volume 20 | issue 2 he alth ca re m a news · 2016-03-25 · he alth ca re m & a news inside...

Health Care M&A News Inside the Health Care M&A Market

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Medical practice management companies are on the move, and some investors expect that 2015 will be a busy year for the Physician Medical Group sector. Forget the 1990s, when the

likes of AmeriPath, FPA Medical Management, MedPartners, Physician Health Corporation and Prospect Medical Holdings, to name a few, were set on building national networks of doctors.

Times have changed, and so have the players. Today there’s EmCare, the physician subsidiary of Envision Healthcare Holdings (NYSE: EVHC), IPC Healthcare (NASDAQ: IPCM), MEDNAX (NYSE: MD), Sheridan Healthcare, owned by AmSurg Corp. (NASDAQ: AMSG) and Team Health Holdings (NYSE: TMH). Last year, Fresenius Medical Care AG & Co. (NYSE: FMS) acquired two physician/hospitalist groups, while DaVita HealthCare Partners (NYSE: DVA) bought a multispecialty network in its Colorado backyard.

Physician Groups Are Hot CommoditiesAcquisition Pipelines Are Filling Up

The health care mergers and acquisitions arena witnessed a free-for-all brawl in 2014, as record numbers of deals (1,300-plus) and dollars spent ($387 billion) rolled up. As usual, strategic buyers

dominated the action, particularly large pharmaceutical companies sell-ing off old lines of businesses and buying into new pipelines.

Financial buyers found it hard going, and the competition was fierce. These buyers, including real estate investment trusts and private equity firms, announced 187 deals in 2014, accounting for 14.4% of the total deal volume. Their total combined spending, when disclosed, came to $34.2 billion, and 8.8% of the combined dollar volume.

Sterling Partners, a growth equity investment firm, made three deals in 2014, for Q-Centrix, Results Physiotherapy and Surgical Solutions. We talked with managing director Danny Rosenberg and principal Dan

Financial Buyers’ Landscape in 2015Stiff Competition and High Multiples Are Changing the Game

Continued on page 2

Continued on page 4

PMG Companies Still HotHospitals have left the acquisition field to the practice management companies. While doctors are still the target, some consolidation could happen in the ranks.................

Financial Buyers in 2015 Despite the dominance of strategic buyers, financial buyers are still in the hunt.... Page 1

From Our Database What would 2014’s health care M&A totals look like if those Big Pharma deals actually happened? ....................................... Page 10

January M&A ActivityThe deal making momentum spilled over into January, but the size of most deals felt more normal. .............................................. Page 19

DepartmentsTechnologyDeal Summaries ................................. Page 6Additional Transactions ..................... Page 8Health Care Technology ................... Page 17

ServicesDeal Summaries ................................ Page12Additional Transactions ................... Page 15Health Care Services ....................... Page 17

FEBRUARY 2015

In This Issue

Health Care M&A News

2 www.healthcaremanda.com

“We’re seeing a lot of activity in the physician group sector,” Mitch Stern, managing partner at Dresner Partners, said in an interview. “Some sectors that were seeing a lot of activity, such as dental practice management, are still continuing to fill in. The private equity firms have gotten very involved in that sector. The physician groups that are pretty active are anesthesia, dermatology and even urgent care, which has been very frothy.”

Big Fish Eats Big Fish?

There may even be some consolidation among the larger players themselves. In a research note published early in February, Jefferies analyst Brian Tanquilut noted that Envision Healthcare could turn in sustained double-digit organic growth over the next few years, as it continues

Continued from page 1to win new outsourcing contracts from hospitals (for ER, hospitalist and anesthesiology) and counties (ambulance services). Beyond that upbeat outlook, he suggested the company also has the capital capacity “to make large, immediately accretive acquisitions of competing physician practice groups.”

MEDNAX’s market cap is currently the largest, at $7.08 billion, but management has reiterated time and again that it is not interested in office-based practices, preferring hospital-based contracts. Envision Healthcare, with a market cap of $6.4 billion, most likely would be looking for smaller fish.

Stifel analyst Chad Vanacore, who covers MEDNAX and Team Health, weighed the prospect of an Envision takeover. “I never want to say no,” he said, adding, “Envision and Team Health would have the best fit together, because they overlap in the ER department. Right now, Team is only about 10% in anesthesia, and mostly in the ER.” Stranger things have happened.

Moving targEts

Physician practices are still the primary target, but the changing health care landscape has caused the big acquirers to look beyond practices to acquiring services that support their network of doctors. The intended result is to attract more practices to their fold, of course. Cases in point: MEDNAX, which specializes in neonatology, pediatric surgery and anesthesiology areas, last August purchased MedData, which provides revenue cycle management and other services to emergency department, hospitalist and other physician specialty groups.

In October, Team Health added PhysAssist Scribes, which provides physician scribe and record services to more than 155 emergency departments in 22 states. Medical scribe services are gaining popularity as acquisition targets, too, to perform the necessary but time-consuming task of entering patient data into electronic health records and thus giving doctors more time with patients. In December, General Employment

Health Care M&A News Inside the Health Care M&A Market

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Enterprises (NYSE: JOB) paid $7.9 million for the medical scribe service Scribe Solutions Inc., and in January, Essia Health, a medical scribe service based in Woodland Hills, California, bought Eastside Specialty Scribes in Bellevue, Washington. Also in 2015, Envision paid $123 million for VISTA Staffing Solutions, which provides locum tenens staffing and permanent placement services for physicians, nurse practitioners and physician assistants, from OnAssignment Inc. (NYSE: ASGN).

