volume 20 | issue 7 health ca re m a news · 2016-03-25 · a 0.73x price-to-revenue mulitple and a...

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

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A t first glance, it looks as if mergers and acquisitions in the second quarter of 2015 sputtered a bit. Deal volume was a respectable 312 transactions, but that total is definitely outshined by the previ-

ous quarter’s 362 transactions, and the same period the year before, when 325 deals were announced. (See chart on page 3.)

Yes, deal volume was down compared with each of those quarters. However, with a bit more perspective, the rally that began in earnest in 2014 is still strong. It just so happens that the first quarter of this year was the strongest of any first quarter on record, volume-wise.

As second quarters go, the 312 deals announced make Q2:15 just the third largest, after the second quarter of 2011 (336 transactions) and the second quarter of 2014. The pace of health care M&A may be slowing, but it hasn’t hit a slippery slope, gone over a cliff, or hit a wall, to pull out a few doomsday metaphors we may be using in some time in the future.

Second Quarter Was Slow but SteadyBig Spending Gave Way to More Strategic Acquisitions

A nd so it goes. On June 25, King v. Burwell was decided by the majority of SCOTUS justices (6-3) in favor of upholding the subsi-dies paid to lower income individuals through the federal health

care exchange. Since late 2014, rumors swirled that the managed care market was ripe for consolidation, and the decision was the shot from the starter’s pistol.

On July 2, two mid-level insurers made it to the altar. Centene Corporation (NYSE: CNC) announced its acquisition of Health Net Inc. (NYSE: HNT) for $6.8 billion, resulting in a 0.46x price-to-revenue ratio and 19.5x price-to-EBITDA. The following day, Aetna (NYSE: AET) announced its acquisition of Humana Inc. (NYSE: HUM) for $37 billion, a cash-and-stock transaction that includes assumption of Humana debt, which equates to a 0.73x price-to-revenue mulitple and a 13.7x price-to-EBITDA multiple.

Managed Care M&A Marriages BeginWith King v. Burwell Decided, Health Insurers Are Pairing Up

Continued on page 2

Continued on page 4

Q2:15 Buyers Turn StrategicThe M&A frenzy that characterized the previous five quarters seems to be calming down. Just a bit...................................

MCOs Make Their Moves The long-anticipated consolidation of the managed care market began in earnest, following the Supreme Court’s decision in King v. Burwell. But the FTC is waiting in the wings, ready to regulate.................................. Page 1

June Deal RoundupM&A volume slipped a bit last month. Spending didn’t keep up, either, unless the mega-deals of last year are discounted. Then, everything looks fine......................... Page 19

DepartmentsTechnologyDeal Summaries ................................. Page 7Additional Transactions ..................... Page 9Health Care Technology News ......... Page 10

ServicesDeal Summaries ............................... Page 12Additional Transactions ................... Page 16Health Care Services News ............. Page 10

JULY 2015

In This Issue

Health Care M&A News

2 www.healthcaremanda.com

Fewer Big Deals

Deal value in Q2:15 follows a similar trajectory. Our preliminary total stands at nearly $54.2 billion, which would usually be hailed as a solid quarter for M&A spending. Alas, Q2:15 followed a robust first quarter, which posted $106.1 billion in spending, and the same quarter a year ago beat all previous Q2 records with $135.8 billion in spending. (See chart on page 4.)

One factor in the lower dollar volume for this year’s second quarter may be attributed to the percentage of deals that disclosed financial terms. Just 41% of the 312 deals reported a price, compared with 46% of the 325 deals announced in the second quarter of 2014, and 45% of the 362 deals in the previous quarter. The lower price-disclosure rate doesn’t tell the whole story, of course.

Continued from page 1 The real factor was the dearth of big deals. The second quarter of 2015 had 10 billion-dollar-plus transactions, totalling approximately $40.7 billion. A year earlier, the medical device and pharmaceutical sectors were blowing up with big transactions. (Remember Medtronic/Covidien, Novartis buying GlaxoSmithKline’s oncology business, Bayer taking out Merck’s over-the-counter business, and the Zimmer/Biomet merger, to name just the top four?) That M&A frenzy ended with 14 deals at $1 billion or more, for a total of $117.1 billion. Even the first quarter of 2015 featured more big deals and higher spending, with 17 billion-dollar-plus transactions valued at $93.5 billion.

To put it even more starkly, the biggest deal in Q2:15 totalled $12.7 billion as CVS Health (NYSE: CVS) bought Omnicare Inc. (NYSE: OCR). The largest deal in the same quarter a year ago was for $42.9 billion, when Medtronic (NYSE: MDT) acquired Covidien plc (NYSE: COV). And in the first quarter of 2015, AbbVie (NYSE: ABBV) paid $21 billion for Pharmacyclics (NASDAQ: PCYC). Quite a contrast.

Will this lower-spending trend continue in the third quarter? Maybe not, given the sudden M&A activity in the managed care sector (see story, page 1). In the first week of July we’ve seen $43.8 billion wagered on just two transactions. We must note that, despite the approvals given by each board of directors, the U.S. Department of Justice has yet to weigh (or wade) in antitrust issues. The real story will be told by the deal-volume level.

where the Deals were Done

Dollar volume aside, it’s the deal volume that gives us a clearer picture of which sectors are heating up or cooling down. And the overall picture in the first half of 2015 hasn’t changed. The healthcare services sectors accounted for 57% of Q2:15 deal volume (178 deals), compared with the technology sectors (134). That ratio is typical of the overall healthcare M&A market, and actually matches that seen in the first quarter of 2015.

