil ities

12/19/16 The Riverside Company Lakeview Health Systems, LLC N/A N/A N/A8/10/16 Linden LLC Pinnacle Treatment Centers, Inc. N/A N/A N/A4/18/16 Alita Care, LLC The Meadows of Wickenburg, Inc. 180.0 N/A N/A

Rehabilitation1/25/16 Select Medical Corporation Physiotherapy Associates Holdings 414.8 N/A N/A


12

LABORATORY SERVICES SECTOR OVERVIEW

SELECT LABORATORY SERVICES M&A TRANSACTIONS FOR 2016


LABORATORY SERVICES INDEX STOCK PRICE PERFORMANCE




Laboratory Corp. of America Holdings LH $128.38 90.8% $18,936 2.0x 10.2x 1.9x 8.9xQuest Diagnostics Incorporated DGX $91.90 98.2% $16,410 2.2x 11.2x 2.2x 10.7x




80%

90%

100%

110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Laboratory Services

0.0x

5.0x

10.0x

15.0x

(5.0%) 0.0% 5.0% 10.0% 15.0%

LH

DGX




10/12/16 Precipio Diagnostics, LLC Transgenomic, Inc. N/A N/A N/A10/3/16 Laboratory Corp. of America Holdings ClearPath Diagnostics N/A N/A N/A8/1/16 Pritzker Group Private Capital; Vesey

Street Capital Partners, LLCPathGroup, Inc. N/A N/A N/A

7/29/16 West Pacific Medical Laboratory Internist Laboratory, Inc. N/A N/A N/A7/27/16 Laboratory Corp. of America Holdings Sequenom Inc. $352.7 3.1x N/A6/14/16 mTuitive, Inc. AccuCore Group LLC N/A N/A N/A4/29/16 Advanced Derm & Cosmetic Surgery Skin Pathology Associates, Inc. N/A N/A N/A4/1/16 Aurora Diagnostics, LLC Pacific Pathology Associates, Inc. N/A N/A N/A


13



Ambulatory Surgical CenterAmSurg Corp. AMSG $67.75 80.0% $6,388 1.9x 11.9x 1.1x 11.2xSurgical Care Affi l iates, Inc. SCAI $46.27 87.6% $2,870 2.4x 26.1x 2.0x 13.4xSurgery Partners, Inc. SGRY $15.85 71.0% $2,100 1.9x 12.8x 1.7x 10.1x


Diagnostic ImagingAlliance Healthcare Services, Inc. AIQ $9.60 97.5% $617 1.2x 5.3x N/A N/ARadNet, Inc. RDNT $6.45 80.8% $948 1.0x 8.6x 1.0x 6.7x


DialysisDaVita, Inc. DVA $64.20 81.5% $20,293 1.4x 8.5x 1.3x 8.0xFresenius Medical Care AG & Co. KGAA FME $84.74 94.4% $34,430 1.9x 11.7x 1.8x 9.6xAmerican Renal Holdings ARA $29.65 100.0% $1,120 1.5x 9.2x 1.4x 5.9x


Note 1: Data per SEC fi l ings and Capital IQ.Note 2: Stock price as of 12/31/2016 close and LTM financial results for Q3 2016.Note 3: AMSG acquired by EVHC and delisted; stock price as of last day of trading on 12/1/16.


OUTPATIENT FACILITIES SECTOR OVERVIEW

SELECT OUTPATIENT FACILITIES M&A TRANSACTIONS FOR 2016


OUTPATIENT FACILITIES INDEX STOCK PRICE PERFORMANCE


70%

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110%

120%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Ambulatory Surgical Center Diagnostic Imaging Dialysis

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

AMSG

SCAI

AIQ

RDNT

DVA

FME

ARA

SGRY




Ambulatory Surgical Centers and Other Outpatient Facil ities12/16/16 Surgical Care Affi l iates, Inc. Midwest Surgical Management Group N/A N/A N/A8/22/16 Kelso & Company; Guidon Partners Physicians Endoscopy LLC N/A N/A N/A6/15/16 Envision Healthcare Holdings, Inc. AmSurg Corp. $7,609.5 2.8x 10.5x

Diagnostic Imaging9/19/16 Pharos Capital Group, LLC TECHLAB, Inc. N/A N/A N/A7/5/16 Sheridan Healthcare, Inc. AllegiantMD, Inc. N/A N/A N/A