All of these acquisitions involve ancillary services, but they serve the larger purpose of moving their companies toward that ever-changing goal of value-based health care, reducing the fee-for-services aspect with enhanced bill collection capabilities, swift and professional EHR entries that hopefully boost patient engagement, and flexible staffing solutions to deal with ever-shifting patient loads within a hospital’s walls.

thE Changing aCquirEr Mix

The ACA put health care providers on notice that they need to rein in costs and improve operational efficiency. Thanks to the recent ruling by the Centers of Medicare and Medicaid Services, they have to double-down on their efforts to provide value-based care by 2017, or risk losing reimbursements.

Although the threat of a shortage in primary care physicians caused many hospitals to acquire local PC practices in recent years, the expected revenues from their patient referrals hasn’t completely offset the cost of employing doctors. Outsourcing physician services is one avenue many hospitals are taking, so there is a long

runway ahead for the physician medical group sector.

“One trend you’ll see in 2015 is [acquirers] filling in the gaps, especially within geography, of the existing rollups that have taken place within physician groups,” Stern said. “There will be other areas, such as orthopedics or ENT or OB-GYN that could be filled in by the private equity firms.”

Last year saw some outsiders make large acquisitions, particularly Fresenius’ North American division, which invested $600 million in Sound Physicians, largely a hospitalist group, and its rival, DaVita HealthCare Partners acquired Colorado Springs Health Partners, a multispecialty group with more than 100 physicians in 11 locations around Pikes Peak.

Those deals were motivated by players who have seen their bathtub shrink in recent years. “Fresenius and DaVita have 90% of the [renal care] market sewn up,” Vanacore said. “So there’s really not a growth opportunity for them. They have to put their cash to work somewhere to get returns.” AmSurg’s deal for Sheridan fits that bill, he surmised, as the ambulatory surgical space may be tightening.

This isn’t the roll-em-up, roll-em-out-again 1990s market for physician practices, as we noted before. But there are many smaller players, such as Apollo Medical Holdings (two acquisitions in 2014) and ONE Management Services Company (also two acquisitions), that are elbowing their way to the table. Hospitals have slacked off the acquisition pace of prior years, but for the specialty physician groups that are left, the phone is probably still ringing off the hook. □

Acquirer Type 2009 2010 2011 2012 2013 2014

Publicly traded company 19 35 37 30 35 45

Private company 11 12 20 20 17 13Nonprofit 11 20 58 20 13 1

Total 41 67 115 70 65 59

Physician Medical Group M&A, by Acquirer Type, 2009 to 2014

Source: The Health Care M&A Information Source, February 2015



Financial buyers Q4:13 Q1:14 Q2:14 Q3:14 Q4:14

Deals announced 43 48 36 49 54Share of deal volume 14.8% 16.7% 11.1% 14.3% 15.7%Dollars committed $5.7 billion $8.5 billion $6.3 billion $8.1 billion $11.3 billionShare of total dollars 12.6% 17.0% 4.6% 12.9% 8.2%

Financial Buyers M&A Activity, Q4:13 to Q4:14

Source: The Health Care M&A Report, Fourth Quarter 2014, January 2015

Hosler, about what the year was like, and how 2015 could play out.

HCM&A: Health care M&A was pretty crazy. How did you fare in the market last year?

Dan Hosler: It has felt like a busy year, all across the health care world. It seems like there’s been a much steadier stream of deals hitting the market this year, I would say, since 2004 or 2005. I think we fared pretty well. For deals we like, we do have to pay whatever the prevailing market multiple is. For the most part, we look for founder-run businesses that haven’t taken in outside money, but want a private equity sponsor to help them get to the next level.

HCM&A: Valuations were really getting out of whack in some areas. Do you think they’re going back to normal?

Hosler: Probably not. They’re creeping up into uncomfortable territory, from 10x up to 12x. So while the deal flow seems more normal, the prices paid continue to creep up. And to stay competitive, you have to be able to move outside your comfort range.

The debt providers have been more than comfortable moving in to help fill that 2x-gap in valuations. We’re not necessarily paying those 12x multiples, but we’ve seen processes where we like a company, we’d like to learn more, and we don’t get invited back because we didn’t bid high enough for those first rounds, regardless if the company trades down over time.

Danny Rosenberg: We’re starting to hear that private equity buyers are, in some cases, becoming a bit more conservative than some of the strategics. They’re viewing their underwriting criteria a bit differently and are recognizing the fact that, in all likelihood, by the time they exit, debt markets will be different and therefore, multiples could be different. They’re starting to underwrite to lower exit multiples, than to their entry multiples. Those two factors are starting to pull some prices down.

HCM&A: Do you think 2015 will be more of the same, as far as competition for growth-stage companies?

Rosenberg: I think there’s still a lot of money and folks looking at opportunities, and they see health care as a very interesting area to invest. So volume will be decent, but I don’t want to predict it will be another record year. It will be interesting to see if the pricing holds up.

Hosler: While the strategics are playing, not all of them have gotten back in the game, and that could portend a really strong 2015. Growth has to come from somewhere, and if you can’t create it organically, the shareholders are going to demand you do something. They may finally get off the sidelines and dip into the balance sheet.