Long-Term Care was strongest category, with 64 transactions and a 21% share. That number was once

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

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considered record-breaking territory for this sector, but today it seems old-hat, considering there were 70 transactions announced in the previous quarter. The REITs stayed busy, announcing 14 acquisitions, and spending was still comparatively strong for this sector, at $4.1 billion, although the total was achieved without a single billion-dollar deal announced.

The Other Services sector posted the second busiest deal activity on the services side, with 37 deals and 12% share of the quarter’s deal volume. CVS Health made two strategic acquisitions, one for Omnicare, as noted earlier, and a much smaller ($1.9 billion) purchase of the pharmacy and walk-in clinic business of Target (NYSE: TGT), involving more than 1,600 pharmacies and 80 clinics in 47 states. Urgent care and ambulatory surgery clinics were strong targets for acquirers in this sector, too.

The leading sector on the technology side was

Pharmaceuticals, which tied Other Services with a 12% share of the quarter’s deal volume. Only three billion-dollar deals were announced, which represents a slow-down for what was 2014’s hottest sector. The largest deal of the quarter was Alexion’s (NASDAQ: ALXN) $8.5 billion acquisition of privately held Synageva BioPharma Corp. Remember last summer’s failed $118 billion hostile bid by Pfizer (NYSE: PFE) for AstraZeneca (NYSE: AZN)? No rumors are circulating about a reprise, and Pfizer CEO Ian Read said the company would turn to smaller acquisitions. But $130 million for two vaccines from GlaxoSmithKline (NYSE: GSK) in Q2:15 is just pocket change for Pfizer. (Okay, $17 billion for Hospira in Q1:15 was a good deal.)

There are even more healthcare M&A trends happening than there are healthcare sectors. Watch for The Health Care M&A Report, Second Quarter 2015, scheduled for publication at the end of this month. □

Deal Volume* by Sector, Q2:15 vs. Q1:15 and Q2:14

Q2:15 Q1:15 Q2:14

Share of total Change Change

Services

Behavioral Health Care 5 2% 8 -35% 7 -29%

Home Health & Hospice 5 2% 16 -69% 16 -69%

Hospitals 23 7% 23 0% 24 -4%

Labs, MRI & Dialysis 10 3% 4 150% 7 43%

Long-Term Care 64 21% 70 -9% 62 3%

Managed Care 7 2% 10 -30% 8 -13%

Physician Medical Groups 21 7% 22 -5% 16 31%

Rehabilitation 6 2% 8 -25% 6 0%

Other Services 37 12% 48 -23% 33 12%

Subtotal 178 57% 209 -15% 179 -1%

Technology

Biotechnology 34 11% 61 -44% 35 -3%

eHealth 33 11% 26 27% 30 10%

Medical Devices 29 9% 23 26% 31 -6%

Pharmaceuticals 38 12% 43 -12% 50 -24%

Subtotal 134 43% 153 -12% 146 -8%

Grand total 312 100% 362 -14% 325 -4%

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



Managed Care continued from page 1

Waiting in the wings, Anthem Inc. (NYSE: ANTM) turned its secret courtship of Cigna (NYSE: CI) into a public affair, publishing a recent bid of $47.5 billion which had been rejected in part because Cigna’s CEO David Cordani reportedly wants to head the combined company. Pre-nup agreements can be so hard. Cigna had been courting Humana, according to press reports, but its board favored the unencumbered Aetna. Yet UnitedHealth Group (NYSE: UNH) was making eyes at Aetna in mid-June, according to the Wall Street Journal, in a deal worth at least $40 billion. No engagement has been announced as of press time.

We’ve seen this before in the managed care space. Twenty years ago, this sector experienced a spike in acquisitions that ran from 1995 to 1999 (see chart on

page 6) and included several of the same companies making the big moves today. Of course, deal values were lower back then, and the big money didn’t pour into this sector until 2002 to 2006 (see the other chart on page 6). Yes, there was that small bump in spending/consolidation in 2012, following the first SCOTUS decision (5-4) that upheld the federal mandate that citizens buy health insurance. Even then, investors hung back to see how many citizens actually complied by March 31, 2014. There were gratified to learn a great many did comply. And then they waited for SCOTUS to decide this most recent legal challenge to the Affordable Care Act.

What we’re seeing now is the growing, rolling impact of the ACA, consumer-directed health plans, and CMS’ various rulings and announcements that half of its reimbursements would be based on value-based health outcomes in 2018, lessening the fee-based care models.

Deal Value* by Sector, Q2:15 vs.Q1:15 and Q2:14

Q2:15 Q1:15 Q2:14


Services

Behavioral Health Care $190,700 0% $83,162 129% $662,000 -71%

Home Health & Hospice $0 0% $138,500 -100% $0 —

Hospitals $2,035,300 4% $692,850 194% $541,800 276%

Labs, MRI & Dialysis $1,507,650 3% $70,000 2054% $333,100 353%

Long-Term Care $4,107,630 8% $1,793,997 129% $5,247,985 -22%

Managed Care $147,000 0% $15,000 0% $330,000 -55%

Physician Medical Groups $500,000 1% $0 0% $3,120,000 -84%

Rehabilitation $734,800 1% $7,200 10106% $11,025 6565%

Other Services $16,211,644 30% $21,636,982 -25% $2,989,642 442%

Subtotal $25,434,724 47% $24,437,691 4% $13,235,552 92%

Technology

Biotechnology $2,049,745 4% $35,162,085 -94% $6,748,200 -70%

eHealth $5,500 0% $153,299 -96% $673,190 -99%

Medical Devices $4,502,479 8% $5,279,300 -15% $59,097,760 -92%

Pharmaceuticals $22,182,724 41% $41,095,240 -46% $56,083,655 -60%

Subtotal $28,740,447 53% $81,689,924 -65% $122,602,805 -77%

Grand total $54,175,172 100% $106,217,615 -49% $135,838,357 -60%

* = in thousands. Source: The Health Care M&A Information Source, July 2015

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HealthCareMandA 5



Managed Care continued from page 4

The big quandary in this year’s consolidation round is what the Federal Trade Commission will do as the Big Five health insurers condense to the Big Three, and the mid-level companies consolidate or are acquired by the Big Three.

