Wya$  Matas    

October  4,  2011  

Home  Care  Valua:on  Analysis  and  Projec:ons  

Publicly  Traded  Company  Analysis  Public  traded  home  care  companies  trading  at  historical  lows.  

Commentary:  •  On  April  9,  2011,  valua:ons  as  reported  by  a  mul:ple  of  EBITDA  were  at  7.9x.    60.1%  premium  from  October  4th,  2011  valua:ons.  •  Home  care  companies  trading  at  historical  lows  can  be  a$ributed  to:  

•  Short-­‐term  market  dynamics:  1)    Unknown  impact  of  face-­‐to-­‐face,  rehab  assessments  and  future  reimbursement  cuts  of  PPACA  and  other  cuts  from  Super  Commi$ee.    2)  Worse  than  expected  report  from  the  Senate  Finance  Commi$ees  (SFC)  inves:ga:on  into  the  overu:liza:on  of  therapy.  

•  Long-­‐term  market  influencers:    1)  The  unknown  of  the  full-­‐impact  of  the  SFC  report.    Home  healthcare  could  face  industry-­‐wide  audits.    2)  While  industry  insiders  understand  value  of  homecare,  investors  do  not  see  a  legi:mate  path  for  industry  to  move  up  the  healthcare  value  chain  as  chronic  care  disease  management.  

•  Typically,  private  companies  sale  at  a  20%  discount  to  public  traded  companies.  The  market  is  currently  experiencing  a  valua:on  anomaly  with  private  companies  currently  trading  between  4.0x  to  6.0x  EBITDA,  depending  on  loca:on,  size,  business  line  mix  and  geographical  coverage.  Public  companies  are  trading  at  3.09x  EBITDA.  

•  It  is  unknown  if  this  disconnect  in  public/private  valua:ons  will  con:nue.    Buyers  are  likely  to  be  cau:ous  in  examining  poten:al  acquisi:on  targets  un:l  the  ramifica:ons  of  the  SFC  report  are  known.    Sellers  can  expect  significant  due  diligence  around  their  use  of  therapy  from  2006-­‐2008.  

•  Findings:    Historically,  trends  of  publicly  traded  companies  provide  insight  to  where  future  valua:ons  of  private  companies  are  headed.  

Most  important  data  points  to  follow  to  determine  health  of  an  industry.  

Publicly  Traded  Key  Analysis                                      

Company*,  as  of  October  4th,  2011   Ticker  Share  Price**    

%  of  52  Week  High    

Market  Cap  (Billions)    

Enterprise  Value  

(Billions)     TEV/TLM  REV     Forward  PE   TEV/EBITDA  LTM    Net  Debt/EBITDA  

Home  Healthcare  Services    Addus  HomeCare   ADUS   $3.34     52.4%   $0.04     $0.06     0.21x   5.06x   3.78x   0.11x  Almost  Family   AFAM   $16.77     41.1%   $0.16     $0.08     0.25x   7.84x   1.84x   -­‐1.17x  Amedysis   AMED   $11.53     29.7%   $0.34     $0.53     0.34x   5.88x   2.78x   0.71x  LHC  Group   LHCG   $15.01     47.4%   $0.28     $0.28     0.43x   7.08x   3.09x   -­‐0.10x  Gen:va  Health  Services   GTIV   $3.02     10.3%   $0.09     $1.04     0.59x   1.67x   4.49x   4.50x  Median             41.1%   $0.16   $0.28   0.34x   5.88x   3.09x   0.11x  Mean             36.2%   $0.18   $0.40   0.36x   5.51x   3.20x   0.81x  Source:  Company  Reports,  Wya$  Matas  &  Associates  

*All  data  as  of  October  4th,  2011  unless  otherwise  noted  

**As  of  end  of  trading  day,  October  4th,  2011  

Heathcare  Staffing  

Disease  Management  

Preven^ve  Heatlh  

Specialty  Staffing  

Home  Health  

Home  Infusion  

Hospice  

Medical  House  Calls  

Heathcare  Call  Centers  

Care  Coordina^on  

2.0  

2.5  

3.0  

3.5  

4.0  

4.5  

5.0  

5.5  

6.0  

6.5  

7.0  

7.5  

8.0  

8.5  

9.0  

9.5  

10.0  

10.5  

11.0  

Compa

ny’s  Valua

^on  ba

sed  on

 EBITD

A  mul^p

le  

Industry  Segment  

Projected Valuations

2015  Valua:on  Projec:ons  shown  as  mul:ples  of  EBITDA  

 

           Commentary:  •  There  are  three  developing  business  models  for  post-­‐

acute  providers:  •  Preventa:ve  care  •  Chronic  care  coordinator/providers  

(accountable  for  pa:ents’  costs  and  outcomes)  •  Vendors  (other  providers)  to  providers  that  are  

accountable  for  pa:ents’  costs  •  Highest  future  valua:ons  will  be  rewarded  to  those  

owning  the  pa:ents’  cost.    •  Many  post-­‐acute  care  companies  are  considering  

strategic  op:ons  between:  •  Build  a  preventa:ve  care  model.    (Be  really  

efficient  at  a  high  volume  low  margin  business.  Requires  scale  and  technology  driven  efficiencies.)  