HCM&A: Are there any areas you’re not interested in?

Hosler: We don’t do much in biotech, medical devices or pharmaceuticals. We don’t have those skill sets. We’re looking more and more at healthcare IT or technology-enabled care, whether it’s telemedicine or some other software-based tools. Those are going to be pretty exciting areas to play in, in the future. □

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Deal Summaries: Technology Biotechnology

TARGET LISTING ACQUIRER LISTING DATE PRICE

Collaboration on GI tract drugs NASDAQ: Janssen Biotech, Inc. NYSE: JNJ 1/5/2015 $35,000,000 Carlsbad, California ISIS Horsham, Pennsylvania

In Brief: ISIS Pharmaceuticals has agreed to collaborate with Janssen on drug discovery using its RNA-targeted technology platform. The goal is to develop antisense drugs to treat autoimmune disorders in the gastrointestinal tract.

Collaboration on CAR-Ts NASDAQ: Amgen, Inc. NASDAQ: 1/5/2015 $60,000,000 New York, New York KITE Thousand Oaks, California AMGN

In Brief: Kite Pharma has entered this strategic research collaboration and license agreement to combine its T-cell immunotherapy knowledge with Amgen’s extensive array of cancer targets.

NextCODE Health Private WuXi PharmaTech NYSE: WX 1/9/2015 $65,000,000 Cambridge, Massachusetts Shanghai, China

In Brief: NextCODE Health was spun out of deCODE Genetics when the latter was acquired by Amgen in December 2012. WuXi plans to merge it with its Genome Center and form a new company called WuXi NextCODE Genomics.

Foundation Medicine, Inc. Private Roche SIX: RO 1/12/2015 $780,000,000 Cambridge, Massachusetts Basel, Switzerland

In Brief: Roche is acquiring a majority interest, up to 56.3%, in Foundation Medicine, a molecular information company. The agreement gives Roche the opportunity to identify and develop novel treatment options for cancer patients.

Convergence Pharmaceuticals Private Biogen Idec NASDAQ: 1/12/2015 $200,000,000 Cambridge, England Cambridge, Massachusetts BIIB

In Brief: Convergence is a clinical-stage biotech company focused on developing novel analgesics. Its portfolio of product candidates for neuropathic pain includes a Phase 2 candidate to treat trigemenal neuralgia, a chronic orphan disease.

DioGenix, Incorporated Private Amarantus BioScience OTCQB: 1/12/2015 $8,900,000 Bethesda, Maryland San Francisco, California AMBS

In Brief: DioGEnix is a molecular diagnostics company developing and commercializing novel tests focused on immune-mediated neurological diseases such as multiple sclerosis. It was acquired for its pipeline of diagnostic tests, including MSPrecise®.

Collaboration with Moderna Private Merck & Co. NYSE: MRK 1/13/2015 $100,000,000 Cambridge, Massachusetts Whitehouse Station, New Jersey

In Brief: Modern Therapeutics is collaborating with Merck on the discovery and development of vaccines and treatments against viral disease, using modified messenger RNA (mRNA). Moderna developed mRNA™ across a range of applications.

MD Anderson technology license Private Intrexon and Ziopharm NYSE: XON 1/13/2015 $100,000,000Houston, Texas NASDAQ: ZIOP

In Brief: The University of Texas MD Anderson Cancer Center is licensing technologies that it has built upon to deliver patient-derived T-cells. The goal is to combine them with proprietary products from ION and ZIOP to realize the promise of genetically modified CAR-T cells.

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Deal Summaries: Technology Biotechnology (cont’d)


Global license to NPT200-11 Private UCB S.A. Brussels: UCB 1/16/2015 $20,000,000 San Diego, California Anderlecht, Belgium

In Brief: Neuropore Therapies develops small-molecule therapeutics to treat and slow the progression of neurodegenerative disorders such as Alzheimer’s and Parkinson’s disease. UCB receives the exclusive license to develop and commercialize NPT200-11 in all indications.

Trophos Private Roche SIX: RO 1/16/2015 $139,200,000 Marseille, France Basel, Switzerland

In Brief: Trophos’ proprietary screening platform generated olesoxime (TRO19622), which is being developed for spinal muscular atrophy, a rare genetic disease. Results from Phase 2 studies showed a beneficial effect on the maintenance of neuromuscular function.

nanoMR Inc. Private DNA Electronics, Ltd. Private 1/19/2015 $24,000,000 Albuquerque, New Mexico London, England

In Brief: nanoMR is an early-stage life sciences company whose founders developed a novel system for rapid isolation of rare cells in the bloodstream. The acquisition is a strategic milestone for DNAe, enabling it to create a complete blood-to-result solution.

License for JRC2*-LAMP-vax™ Private Astellas Pharma, Inc. Tokyo: 4503 1/30/2015 $15,000,000 Lancaster, Pennsylvania Tokyo, Japan

In Brief: Immunomic Therapeutics’ drug candidate is a vaccine designed to treat allergies induced by Japanese red cedar pollen, which is endemic in Japan. Astellas will develop and commercialize the vaccine in Japan.