The first clue came in the analysts’ call on the Aetna/Humana deal on July 6. Mark Bertolini, Aetna’s CEO, said each company had already considered what businesses may have be divested to complete the deal. If the FTC’s regulations prove insurmountable, a $1 billion break-up fee is in order. In case a “superior offer” for either company materializes (remember, UnitedHealth is still stalking Aetna), 3.75% of the deal value would be payable—$1.7 billion to Aetna, or $1.3 billion to Humana. That’s one reason why the transaction’s closing is estimated to take place a year from now, in the second half of 2016. The Centene/Health Net closing is slated for the first half of 2016.

But Darling, what will we tell the hospitals?

Left out of the revelry around the managed care deal making is the impact on hospitals’ and health systems’ ability to negotiate rates with these insurance leviathans. A year after the June 2012 SCOTUS decision, for-profit hospital M&A spiked with the Tenet/Vanguard deal (NYSE: THC) and the Community Health Systems/Health Management Associates deal (NYSE: CYH). Now that the King decision is in, not-for-profit hospitals and health systems in particular are counting on new, paying customers to help cut some of their losses. Those hopes may be dashed if they can’t negotiate favorable rates with the big insurers. There is some time, however. The FTC may wait until the M&A dust settles to begin regulating. And that could take a few years. □

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59 5862

66

46

3033

29

37

30 28 28

16 15 1420

28

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2217

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70

1993

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Managed Care M&A Deals, 1993 to 2015 YTD

$- $5,000

$10,000 $15,000 $20,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

1993

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Managed Care M&A, 1993 to 2015 YTD(in millions)

VOLUME 20 | ISSUE 7

HealthCareMandA 7

Deal Summaries: Technology Biotechnology

TARGET LISTING ACQUIRER LISTING DATE PRICE X-BODY, Inc. Private Juno Therapeutics, Inc. NASDAQ: 6/2/2015 $44,311,800 Waltham, Massachusetts Seattle, Washington JUNO

In Brief: X-BODY focuses on the discovery of human monoclonal antibodies against challenging membrane targets, and the development of binding molecules. This acquisition augments Juno’s in-house capabilities to create engineered T cells against an array of cancer targets.

Collaboration on ACTR therapies Private Seattle Genetics, Inc. NASDAQ: 6/8/2015 $30,000,000 Cambridge, Massachusetts Bothell, Washington SGEN

In Brief: Unum Therapeutics and SGEN will collaborate on developing and commercializing novel antibody-coupled T cell receptor (ACTR) therapies, using Unum’s proprietary technologies. Two ACTR products are planned, but SGEN has an option to include a third.

TEI Biosciences and TEI Medical Private Integra LifeSciences Holding NASDAQ: 6/28/2015 $312,000,000 Waltham, Massachusetts Plainsboro, New Jersey IART

In Brief: TEI Medical is a spin-off from TEI Biosciences, with an exclusive worldwide license to TEI’s regenerative technology. The acquisition of TEI expands Integra’s reconstructive surgery and regenerative wound care product offerings.

Cord Blood Registry Private AMAG Pharmaceuticals, Inc. NASDAQ: 6/29/2015 $700,000,000 San Bruno, California Waltham, Massachusetts AMAG

In Brief: Cord Blood Registry is a portfolio company of GTCR, which acquired it in September 2012. CBR’s goal is to expand the potential scope of newborn stem cell therapies. Deal Summaries: Technology Medical Devices

TARGET LISTING ACQUIRER LISTING DATE PRICE

Bayer’s diabetes care business XETRA: Panasonic Healthcare Private 6/10/2015 $1,154,349,000 Leverkusen, Germany BAYN.DE Tokyo, Japan

In Brief: The sale includes the leading Contour™ portfolio of blood glucose monitoring meters and strips, as well as other products such as Breeze™2, Elite™ and Microlet™ lancing devices.

Welch Allyn, Inc. Private Hill-Rom Holdings, Inc. NYSE: HRC 6/17/2015 $2,050,000,000 Skaneateles Falls, New York Batesville, Indiana

In Brief: Welch Allyn is a global manufacturer of physical examination instruments and EMR-connected vital signs and cardiac monitoring solutions. The combined company will focus on developing patient care solutions that improve clinical and economic outcomes.

Lumenis Ltd. NASDAQ: XIO Group, LLP Private 6/18/2015 $510,000,000 Yokneam, Israel LMNS London, United Kingdom

In Brief: Lumenis develops and commercializes medical laser systems for use in surgery, ophthalmology and aesthetic applications. Its two largest shareholders, Viola Group and XT Hi-Tech Investments, have entered into a customary voting agreement with XIO Group.