Other10/14/16 GTCR, LLC Riverchase Dermatology & Cosmetic

SurgeryN/A N/A N/A

8/23/16 Revelstoke Capital Partners LLC Fast Pace Urgent Care N/A N/A N/A6/20/16 CI Capital Partners LLC Epiphany Dermatology PA N/A N/A N/A5/23/16 Urgent Team Holdings, Inc. Physicians Care, Inc.5/18/16 Harvest Partners, LP Advanced Derm & Cosmetic Surgery N/A N/A N/A3/9/16 Envision Healthcare Holdings, Inc. Emergency Physicians Medical Group 120.0 N/A N/A


BCA Proprietary DataBCA Proprietary DataBCA Proprietary DataBCA Proprietary DataBCA Proprietary DataBCA Proprietary Data

14




12/23/16 Gauge Capital, LLC Miami Beach Medical Group LLC N/A N/A N/A8/1/16 Telligen, Inc. Total Well Being, LLC N/A N/A N/A

7/27/16 Sharecare, Inc. Healthways SC, LLC $30.0 N/A N/A7/20/16 Koninklijke Philips N.V. Wellcentive, Inc. N/A N/A N/A7/11/16 Healthcare Services & Solutions, LLC The Staywell Company, LLC N/A N/A N/A6/30/16 Teladoc, Inc. Healthiest You Corporation 155.8 15.6x N/A6/30/16 HealthRight, LLC HealthNEXT, LLC N/A N/A N/A4/28/16 GE Healthcare Limited Caradigm USA LLC N/A N/A N/A3/24/16 Invo HealthCare Associates, Inc. Progressus Therapy, LLC N/A N/A N/A2/24/16 Virgin Pulse, Inc. Shape Up, Inc. N/A N/A N/A1/19/16 ExamWorks, Inc. Advanced Medical Reviews, Inc. 39.8 N/A N/A1/5/16 National Health Industries, Inc. Long Term Solutions, Inc. 36.7 2.3x N/A1/5/16 Healthcare Interactive, Inc. PopSpring Wellness, LLC N/A N/A N/A

(1) Data from SEC filings and Capital IQ.

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

HWAY

MGLN

WBMD



Healthways Inc. HWAY $22.75 83.3% $1,141 1.4x 22.0x 1.4x 10.1xMagellan Health Services Inc. MGLN $75.25 97.3% $2,114 0.4x 7.5x 0.4x 6.3xWebMD WBMD $49.57 73.4% $1,924 2.8x 9.3x 2.6x 7.9x




POPULATION HEALTH MANAGEMENT SECTOR OVERVIEW

SELECT POPULATION HEALTH M&A TRANSACTIONS FOR 2016


POPULATION HEALTH INDEX STOCK PRICE PERFORMANCE


80%

90%

100%

110%

120%

130%

12/31/2015 3/31/2016 6/30/2016 9/30/2016 12/31/2016

NASDAQ S&P 500 Population Health Mgmt.

15

BRENTWOOD CAPITAL ADVISORS HEALTHCARE OVERVIEW

THE BEST DEAL. DONE. REPRESENTATIVE HEALTHCARE TRANSACTIONS

Recapitalization

Senior Debt PlacementLed by

$14,000,000

Debt RaiseGrowth Equity

Equity Investment Led by

$13,300,000

&

Sell-Side

Sell-Side Advisory to

RecapitalizationLed by

Recapitalization

Recapitalization

Sell-Side AdvisoryLed by

Sell-Side

Sell-Side AdvisoryLed by

Sell-Side

Equity Investment Led by

Growth Equity

RecapitalizationLed By

Recapitalization

Debt-Private placementLed by

Unitranche Debt


Recapitalization


Sell-Side


Recapitalization


Recapitalization

Equity Investment Led By

Growth Equity


Recapitalization


Sell-Side


Recapitalization


Sell-Side

Senior Debt Placement Led by

Debt Raise

$15,000,000


Sell-Side


Sell-Side


Sell-Side


Recapitalization

81 transactions with aggregate value of approximately $5.0 billion, since 2002.

63 M&A and equity raising assignments with aggregate volume of $4.3 billion,since 2002.

18 debt raises representing approximately $700 million in capital, since 2002.

Average enterprise value per healthcare M&A transaction of approximately$100 million, since 2002.

TRANSACTION ACTIVITY

TRANSACTION EXPERTISE INDUSTRY FOCUS

Sell-Side M&A Advisory

Buy-Side M&A Advisory

Recapitalizations

Fairness Opinions

Growth Equity

Senior Debt

Subordinated Debt

PE-SponsoredTransactions

Healthcare

Information Technology

Business Services

Technology-enabled and Outsourced Services

Financial Technology & Services

Application Software

Medical Devices, Specialty Pharma & Contract Research Organizations

Recapitalization

Sell-Side Advisoryto

Sell-Side


Recapitalization


Recapitalization

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