Deal Summaries: Technology eHealth


Claron Technology Private Lexmark International NYSE: LXK 1/5/2015 $37,000,000 Toronto, Ontario Lexington, Kentucky

In Brief: Claron Technology provides medical image viewing, distribution, sharing and collaboration software. It will become part of Lexmark’s Perceptive Software division. The surgical navigation portion will not transfer to Lexmark and will operate under the name Claronav.

Deal Summaries: Technology Pharmaceuticals


NPS Pharmaceuticals, Inc. NASDAQ: Shire plc NASDAQ: 1/11/2015 $5,200,000,000 Bedminster, New Jersey NPSP Dublin, Ireland SHPG

In Brief: NPS Pharmaceuticals is a global biopharmaceutical company focused on rare diseases. This fit strengthens Shire’s focus on rare diseases while leveraging its gastrointestinal commercial capabilities with NPS’ Gattex®/Revestive® injectable, which is already approved for use in the United States and Europe.



Deal Summaries: Technology Pharmaceuticals (cont’d)


U.S. rights to Nucynta® NYSE: JNJ Depomed, Inc. NASDAQ: DEPO 1/15/2015 $1,050,000,000 Titusville, New Jersey Newark, California

In Brief: Janssen Pharmaceuticals is selling the U.S. rights to its Nycynta® franchise, a line of pain management drugs which generated approximately $166 million in U.S. net sales for the 12 months ending September 30, 2014.

Auden Mckenzie Holdings Ltd. Private Actavis plc NYSE: ACT 1/26/2015 $459,370,000 London, England Dublin, Ireland

In Brief: Auden Mckenzie is focused on the development, licensing and marketing of niche generic medicines and proprietary brands in the United Kingdom. This acquisition will make Actavis the largest supplier of generic drugs in that country.

Additional Transactions Technology

SECTOR TARGET ACQUIRER DATE

BIOTECHNOLOGY Redvax GmbH Pfizer, Inc. 1/5/2015 Phenex Pharmaceutical’s FRZ program Gilead Sciences, Inc. 1/6/2015 Sequenta, Inc. Adaptive Biotechnologies Corp. 1/7/2015 Melanovus Oncology Inc. Cipher Pharmaceuticals Inc. 1/9/2015 Enzymatics’ enzyme solutions unit QIAGEN NV 1/11/2015 Rights to OP0595 Roche 1/13/2015 Tobira Therapeutics, Inc. Regado Biosciences, Inc. 1/14/2015 Exemplar Genetics Intrexon Corporation 1/26/2015

eHEALTH IdeaObject Telstra Corporation Limited 1/2/2015 Healthcare Management Solutions The Corridor Group 1/6/2015 SecureStore business EvriChart, Inc. 1/7/2015 Quality Pharmacy Medicine, Inc. PipelineRx 1/7/2015 DoctorsXL Etransmedica Technology, Inc. 1/13/2015 RazorInsights athenahealth, Inc. 1/14/2015 Vitall, Inc. CaerVision Global, Inc. 1/26/2015 e-novex genae 1/27/2015

MEDICAL DEVICES Japanese rights to HeartLight line Japan Lifeline Co., Ltd. 1/5/2015 MIRISK heart attack assesment tool Cleveland HeartLab Inc. 1/7/2015 Aeris Therapeutics, Inc. Pulmonx Corporation 1/8/2015 Hubble Telemedical, Inc. Welch Allyn, Inc. 1/22/2015

PHARMACEUTICALS Canadian rights to oxenoxacin Cipher Pharmaceuticals Inc. 1/7/2015 Aptuit businesses Albany Molecular Research Inc. 1/9/2015 OnCore Biopharma, Inc. Tekmira Pharmaceuticals Corp. 1/11/2015 Rights to ProTectis Drops VietPhap International Co. Ltd. 1/12/2015 Rights to encorafenib Array BioPharma Inc. 1/23/2015 Sirton Pharmaceuticals SpA 3SBio Inc. 1/25/2015

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From Our DatabaseWhat Would 2014 Have Looked Like If The Biggest Pharmaceutical Deals Had Closed?

Last year was a wild ride in health care M&A. The year ended up with a record $387 billion in financ-ing committed to more than 1,300 deals. But what

about the ones that got away? What would the year have looked like if Pfizer (NYSE: PFE), Valeant Pharmaceuticals (NYSE: VRX) and AbbVie (NYSE: ABBV) all completed the acquisitions they set out to make?

In real life, Q4:14 was the most robust, turning in a record $138.4 billion. And $66 billion of that came from the year’s largest deal, Actavis plc’s (NYSE: ACT) rescue of Allergan Inc. (NYSE: AGN), which was fighting off Valeant’s unwanted attentions. The chart below shows the partial impact the deal would have made, had Valeant suceeded with its final bid of $53 billion, in the second quarter, and thus wiped out the reason for Actavis’ white-knight bid. We would have ended the year with a very decent Q4:14 total of $72.4 billion, instead.

Then there was Pfizer’s drawn-out pursuit of AstraZeneca

plc (NYSE: AZN), which turned down offer after offer, even the final $118 billion one made in the second quarter. If events such as the Treasury Department’s change in rules regarding tax inversions hadn’t happened, we would have had a quarter whose total, at $253.8 billion, was higher than most annual totals.

And don’t forget AbbVie’s $54.7 billion offer for Shire plc (NASDAQ: SHPG), which came after four previous offers were spurned. Shire finally accepted in the third quarter, only to see AbbVie get cold feet after the tax inversion rules were changed. The deal was terminated in October.