Deal Summaries: Technology Pharmaceuticals

TARGET LISTING ACQUIRER LISTING DATE PRICE Tribute Pharmaceuticals Canada TSXV: POZEN Inc. NASDAQ: 6/8/2015 $146,000,000 Milton, Ontario TRX Chapel Hill, North Carolina POZN

In Brief: Tribute is a specialty pharmaceutical company focused on acquiring, licensing and developing healthcare products in the United States and Canadian markets. The combined companies will be renamed Aralez Pharmaceuticals plc and be domiciled in Ireland.

Altan Pharma Limited Private Malin plc Private 6/11/2015 $38,861,400 Dublin, Ireland Dublin, Ireland

In Brief: Altan Pharma is a specialty pharmaceutical company focused on injectible drugs. Malin plc, a private equity firm, made this investment to acquire a 65% stake in the firm.

GES Group Private Altan Pharma Limited Private 6/11/2015 $98,312,511 Madrid, Spain Dublin, Ireland

In Brief: Altan Pharma acquired the GES Group, maker and marketer of specialty injectible drugs. Its manufacturing expertise and international distribution network give Altan’s global specialty pharmaceutical business a strong foundation.

Kythera Biopharmaceuticals Inc. NASDAQ: Allergan plc NYSE: AGN 6/17/2015 $2,100,000,000 Westlake Village, California KYTH Dublin, Ireland

In Brief: Kythera focuses on discovery, development and commercialization of novel prescription products for the aesthetic medicine market. This acquisition strengthens Botox maker Allergan’s position in the aesthetics market.

Summaries: Technology Medical Devices (cont’d)

TARGET LISTING ACQUIRER LISTING DATE PRICE Drug delivery collaboration Private Teva Pharmaceuticals NYSE: TEVA 6/18/2015 $35,000,000 Lexington, Massachusetts Petach Tikva, Israel

In Brief: Microchips Biotech developed an implantable drug delivery device made up of microchip arrays that can store hundreds of therapeutic doses and release each at precise times. The partnership will explore ways to apply the device to Teva’s product portfolio.

CardioInsight Technologies Private Medtronic plc NYSE: MDT 6/19/2015 $93,000,000 Cleveland, Ohio Dublin, Ireland

In Brief: CardioInsight developed the ECVUE system to generate 3-D images of the heart’s electrical activity, non-invasively. It will become part of the Medtronic Atrial Febrillation Solutions business in the Cardiac Rhythm and Heart Failure division.

Aptus Endosystems, Inc. Private Medtronic plc NYSE: MDT 6/19/2015 $110,000,000 Sunnyvale, California Dublin, Ireland

In Brief: Aptus Endosystems is a portfolio company of US Venture Partners. It develops advanced technology for endovascular aneurysm repair and thoracic endovascular aneurysm repair. Its off-the-shelf customized system minimizes the need for complicated procedures.

XTRAC and VTRAC businesses NASDAQ: MELA Sciences, Inc. NASDAQ: 6/23/3015 $42,500,000 Horsham, Pennsylvania PHMD Irvington, New York MELA

In Brief: PhotoMedex, Inc. is selling its XTRAC and VTRAC laser-based dermatology businesses, which generated $30.6 million in combined revenues in 2014. MELA Sciences hopes to build a leading franchise in medical dermatology.

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HealthCareMandA 9

Additional Transactions Technology

SECTOR TARGET ACQUIRER DATE

BIOTECHNOLOGY Rights to mutation detection technology Xagenic 6/1/2015 Cliniqa Corporation Bio-Techne Corporation 6/5/2015 License to T cell technology Atara Biotherapeutics, Inc. 6/15/2015 FibroTrap sample processing technology Debiopharm International SA 6/16/2015 VivaBioCell SpA NantCell 6/23/2015

eHEALTH Clintara Corporation Bracket Global, LLC 6/22/2015 The ROI Companies Bolder Healthcare Solutions 6/25/2015

MEDICAL DEVICES Protein Technologies, Inc. Ampersand Capital Partners 6/18/2015 Atlas Medical Technologies BC Technical 6/19/2015 Biomet Cobalt™ Bone Cement DJO Global, Inc. 6/24/2015 Zimmer’s Unicondylar Knee system Smith & Nephew plc 6/24/2015 Katena Products Audax Group 6/25/2015 Compat® line of business Medline Industries, Inc. 6/30/2015

PHARMACEUTICALS GSK over-the-counter portfolio Perrigo Company plc 6/2/2015 Rights to ProstaScint Aytu BioScience, Inc. 6/9/2015 ProSolus Pharmaceuticals LP Mission Pharmacal Company 6/9/2015 Global rights to cyclosporine A Immune Pharmaceuticals, Inc. 6/10/2015 AltheRx Pharmaceuticals, Inc. NeXeption 6/15/2015 Alvogen Investor consortium 6/22/2015 Rights to sedation and pain formulations Imprimis Pharmaceuticals 6/23/2015 Suir Pharma Ireland Seneca Pharmaceuticals 6/23/2015

Deal Summaries: Technology Pharmaceuticals (cont’d)

TARGET LISTING ACQUIRER LISTING DATE PRICE 2 vaccines from GSK NYSE: Pfizer Inc. NYSE: PFE 6/22/2015 $130,000,000 East Durham, New York GSK New York, New York

In Brief: GlaxoSmithKline is selling two of its vaccines, Mencevax and Nimenrix, both single-dose meningococcal treatments for various forms of tetanus. Pfizer will add them to its Vaccines business.