•  Leverage  current  business  and  move  up  value  chain  as  a  care  coordinator  of  the  chronically  ill.  (Likely  to  be  solu:ons  provider  to  payor  sources  with  high-­‐cost  pa:ents.)    

•  Realize  current  company  and  industry  challenges  and  consider  exi:ng  or  merging  to  avoid  challenges  of  future  environment.  

Highest  valua8ons  will  be  paid  to  those  willing  to  “own”  the  pa8ents’  costs  or  those  providers  that  can  bend  the  cost  curve    

Are  involved  either  through  direct  care  or  management  of  the  

sickest  25%  of  pa:ents  that  represent  86%  of  

total  healthcare  expenditures.  

Source:  Wya$  Matas  Research  

Home  infusion  and  hospice  may  be  vendors  to  those  accountable  to  pa8ents  cost,  but  their  posi8on  in  the  value  chain  is  high  because  of  their  ability  to  care  for  high  cost  pa8ents  in  low  cost  se?ngs.  

Take  Away  As  profitability  declines  for  the  industry,  home  healthcare  valua8ons  will  follow  

•  Providers  are  faced  with  deciding  how  they  will  fit  into  the  new  healthcare  provider.      

•  Chronic  care  manager  solu:on  provider  •  Preventa:ve  care  vendor    

•  Those  unwilling  to  invest  in  new  business  models  will  face  falling  profitability  and  lower  valua:ons  as  PPACA  provisions  are  implemented.  

7   7   8  10  

15  

12  10  

12  14   13  

0  2  4  6  8  

10  12  14  16  

Q1  2009   Q2  2009   Q3  2009   Q4  2009   Q1  2010   Q2  2010   Q3  2010   Q4  2010   Q1  2011   Q2  2011  

Home  Health  -­‐  Deal  Comparison(2009-­‐2011)  

Care Cycle ManagementCare Coordination

Disease ManagementHealthcare IT

Healthcare StaffingHome Health Care

HospiceInfusion Therapy

Locum Tenens Medical House Call

Medical PracticesMobile Health

Outpatient RehabPhysician Practice Management

Specialty PharmacyTelehealth

INDUSTRIES OF FOCUS

Investment BankingWyatt Matas’ goal is to be key advisors to our clients, which allows us to approach our client-relationships strategically rather than transactionally. While we are experts in managing and executing on merger and acquisitions and capital raising initiatives, our clients value our abilities to think strategically about their industry and business challenges. Chip Measells, a well-published healthcare market influencer, leads Wyatt Matas.

Business BrokerageBecause healthcare is predominately made up of small providers, Wyatt Matas has created a small business division to offer investment-banking level advice to owners of small healthcare businesses. WMA Healthcare Partners is a healthcare business brokerage firm focused on providing access to buyers and sellers of companies below $10 million in annual revenue. Ed Manthey leads WMA Healthcare Partners and provides personal attention to our clients based on his experience as a former healthcare business owner.

ConsultingBecause of Wyatt Matas’ work in developing new healthcare business models, we are often asked to assist our clients with strategic development and the implementation of new post-acute care programs and care delivery models. To enhance our capabilities, Wyatt Matas has partnered with Brent Feorene a 20-year veteran of healthcare consulting to form Colonnade Healthcare Solutions. By supporting clients by creating high-value positions in integrated care delivery models, Colonnade provides innovative solutions to a post-acute care industry – rapidly evolving into the center of healthcare.

ResearchWyatt Matas devotes a considerable amount of resources to researching market trends and legislative changes to identify and new business model opportunities for our clients. Our research has been the centerpiece of our proprietary deal creation and capital facilitation success.

AccessAs post-acute care industry thought-leaders, we leverage our access to industry leaders, healthcare organizations and financing sources to achieve our clients’ goals and objectives.

services

1776 I Street NW Suite 900 Washington, DC 20006 | p. 202.559.8996 f. 202.661.4611

differentiator

about usFounded in 2003, Wyatt Matas is an investment banking firm focused on serving clients in the post-acute care industry. We provide merger and acquisition, capital raising and strategic advice to healthcare organizations, private equity groups and vendors to post-acute care providers. Our core approach to client relationships is based on our experience as former operators and investors in healthcare service companies.

Chip Measells, PartnerWyatt Matas

202-618-4713chipm@wyattmatas.com

Brent Feorene, PresidentColonnade Healthcare Solutions

440-871-2756bfeorene@colonnadehealthcare.com

Ed Manthey, PresidentWMA Healthcare Partners

404-965-4083 ed@wmapartners.com

Healthcare ProvidersAs former providers ourselves, we

have a deep perspective of how investment banking advice should be

delivered to healthcare providers.

Private Equity GroupsFinancial investors devoted to putting

smart money to work leverage our industry maps and target

relationships to identify proprietary investment opportunities.

Vendors to Post-Acute ProvidersOur unique market knowledge of

the post-acute landscape allows us to make strategic connections between vendors, providers and

investors to accelerate our clients’ goals and objectives.

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