So what if all those Big Pharma deals had stayed on track? We would be looking at a combined total of $548.9 billion, which makes the real annual total ($387 billion) look positively quaint. This first quarter has carried over some of Q4:14’s momentum (see the January roundup on page 19), but then, that’s what we thought a year ago. And look what happened—and didn’t happen. □

Source: The Health Care M&A Information Source, February 2015

$-

$50.0

$100.0

$150.0

$200.0

$250.0

$300.0

Q4:13 Q1:14 Q2:14 Q3:14 Q4:14

$17.4 $12.7 $13.2 $12.9 $22.9 $27.7 $37.4

$240.6

$159.7

$49.5

Services Technology

The Year That Wasn’t

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Deal Summaries: Services Behavioral Health Care


Clinical Services of Rhode Island Private AAC Holdings, Inc. NYSE: AAC 1/26/2015 $2,000,000 Portsmouth, Rhode Island Brentwood, Tennessee

In Brief: Clinical Services of Rhode Island provides intensive outpatient substance abuse treatment services through three treatment facilities in Greenville, Portsmouth and South Kingstown.

Deal Summaries: Services Home Health & Hospice


Revera Home Health Private Extendicare Inc. TSX: EXE 1/20/2015 $83,000,000 Mississauga, Ontario Markham, Ontario

In Brief: Revera Inc. provides care and services through its long-term care and seniors housing properties and home health branches. It is selling its Revera Home Health business, which provides home health care across Canada.

Traditions Home Care, Inc. Private Accelera Innovations, Inc. OTCQB: 1/21/2015 $6,000,000 McAlester, Oklahoma Frankfort, Illinois ACNV

In Brief: Traditions Home Care provides home health care services, including skilled nursing, certified home health aides, and physical and occupational therapists. Accelera plans to integrate Traditions into its existing platform.

Deal Summaries: Services Hospitals


Nason Hospital Nonprofit Conemaugh Health System NASDAQ: LPNT 1/8/2015 $12,000,000 Roaring Spring, Pennsylvania Johnstown, Pennsylvania

In Brief: Nason Hospital is a 44-bed acute care hospital which services the communities in Blair, Bedford and Huntingdon counties in central Pennsylvania. It will join the Conemaugh system, which was acquired by Duke LifePoint Healthcare in August 2014.

McCullough-Hyde Memorial Nonprofit TriHealth Nonprofit 1/9/2015 $17,000,000Oxford, Ohio Cincinnati, Ohio

In Brief: McCullough-Hyde Memorial Hospital is a 60-bed acute care hospital. TriHealth now has 60% ownership of the hospital, while the McCullough-Hyde Memorial Trust will retain 40% and the board composition will reflect this structure.

Southlake Hospital Private Griffin-American Healthcare Private 1/16/2015 $128,000,000 Southlake, Texas Irvine, California

In Brief: South Texas Medical Development, LP is selling Southlake Hospital. Built in 2013 on 10.6 acres, this 70-bed acute care hospital consists of 142,000 square feet and a three-story, 400-space parking garage.

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Deal Summaries: Services Long-Term Care


GreenTree at Post Road REIT Regional owner Private 1/5/2015 $17,000,000 Indianapolis, Indiana

In Brief: GreenTree at Post Road is an assisted living community with 82 assisted living units, built in 1999 with a 2009 renovation, and 42 memory care units that were built in 2007. There are 113,000 square feet on 2.5 acres, and occupancy was 80%.

Atlantis Assisted Living Private Regional operator Private 1/5/2015 $3,900,000 Lantana, Florida Florida

In Brief: Atlantis is a 53-unit assisted living community that was built in 1977 as a nursing facility and converted to assisted living in 2004 with an updated physical plant and expansive courtyard. It has 30,300 square feet and occupancy was 92%.

Evergreen Estates Private Titan Senquest Private 1/5/2015 $13,450,000 Lancaster, Pennsylvania Manhattan Beach, California

In Brief: Evergreen Estates is a 96-unit retirement community with independent living units and personal care units. It was built in 2001, 2003 and 2008 and has 56,119 square feet on a 5.6 acre campus.

All Saints Nursing Home & Rehab Private Cross Senior Care Private 1/9/2015 $11,000,000 Jacksonville, Florida Dania Beach, Florida BMRN

In Brief: All Saints Nursing & Rehab Center is a skilled nursing facility that was built in 1992 with 53,750 square feet. Occupancy was 87%, with just 6% Medicare. It was operating at a slight negative EBITDA. This acquisition will be Cross Senior’s 10th location in Florida.

English Meadows at Christianburg Private CareTrust REIT, Inc. NASDAQ: CTRE 1/9/2015 $6,600,000 Christianburg, Virginia San Clemente, California

In Brief: English Meadows is a 39-unit assisted living community. It was owned and operated by Twenty/20 Management, Inc., an assisted living provider in western Virginia. CareTrust was spun out of The Ensign Group in June 2014.

Sephardic Nursing & Rehab Private The Allure Group Private 1/10/2015 $36,000,000 Brooklyn, New york Brooklyn, New York

In Brief: This skilled nursing facility has been renamed the King David Center for Nursing & Rehabilitation. It was built in 1957 as a 58-bed care home. In 1975, a nine-story addition was completed, followed by a one-floor addition on the original building for short-term care.