Spinifex Pharmaceuticals Private Novartis AG NYSE: NVS 6/29/2015 $200,000,000 South Yarra, Australia Basel, Switzerland

In Brief: Spinifex develops new drug candidates to treat and manage chronic pain. Its lead drug candidate is EMA401, which Novartis will continue to develop. It plans to pursue a broad peripheral neuropathic pain label for the drug if clinical trials are successful.

Collaboration with Juno NASDAQ: Celgene Corporation NASDAQ: 6/29/2015 $999,803,496 Seattle, Washington JUNO Summit, New Jersey CELG

In Brief: Juno Therapeutics agreed to a 10-year collaboration with Celgene to advance immunotherapies to treat cancer and autoimmune diseases. Celgene paid $150 million upfront and paid $849 million for 9.1 million shares of Juno common stock at $93.00 per share.



Health Care Technology News

Technology transactions made up 41% of the month’s total transactions (41 deals) but accounted for 52% of the spending ($8.85 billion). Both the medical device and pharmaceutical sectors posted 15 deals apiece. eHealth slid to just two transactions. Biotechnology

The first deal of the month for Juno Therapeutics (NASDAQ: JUNO) didn’t cause the stir that its second deal, a $1 billion, 10-year collaboration with Celgene (NASDAQ: CELG) did. That’s likely because Juno paid a modest $44.3 million for X-BODY, Inc., a biotech focused on the discovery of human monoclonal antibodies. The acquisition adds an innovative discovery platform to Juno’s in-house capabilities. The price includes $21 million in cash and 439,265 shares of Juno stock.

MeDical Devices

Medtronic plc (NYSE: MDT) had a busy month, acquiring two medical device companies and investing in a third. The acquisitions included Aptus Endosystems, a portfolio company of US Venture Partners, for $110 million, and CardioInsight Technologies, Inc., for $93 million. The unspecified investment went to Arsenal AAA, LLC, a subsidiary of Arsenal Medical, Inc., which is developing a proprietary foam and delivery mechanism designed to fill the aneuraysmal sac around an endograft. In return, Medtronic received an option to acquire Arsenal AAA after the company achieves certain milestones.

pharMaceuticals

Allergan plc (NYSE: AGN), formerly Actavis plc, paid $2.1 billion for Kythera Biopharmaceuticals (NASDAQ: KYTH). The Botox maker’s target focuses on the discovery, development and commercialization of novel prescription products for the aesthetic medicine market. Its only drug on the market is KYBELLA, a non-surgical treatment for “contouring submental fullness,” more commonly known as a double chin.

Health Care Services News

Services transactions were stronger than usual, and accounted for 59% of the month’s transactions (58 deals). We’re used to seeing the tech-to-services ratio closer to 46%-54%, or thereabouts. Deal value was also on the high side, at $8.0 billion or 48% of the month’s total of $16.9 billion. hospitals

Remember that Tenet Healthcare (NYSE: THC) deal for five Connecticut hospitals that fell apart last December? Another for-profit company, Prospect Medical Holdings, has stepped forward to acquire three of the five, for undisclosed prices. The first, announced in May, was for The Greater Waterbury Health Network, parent company of Waterbury Hospital (255 beds). The remaining two facilities include Rockville General (232 beds) in Vernon, and Manchester Memorial (163 beds) in Manchester. The latter two are being sold by Eastern Connecticut Health Network. The transactions mark Prospect’s entry in the Connecticut hospital market. It currently operates 13 hospitals and 40 clinics and outpatient centers in California, Rhode Island and Texas.

laBs, Mri & Dialysis

It isn’t often big deals are announced in this sector, but last month’s all-stock acquisition of Bio-Reference Laboratories (NASDAQ: BRLI) was a notable exception. OPKO Health (NYSE: OPKO) will exchange 2.75 shares of OPKO common stock for each share of BRLI common stock. Based on a closing price of $19.12 per share of OPKO stock on June 3, the transaction is valued at approximately $1.47 billion. Bio-Reference is one of the largest, full-service diagnostic laboratories in the world, providing clinical testing services to physician offices, clinics, hospitals, long-term care facilities and employers in more than 50 countries. OPKO plans to leverage Bio-Reference’s national marketing, sales and distribution resources to boost sales of it 4KScore test, a blood test that evaluates the risk for aggressive prostate cancer.

Continued on page 18

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Deal Summaries: Services Behavioral Health Care

TARGET LISTING ACQUIRER LISTING DATE PRICE 3 behavioral health companies Private Acadia Healthcare Company NASDAQ: 6/2/2015 $145,000,000 United Kingdom and United States Franklin, Tennessee ACHC

In Brief: Acadia is buying two companies in the United Kingdom, Care UK and Choice Lifestyles, and one facility in the United States, Belmont Behavioral Health, which is part of the not-for-profit Einstein Healthcare Network outside Philadelphia, Pennsylvania.

Deal Summaries: Services Hospitals

TARGET LISTING ACQUIRER LISTING DATE PRICE Ty Cobb Regional Medical Center Nonprofit St. Mary’s Health Care System Nonprofit 6/5/2015 $12,900,000 Lavonia, Georgia Athens, Georgia

In Brief: St. Mary’s Health Care acquired the 56-bed Ty Cobb Regional Medical Center, its CON, grounds and certain related services. The Ty Cobb Healthcare System retains its home health agency, the Gables, the Ty Cobb Museum and rental properties.

Lodi Health Nonprofit Adventist Health Nonprofit 6/8/2015 $100,000,000 Lodi, California Roseville, California

In Brief: Lodi Health operates Lodi Memorial Hospital, a 182-bed acute care facility, as well as 15 clinics, several outpatient centers, an adult day care center and a child care center. The parties signed a letter of intent to affiliate in August 2014.

