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Q1’14 Healthcare M&A Roundup

APR 28

For Q1’14, TripleTree tracked 403 healthcare M&A transactions with a total and median enterprise value of $58.8 billion and $39.0 million – respectively, deal flow was up 8% Q/Q. With the average enterprise value increasing substantially from around $265 million in Q4 2013 to over $425 million in Q1 2014, total deal value grew by 69%.

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Deal volume was distributed across the following sectors:

  • Healthcare Technology: 39 transactions
  • Managed Healthcare: 15 transactions
  • Healthcare Facilities: 85 transactions
  • Healthcare Services: 104 transactions
  • Pharmaceuticals: 53 transactions
  • Biotechnology: 16 transactions
  • Life Sciences Tools & Services: 18 transactions
  • Healthcare Supplies: 10 transactions
  • Healthcare Distributors: 14 transactions
  • Healthcare Equipment: 49 transactions



Here are two noteworthy M&A Deals from Q1

  • Brookdale Senior Living (NYSE:BKD) announced that it had signed a definitive agreement to merge with Emeritus Corporation (NYSE:ESC), creating what the companies are calling the “first national, predominantly private-pay based, senior living solutions company.”  As a result of the merger, 82% of the American population will live within 10 miles of a Brookdale facility, including 6.5 million seniors age 80 or older. This is yet another example of the recent wave of healthcare mega-mergers, a move that should help streamline operations and reduce overhead through more efficient drug and food purchasing and administrative leverage across the organization.
    • The merger will create a company of significant scale in the senior living market – in total; the combined company will have operating capacity of 110,000+ units in over 1,100 communities in 46 states. However, post-merger Brookdale will still only occupy 10% market share and should see significant room for expansion in the market.
    • The transaction terms include a cash consideration of $1.4 billion along with Brookdale’s assumption of $1.4 billion in mortgage debt for a combined $2.8 billion in transaction consideration value, which places roughly a $5.3 billion total enterprise valuation on Emeritus Corporation. The company has stated that the transaction is expected to have a neutral impact on Brookdale’s Cash from Facility Operations in the first year of combined operations, which will grow to exceed $0.40 per share of accretion for the third year.
    • The merger Brookdale Senior Living and Emeritus Corporation creates a truly national company with a strong market position and access to the entire post-acute care continuum in a market segment primed for sustained increases in growth as the population of the United States continues to age.
 
  • Altegra Health, a provider of business, technology and consulting solutions for healthcare organizations, acquired Outcomes Health Information Solutions (Outcomes Health), an industry leader in healthcare data management and analytics solutions, during the quarter.  The acquisition solidifies Altegra Health as a leader in the healthcare risk adjustment and quality reporting space, and the addition of Outcomes’ technology and analytics creates one of the industry’s most powerful engines for analyzing patient data to identify and fill targeted gaps in care.  The acquisition signifies the increasing importance of effective risk adjustment and quality measurement for government-sponsored and other health plans – as managed care plans, such as Medicare Advantage and Managed Medicaid, continue to grow and proliferate and the scrutiny on pressure on reimbursements rates increases, it becomes imperative that a plan’s population is carefully and effectively monitored and risk-adjusted. The combination of Outcomes and Altegra creates a company whose advanced analytics can acquire and digest large sets of data and identify targeted members of the population in need of a medical intervention.
    • The use of analytics is becoming increasingly important as prospective risk adjustment grows in the market. Traditional risk adjustment has been completed on a retrospective basis, with companies analyzing patient charts for uncaptured HCCs, co-morbidities, and candidates with conditions that require immediate follow-up. Outcomes’ technology and analytics, however, have been tailored to continuously monitor a patient population through claims data to trigger actionable events, such as an onsite health assessment for a patient, in a much more real-time basis. The shifting of the risk adjustment process into the real-time can help more effectively manage a population as well as influencing outcomes and quality by decreasing the time needed before a medical intervention. Additionally, the increase in quality that can be achieved helps health plans maintain levels of reimbursement in a market that is increasingly tying levels of reimbursement to outcomes and quality scores.
    • The core competencies of Altegra and Outcomes give the combined company a very strong position as the market for risk adjustment extends into new channels, including exchange markets, where risk adjustment is essential given the lack of historical claims data, and risk-bearing provider groups, who are economically incented to increase quality while lowering the levels of risk across their patient population.


(Note:  TripleTree acted as the exclusive financial advisor to Outcomes Health in this transaction). 


Public Markets

After a relatively weak Q4 to close out 2013, healthcare IPO activity in Q1 rebounded – 13 healthcare companies had successful IPOs totaling over $1 billion of transaction value. Additionally, 16 IPOs were announced during Q1 that have not yet closed, representing a potential ~$1.4 billion of transaction value.  IPO activity in TripleTree’s traditional focus sectors was very strong, as the two high profile healthcare technology companies came to market – Castlight Health and Everyday Health.

During the quarter, Castlight Health (CSLT) made their initial public offering on the New York Stock Exchange.  Castlight, founded in 2008, is a cloud-based healthcare information company that provides users with price transparency and other solutions to help employers control their healthcare costs. Castlight’s initial price of their IPO shares was set at $16, but on the first day of trading, the stock rose 149% to $38.85, valuing the company at more than $3 billion. The stock’s price was driven up largely by lofty expectations for revenue growth, as the company’s S1 filing pointed to an over $100 million backlog of contracted revenue to be recognized in the next four years. Since the debut, the stock price has fallen down to levels just above the initial IPO price of $16.

Following the strong equity market of 2013, sell-off activity in January and a modest rebound in February led to a flat March, and modest returns for the quarter.

This Q1 Roundup was pulled from our Quarterly ValueTracker, which includes additional insights about healthcare news and activity during the quarter – it can be downloaded here.

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Chris Hoffmann