Springdale Assisted Living Private Griffin-American Healthcare Private 1/16/2015 $8,105,000 Springdale, Arkansas Irvine, California

In Brief: Springdale Assisted Living is a licensed assisted living facility that was built in 1998 with 53,000 square feet. Griffin-American Healthcare REIT III is co-sponsored by American Healthcare Investors and Griffin Capital Corporation.

Lake Alhambra Assisted Living Private Individual owner/operator Private 1/16/2015 $2,750,000 Antioch, California California

In Brief: Lake Alhambra Assisted Living was built in 1989 with 37 units and 30,974 square feet on 1.07 acres. Occupancy had averaged just above 80% (30 residents), and the census was all private pay. Average rates were close to $2,700 per month.



Deal Summaries: Services Long-Term Care (cont’d)


Hidden Oaks Private Large capital group Private 1/26/2015 $7,450,000 Fort Myers, Florida

In Brief: Hidden Oaks is a 64-unit assisted living and memory care community, with 48 units of assisted living and 16 units of memory care. It was built in 1983 with an extensive renovation and addition in 2005. About 40% of the residents use managed care for funding.

Heritage House Private SHA Capital Partners Private 1/27/2015 $5,300,000 Wisconsin Chicago, Illinois

In Brief: This assisted living facility was built in 1999 and renovated in 2006. It has 66 units with about 55,000 square feet. Occupancy was 80% when the sale was negotiated, but rose to 85% by closing.

Loving Arms Assisted Living Private Summit Healthcare REIT, Inc. Private 1/28/2015 $14,000,000 Front Royal, Virginia Lake Forest, California

In Brief: Loving Arms is a 47-unit assisted living and memory care community that also includes two cottages, with three units each, on its 6-acre campus. It has 84 total beds, with rents ranging from $4,050 to $5,100 per bed.

2 assisted living communities Private Capital Senior Living Corp. NYSE: CSU 1/29/2015 $32,800,000 Dallas, Texas

In Brief: The two assisted living communities are located in markets where Capital Senior Living already has extensive operations. The average monthly rent is about $3,606.

The Legends at Hillsboro Private Regional operator Private 1/30/2015 $4,150,000 Hillsboro, Texas Texas

In Brief: The Legends is a 46-unit assisted living facility that was built in 1999 on 4.14 acres with 29,780 square feet. Occupancy is about 93%. Hillsboro is located 62 miles north of Dallas.

Assisted living community Private Capitol Seniors Housing Private 1/30/2015 $18,000,000 Laurel, Maryland Washington, D.C.

In Brief: This assisted living and memory care community, now renamed Arbor Terrace, was built in 1999 and underwent about $2 million in renovations 18 to 24 months ago. Part of the third floor (eight units) is in the process of being leased to a hospice company.

Bethany Rehabilitation Center Private CareTrust REIT NASDAQ: CTRE 1/30/2015 $17,950,000 Lakewood, Colorado San Clemente, California

In Brief: Bethany Rehabilitation Center was built in 1969 and operates as a 170-bed skilled nursing and rehab facility. It has an additional 50 licensed beds. Occupancy reached 95% in 2014, and the private pay and Medicare census combined was about 16%.

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Deal Summaries: Services Managed Care


Healthcare Solutions Team LLC Private National General Holdings NASDAQ: NGHC 1/26/2015 $15,000,000 Lombard, Illinois New York, New York

In Brief: Healthcare Solutions Team offers a range of coverages, including short-term medical, critical illness plans, dental insurance, Medicare supplements and life insurance. It has approximately 500 independent agents around the country.

Premier Healthcare Exchange, Inc. Private Performant Financial Corp. NASDAQ: PFMT 1/28/2015 $130,000,000 Bedminster, New Jersey Livermore, California

In Brief: Premier Healthcare Exchange provides healthcare cost management solutions for more than 200 commercial health plans and third-party administrators. The combined company expects to enter new markets and leverage its existing audit and recovery infrastructure. Deal Summaries: Services Other


VISTA Staffing Solutions NYSE: Envision Healthcare Holdings NYSE: EVHC 1/9/2015 $123,000,000 Calabasas, California ASGN Greenwood Village, Colorado

In Brief: On Assignment, Inc. is selling VISTA Staffing Solutions, which provides locum tenens staffing and permanent placement services for physicians, nurse practitioners and physician assistants. This deal follows Envision’s acquisition of two physician medical groups.

6 Joint Corp. franchises Private The Joint Corp. NASDAQ: JYNT 1/7/2015 $1,407,500 Los Angeles, California Scottsdale, Arizona

In Brief: The Joint Corp. is repurchasing six chiropractic clinics, four of which are operating franchises and two are undeveloped. An entity of a Los Angeles regional developer is the seller.