Deal Summaries: Services Labs, MRI & Dialysis

TARGET LISTING ACQUIRER LISTING DATE PRICE Bio-Reference Laboratories NASDAQ: OPKO Health, Inc. NYSE: OPK 6/4/2015 $1,470,000,000 Elmwood Park, New Jersey BRLI Miami, Florida

In Brief: Bio-Reference is one of the largest full-service diagnostic laboratories in the world. OPKO plans to leverage the national marketing, sales and distribution resources to boost sales of its 4Kscore test, a blood test to evaluate a patient’s risk of aggressive prostatic cancer.

Deal Summaries: Services Long-Term Care

TARGET LISTING ACQUIRER LISTING DATE PRICE 3 skilled nursing facilities Private Independent owner/operator Private 6/1/2015 $30,500,000 Various, Texas

In Brief: The deal Includes a facility in Waco with 90 skilled nursing beds, 72 AL units and 25 IL units with a 98% census; a facility in Richardson with 106 SNF beds and 62 AL units with a 65% census; and a facility in Austin with 106 SNF beds with an 85% census.

Shoreline Health & Rehabilition Private CareTrust REIT, Inc. NASDAQ: 6/2/2015 $6,700,000 Shoreline, Washington San Clemente, California CTRE

In Brief: Shoreline is a 105-bed skilled nursing facility that currently has a 77.2% occupancy and a 27.7% quality mix. It underwent a $3 million renovation on its first floor (40 private rooms) in 2012. The building consists of 50,186 square feet and sits on 1.15 acres.

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HealthCareMandA 13

Deal Summaries: Services Long-Term Care

TARGET LISTING ACQUIRER LISTING DATE PRICE Waterford Crossing Private Trilogy Health Services Private 6/2/2015 $14,000,000 Goshen, Indiana Louisville, Kentucky

In Brief: Waterford Crossing was first built in 2004 with 55 assisted living/memory care units, with an addition in 2007 of 26 apartments (one of which is used as an office). There are 92,156 square feet on 6.78 acres, and occupancy was 98%.

2 assisted living communities Private Regional owner/operator Private 6/3/2015 $11,000,000 Duluth and Dunwoody, Georgia

In Brief: Built in 1990, Plantation South Duluth is about 58,600 square feet and features 62 assisted living units. Built in 1993 and expanded to include memory care in 2010, Plantation South Dunwoody is 33,405 square feet and features 40 AL units and 17 MC units.

2 senior living communities Private Griffin-American Healthcare Private 6/3/3015 $66,000,000 Omaha and Bennington, Nebraska Irvine, California

In Brief: These two communities were owned and operated by Dial Retirement Communities. Fountainview in Omaha has 75 independent living units, 24 assisted living units and 15 memory care units. Ridgewood in Bennington has 39 IL units, 51 AL units and 16 MC units.

Heritage Villa Nursing Center Private Birchwood Healthcare Private 6/3/2015 $4,500,000 Bartlesville, Oklahoma Chicago, Illinois

In Brief: Heritage Villa is a 100-bed skilled nursing facility built in 1985. It contains 33,550 square feet and was just 76% occupied. A local family with over 50 years of long-term care experience in the area was the seller, and they will retire with this sale.

The Solana at Germantown NYSE: HCP, Inc. NYSE: HCP 6/4/2015 $65,500,000 Germantown, Tennessee BKD Irvine, California

In Brief: The Solana was built in 2012 on 6.8 acres with 130 independent living units, 33 assisted living units and 19 memory care units. Built by Formation Development Group, the community was owned by an affiliate of Brookdale Senior Living, FSP-Germantown.

9 senior housing communities Private Sabra Health Care REIT NASDAQ: 6/8/2015 $137,100,000 Various, Canada Irvine, California SBRA

In Brief: There are eight independent living communities and one assisted living community, all 100% private pay. 302 of the units are in British Columbia and 563 units are in Ontario.

Corner Brook Place Private Legacy Healthcare Private 6/10/2015 $13,350,000 Kansas City, Missouri Lincolnwood, Illinois

In Brief: This is a skilled nursing/assisted living community, with 180 SN beds (in 85 rooms) and 68 AL units (with 105 beds). Original construction was in 1979 and 1987 with renovations in 2009 and 2010. The community is about 110,085 square feet on 14.17 acres.

24 skilled nursing facilities Private Genesis HealthCare LLC NYSE: GEN 6/15/2015 $240,000,000 Various states Kennett Square, Pennsylvania

In Brief: The skilled nursing facilities, owned by Revera, Inc., are located in New Jersey (8), Vermont (5), Washington (3), Connecticut (2), Massachusetts (2) and one each in Maryland, Virginia, New Hampshire and Rhode Island.



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

TARGET LISTING ACQUIRER LISTING DATE PRICE Regal Lifestyle Communities, Inc. TSX: RLC Health Care REIT, Inc. NYSE: HCN 6/18/2015 $623,000,000 Toronto, Ontario Toledo, Ohio

In Brief: Regal operates 23 independent living communities with more than 3,600 units with 13 in Ontario, seven in Quebec, and one each in British Columbia, Saskatchewan and Newfoundland. About 83% of the NOI is derived from four large metro markets.

28 senior living communities Private New Senior Investment Group NYSE: SNR 6/22/2015 $640,000,000 Various states New York, New York

In Brief: Holiday Retirement Corporation has agreed to sell 28 independent living communities with 3,298 units and average occupancy of 88%. They are located in 21 states and are 100% private pay.