Additional Transactions Services


BEHAVIORAL HEALTH CARE Crossroads Holding, LLC Revelstoke Capital Partners 1/8/2015 HOME HEALTH CARE Alarys Home Health The Ensign Group, Inc. 1/5/2015 Hospice of the South Plains The Ensign Group, Inc. 1/5/2015 Priority Home Health Care, Inc. Addus HomeCare Corporation 1/5/2015 Loving Care Agency Epic Health Services 1/12/2015 Cassell & Associates Civitas Solutions, Inc. 1/14/2015 Capstone Services Civitas Solutions, Inc. 1/14/2015 Optimal Medical Therapies GmbH & Co. Air Liquide 1/15/2015 Walgreens Infusion Services Madison Dearborn Partners 1/20/2015 InfusinonRx Amerita, Inc. 1/28/2015

HOSPITALS Wabash County Hospital Parkview Health 1/1/2015 Crittenton Hospital Medical Center Ascension Health Michigan 1/6/2015




HOSPITALS Nova Specialty Hospitals Apollo Health & Lifestyle Ltd. 1/6/2015 Southampton Hospital Stony Brook University Hospital 1/13/2015 Lincoln County Medical Center Mercy Health 1/21/2015 Metro Health Hospital Community Health Systems, Inc. 1/23/2015 Lenoir Memorial Hospital Novant Health 1/29/2015

LABORATORIES, MRI & DIALYSIS Diagnovus LLC Aegis Sciences Corporation 1/6/2015 Quality Mobile X-Ray Services, Inc. Schryver Medical Sales & Marketing 1/26/2015

LONG-TERM CARE Post-acute care campus The Ensign Group, Inc. 1/5/2015 Skilled nursing facility The Ensign Group, Inc. 1/5/2015 Maple Manor Healthcare & Rehab Illinois-based operator 1/19/2015 Skilled nursing facility Oklahoma operator 1/28/2015

MANAGED CARE LiveHealthier, Inc. Centene Corporation 1/5/2015 Laya Healthcare American International Group, Inc. 1/21/2015 3 medical professional liability companies Global Insurance Management Co. 1/22/2015 Agate Resources, Inc. Centene Corporation 1/26/2015 QualCare Alliance Networks, Inc. Cigna Corp. 1/26/2015 National Examinations Network Dane Street 1/29/2015

PHYSICIAN MEDICAL GROUPS Metropolitan Anesthesia Alliance, PLLC MEDNAX, Inc. 1/5/2015 Scottsdale Emergency Associates Envision Healthcare Holdings, Inc. 1/13/2015 Emergency Medical Associates Envision Healthcare Holdings, Inc. 1/13/2015 Radisphere Corporation Sheridan 1/21/2015 Anesthesia Consultants of Dallas U.S. Anesthesia Partners, Inc. 1/22/2015 8 physician groups Independent Physicians Collaborative 1/28/2015 Selected assets of Hospitalists Now IPC Healthcare, Inc. 1/30/2015 MEMAC Associates, P.C. MEDNAX, Inc. 1/30/2015

REHABILITATION Lakeview Systems’ programs Civitas Solutions, Inc. 1/14/2015 Encore Rehabilitation Services, LLC Revelstoke Capital Partners, LLC 1/30/2015

OTHER SERVICES 24/7 Kid Doc, Inc. Dale Jarrett Racing Adventure 1/2/2015 Spencer Dermatology Skin/Surgery Center ADCS 1/5/2015 Optum Life Science services Mapi Group 1/6/2015 Nurse Plus Sovereign Capital Partners LLP 1/6/2015 Eastside Specialty Scribes Essia Health 1/7/2015 Integrity Urgent Care The Ensign Group, Inc. 1/7/2015 ADS Florida, LLC Henry Schein, Inc. 1/13/2015 Ambulatory surgical center NYC Surgical Associates 1/22/2015

Additional Transactions Services

VOLUME 20 | ISSUE 2

HealthCareMandA 17

Health Care Technology NewsLast month President Obama introduced the Precision Medicine Initiative, a research effort aimed at improving health and treating diseases such as cancer. The $215 million budgeted for the program in 2016 will have to get through Congress, so it may come to naught. But the concept is already well under way in the biotechnology and pharmaceutical sectors. We expect to see more deals for companies pursuing the dream of treating one patient at a time.

BiotEChnology

The Biotechnology sector closed out 2014 on a high note, with 62% more deals (136) than the year before--its best year since 2009, when 193 deals were announced. Already we’ve seen 22 transactions announced in January, and $6.7 billion to back 14 of those deals (the ones that disclosed prices).

The bulk of the month’s total came from a single deal, Shire plc’s (NASDAQ: SHPG) $5.2 billion deal for rare-disease drug developer NPS Pharmaceuticals Inc. (NASDAQ: NPSP). Then Biogen Idec (NASDAQ: BIIB) jumped in with $200 million for Convergence Pharmaceuticals, a British clinical-stage company working on pain medication.

The record number of initial public offerings last year--including 102 in health care, mostly biotech, according to Renaissance Capital--produced several new biotech companies with promising candidates. Just the thing for pharma pipelines that are drying up.

EhEalth

This sector got off to a good start with 11 deal announcements, but few prices disclosed. Last month’s deals involved the usual revenue cycle management, digital imaging products and electronic health record targets, such as Athenahealth’s (NASDAQ: ATHN) purchase of the Atlanta-based EHR company RazorInsights. The company also acquired webOMR

from Beth Israel Deaconess Medical Center, which developed the clinical applications and EHR platform. The move increases athenahealth’s presence in the hospital inpatient market.

The mobile health industry is hoping to get on the Precision Medicine bandwagon, so look for more deal making around those technologies. And no, we’re not counting Under Armour’s $560 million deal for two health and fitness apps, MyFitnessPal and Endomondo. Also ahead is the latest deadline (October 1) for ICD-10 implementation, which is bringing some deals for coding companies to the fore. Stay tuned.