2 senior living communities Private Private investor Private 6/22/2015 $9,985,000 Tennessee Virginia

In Brief: The two communities include a 196-unit independent living property with 70% occupancy and a 51-unit assisted living community, with memory care, with 82% occupancy. Both were built in 1987 and they are located in the same city.

Riverfront Nursing and Rehab Private Continuum Healthcare LLC Private 6/24/2015 $6,200,000 Bradenton, Florida Brooklyn, New York

In Brief: Riverfront has 110 skilled nursing beds and 80 assisted living units. Built in 1950, the facility is 61,000 square feet and sits on 3.8 acres. North Carolina-based AdvoCare, and its subsidiaries, have owned the facility since the 1990s.

4 skilled nursing facilties Private Sabra Health Care REIT NASDAQ: 6/25/2015 $234,000,000 Various sites in Maryland Irvine, California SBRA

In Brief: The seller is NMS Healthcare, and the four skilled nursing facilities are located in Hyattsville, Annapolis, Hagerstown and Silver Spring. They specialize in transitional care and medically complex post-surgical, ventilator and dialysis patients. Occupancy is 95%.

Deal Summaries: Services Rehabilitation

TARGET LISTING ACQUIRER LISTING DATE PRICE Reliant Hospital Partners LLC Private HealthSouth Corp. NYSE: HLS 6/11/2015 $730,000,000 Round Rock, Texas Birmingham, Alabama

In Brief: Reliant is a portfolio company of Nautic Parnters. It operates a portfolio of 11 inpatient rehabilitation hospitals in Texas, Massachusetts and Ohio, plus three inpatient satellite locations in Massachusetts, for a total of 902 beds. All of the hospitals are leased.

Deal Summaries: Services Other Services

TARGET LISTING ACQUIRER LISTING DATE PRICE The Harvard Drug Group Private Cardinal Health Inc. NYSE: CAH 6/5/2015 $1,115,000,000 Livonia, Michigan Dublin, Ohio

In Brief: Harvard Drug Group, a portfolio company of Court Square Capital Partners, distributes generic pharmaceuticals, over-the-counter medications and related products to retail, institutional and alternate care customers. It had approximate revenue of $450 million in 2014.

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HealthCareMandA 15

Deal Summaries: Services Other Services (cont’d)

TARGET LISTING ACQUIRER LISTING DATE PRICE Target’s pharmacy business NYSE: TGT CVS Health Corporation NYSE: CVS 6/15/2015 $1,900,000,000 Minneapolis, Minnesota Woonsocket, Rhode Island

In Brief: Target is selling its more than 1,660 in-store pharmacies and nearly 80 clinics across 47 states. The clinics will be rebranded as MinuteClinic, and CVS plans to open up to 20 new clinics in Target stores within three years.

OnTarget Chemistry Private Recipharm AB NASDAQ: 6/15/2015 $1,844,465 Uppsala, Sweden Jordbro, Sweden RECI B

In Brief: OnTarget Chemistry is a contract research organization (CRO) that specializes in medicinal chemistry offering synthesis and analytical services, including rare and demanding specialties.

Burman’s Specialty Pharmacy Private Diplomat Pharmacy, Inc. NYSE: DPLO 6/19/2015 $82,800,000 Brookhaven, Pennsylvania Flint, Michigan

In Brief: Burman’s Specialty Pharmacy provides individualized patient care with a primary focus on the treatment of hepatitis C. Diplomat acquired it to enhance its own targeted clinical management programs and to increase its presence in the mid-Atlantic region.

Alfa Aesar LSE: Thermo Fisher Scientific, Inc. NYSE: TMO 6/25/2015 $405,000,000 Heysham, United Kingdom JAMT Waltham, Massachusetts

In Brief: Johnson Matthey plc is selling its subsidiary, Alfa Aesar, a global manufacturer of research chemicals. It operates in key research hubs in the United States, Germany, China, South Korea and India.

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Additional Transactions Services

SECTOR TARGET ACQUIRER DATE

HOME HEALTH & HOSPICE AmeriCare Home Health Brooks Rehabilitation 6/3/2015 Managed Care at Home The Ensign Group, Inc. 6/3/3015

HOSPITALS Jasper County Hospital Franciscan Alliance 6/2/2015 Parkview Adventist Medical Center Mid Coast Health System 6/16/2015 2 Connecticut hospitals Prospect Medical Holdings, Inc. 6/26/2015

LABORATORIES, MRI & DIALYSIS Array Biopharma’s CMC operation Accuratus Lab Services, Inc. 6/2/2015 International Medical Equipment Richardson Electronics, Ltd. 6/16/2015

LONG-TERM CARE 2 skilled nursing facilities Vita Healthcare Group, LLC 6/3/2015 Delmar Nursing and Rehab Center Regional company 6/9/2015 The Wealshire & The Ponds Legacy Healthcare 6/10/2015 5 assisted living communities Legend Senior Living 6/16/2015 The Orchard Post-Acute Care Center The Ensign Group, Inc. 6/30/2015

MANAGED CARE Group Associates, Inc. Maestro Healthcare Technology 6/30/2015 Integrated Care Management GENEX Services 6/30/2015

PHYSICIAN MEDICAL GROUPS Central Wyoming Neurosurgery Mountain View Regional Hospital 6/1/2015 2 neonatology practices MEDNAX, Inc. 6/3/2015 Extended Care Physicians IPC Healthcare, Inc. 6/16/2015 Geriatric Associates of America IPC Healthcare, Inc. 6/24/2015