PharMaCEutiCals

After last year’s stunning performance, the Pharma sector seemed to run out of steam in January. The largest of the 14 deals announced was Depomed’s (NASDAQ: DEPO) $1.1 billion purchase of the U.S. rights to Nucynta®, Janssen Pharmaceuticals’ (NYSE: JNJ) line of pain management drugs. The year is still young, and as we noted above, biotech IPOs keep coming, and are providing ample targets for pharma companies that can’t or don’t want to pay for full-blown R&D departments.

Health Care Services NewsThe big news last month was CMS’s announcement that half of Medicare reimbursement will shift to alternative payment arrangements--read, value-based care--by 2018. That was followed almost immediately by the formation of the Health Care Transformation Task Force, a private-sector alliance of 28 major health systems and insurers.

Their initial goals are simple: to improve the accountable care organization model, develop a standard system for bundled payments and improve high-cost care. The group includes Partners HealthCare, Trinity Health, Aetna (NYSE: AET), Blue Cross Blue Shield of Massachusetts, and Blue Shield of California. Trinity Health’s CEO, Richard Gilfillan, is chairman.



BEhavioral hEalth CarE

As a follow-on to the article on growth-equity investors on page 1, we’d like to mention that Revelstoke Capital Partners, a growth-equity firm in Denver, made two services-side acquisitions in January, and they were in the sweet-spot for private equity targets. The first was in this sector, for Crossroads Holding, LLC, which operates substance abuse treatment centers throughout the southeastern United States. The other was for Encore Rehabilitation Services, LLC, which was sold by Glencoe Capital, LLC. No prices were disclosed, naturally.

hosPitals

Deal making picked up in January, as 10 deals were finalized. Much of the activity concerns small community and critical access hospitals, so it’s the deals that aren’t getting done that grab the headlines. One that’s gotten national attention is Partners HealthCare’s on-again-off-again acquisition of three area hospitals. Last month a Massachusetts judge rejected an agreement that would allow the deal to proceed. The agreement had the

blessing of the previous state attorney general, but not the backing of the new AG. The chances of winning an appeal don’t look promising.

The second deal turned into a game of chicken between Tenet Healthcare (NYSE: THC) and Connecticut governor Dannel Malloy. Tenet walked away from its proposed acquisition of five hospitals in December 2014, blaming the state government for imposing too-harsh terms. State legislators managed to reopen negotiations in January, only to have Tenet walk away again--this time for good, the company said. The hospitals are seeking other options.

ManagEd CarE

M&A in this sector has been moribund since 2012, when the Supreme Court first upheld a portion of the ACA. Late last year, however, a few mid-market companies such as Molina Healthcare began their own consolidation of Medicare and Medicaid programs. The nine deals announced last month total more than we’ve seen in some quarters. Watch this space for more action, as analysts predict some big players will move in. □

VOLUME 20 | ISSUE 2

HealthCareMandA 19

Dealmaking Momentum Continues into 2015January Deal Volume Stays Strong, but Dollars Shrink in the Cold Weather

T he year got off to a very strong start, with 119 transactions announced in January. After the record year we just left, with more than 1,300

transactions, it’s interesting to see that the merger and acquisition momentum continued through January 2015. Deal volume last month was 14% higher than the same month the year before, and 24% better than December 2014.

Dollar volume was lower, compared with both prior months. January 2015’s combined total spending now stands at $9.2 billion, down 16% compared with the $10.9 billion recorded the year before, and well off December’s $18.3 billion (-50%).

In January 2015, spending on Pharmaceutical deals shriveled to just $1.6 billion, down 59% compared with the year before when this sector posted $3.8 billion. On the other hand, the Biotech sector took off early in January, reaching a peak just prior to the annual JP Morgan Healthcare Summit. Deal volume was up 47% compared with January 2014, and dollar volume grew 74%, to $6.7 billion, year over year.

The service sectors also kept the action going, at least on the deal-making level, with January up 32% compared with the year before. Dollar volume cratered, however, to just $818 million, down 84% versus January 2014’s $5.2 billion. Here’s to warmer weather. □

Deal Volume, January 2015 vs. December 2014 and January 2014

January 2015 Deals

December 2014 Deals

January 2014 Deals

Share of total Change Change

Services

Behavioral Health Care 2 2% 3 -33% 4 -50%

Home Health & Hospice 11 9% 5 120% 3 267%

Hospitals 10 8% 9 11% 9 11%

Labs, MRI & Dialysis 2 2% 1 100% 6 -67%

Long-Term Care 19 16% 30 -37% 13 46%

Managed Care 9 8% 2 350% 2 350%

Physician Medical 8 7% 4 100% 5 60%

Rehabilitation 2 2% 1 100% 0 NA

Other 11 9% 10 10% 14 -21%

Services subtotal 74 62% 65 14% 56 32%

Technology

Biotechnology 22 18% 12 83% 15 47%

eHealth 10 8% 9 -11% 7 43%

Medical Devices 4 3% 4 0% 12 -67%

Pharmaceuticals 9 8% 6 50% 14 -36%

Technology subtotal 45 38% 31 45% 48 -6%

Grand total 119 100% 96 24% 104 14%

Source: Health Care M&A News, January 2015



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