REHABILITATION Webster Rehabilitation Hospital Carter Validus Mission Critical REIT 6/5/2015 Proaxis Physical Therapy ATI Physical Therapy 6/9/2015 MOTION PT Holdings, Inc. Pharos Capital Group, LLC 6/25/2015

OTHER SERVICES Rio Rancho urgent care center NextCare Urgent Care 6/1/2015 McKesson’s Care Management business Comvest Partners 6/2/2015 Preferred Care Pharmaceutical Services Guardian Pharmacy LLC 6/2/2015 19 Joint Corp. franchises The Joint Corp. 6/8/2015 InSite Vision Inc. QLT Inc. 6/8/2015 Avectus Healthcare Solutions Bolder Healthcare Solutions 6/23/2015 2 medical centers in China iKang Healthcare Group, Inc. 6/24/2015 Sage Technologies Arcadia Healthcare Solutions 6/24/2015 Yinchuan Ciming Clinic Co. Ltd. iKang Healthcare Group, Inc. 6/30/2015 2 medical record service companies MRO 6/30/2015 West Bend Assisted Living Pharmacy Genoa, a QoL Healthcare Company 6/30/2015

VOLUME 20 | ISSUE 7

HealthCareMandA 17

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long-terM care

The REITs were busy in this post-acute sector in June, and the deal value managed to reach $2.1 billion, even without a billion-dollar deal. Several large portfolios traded hands, but the deal making frenzy that became a “new normal” in 2014 has begun to cool down. The largest deal in June was New Senior Investment Group’s (NYSE: SNR) $640 million acquisition of Holiday Retirement’s 28 independent living communities with 3,298 units and an average occupancy of 88%. The communities are located in 21 states and are 100% private pay. Premium territory, for sure.

Holiday is expected to manage the properties after the acquisition is completed with a standard management fee plus an incentive. The initial cash yield to New Senior after the management fee is 6.4%. The new states to New Senior’s portfolio include Arkansas, South Dakota, South Carolina, Hawaii and Indiana.

Continued from page 10 rehaBilitation

The only deal to disclose a price was HealthSouth Corporation’s (NYSE: HLS) $730 million acquisition of Reliant Hospital Partners, LLC, a portfolio company of Nautic Partners. It operates 11 inpatient rehabilitation hospitals in Texas, Massachusetts and Ohio, plus three inpatient satellite locations in Massachusetts, for a total of 902 beds.

As the healthcare industry increasingly adapts to value-based care and reimbursement, rehabilitation facilities are coming into the spotlight. Joint ventures between publicly traded and not-for-profit organizations are growing more common. Just last month, HealthSouth and St. John Health System in Tulsa formed one to own and operate a 40-bed inpatient rehab hospital on the St. John campus. And Select Medical Corporation (NYSE: SEM) teamed up with New Orleans-based Ochsner Health System to open a new, 60-bed, acute inpatient rehab hospital in early 2016. Select Medical has 17 inpatient rehab hospitals in its network, many as joint ventures. □

VOLUME 20 | ISSUE 7

HealthCareMandA 19

June M&A Slips a Bit LowerDeal Volume Was Busy Enough, but Big Spenders Stayed Home

L ike air leaking through a pinhole in a balloon, June’s deal volume shriveled a little more, compared with the previous month. That would be 99 deals

announced in June, compared with 106 in May (-7%). Nothing very alarming, for sure. Compared with the same month a year ago, when M&A was still picking up speed, June’s deal volume was noticeably lower, down 18%.

The same trend is evident on the spending side. Regular readers know we don’t put too much stock in the dollar amounts, because so many deals do not disclose financial terms. But we are seeing a weakening in spending levels. For the month of June 2015, we’ve tallied $16.9 billion in spending, a 48% drop compared with May 2015’s

$32.4 billion. June had six deals with announced prices of more than $1 billion, but the largest of those was only $2.1 billion, for a total of $9.8 billion. May 2015 had just three billion-dollar deals, but the total of those three was $29 billion.

Similarly, June 2014 posted only four billion-dollar-plus deals, but thanks to Medtronic’s (NYSE: MDT) $42.9 billion acquisition of Covidien plc, the month’s deal value hit $59.2 billion. Subtract that outlier, however, and June 2014’s deal value would actually be $630 million lower than June 2015. So the balloon isn’t completely deflated, but no air is being pumped in, either. That’s okay. We hate it when the market pops unexpectedly. □

Deal Volume, June 2015 vs. May 2015 and June 2014

June 2015 Deals

May 2015 Deals

June 2014 Deals


Services

Behavioral Health Care 1 1% 3 -67% 3 -67%

Home Health & Hospice 2 2% 2 0% 4 -50%

Hospitals 5 5% 7 -29% 10 -50%

Labs, MRI & Dialysis 3 3% 2 50% 3 0%

Long-Term Care 20 20% 21 -5% 27 -26%

Managed Care 2 2% 2 -0% 3 -33%

Physician Medical Groups 4 4% 11 -64% 6 -33%

Rehabilitation 4 4% 1 300% 3 33%

Other Services 17 17% 7 143% 14 21%

Services subtotal 58 59% 56 4% 73 -21%

Technology

Biotechnology 9 9% 14 -36% 12 -25%

eHealth 2 2% 12 -83% 10 -80%

Medical Devices 15 15% 8 88% 10 50%

Pharmaceuticals 15 15% 16 -6% 15 0%

Technology subtotal 41 41% 50 -18% 47 -13%

Grand total 99 100% 106 -7% 120 -18%

Source: Health Care M&A News, July 2015



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