SERVICES

Q2’14 Healthcare M&A Roundup

JUL 23

(The following is a brief excerpt from our Q2 ’14 Value Tracker, which will be available for download within 24 hours by clicking here.)

For Q2 ‘14, TripleTree tracked 400 healthcare mergers and acquisitions that closed or were announced but have yet to close. The 400 deals had a total and median enterprise value of $231.3 billion and $41.0 million, respectively. An anomaly occurred in Q2 as the 306 closed deals represent only $17.6 billion of transacted enterprise value while the 94 that have yet to close represent a colossal $213.7 billion. The announced deals that did not close have primed Q3 and Q4 of 2014 for robust M&A activity. In the following charts we have broken out some detail on closed deal volume across the healthcare services, facilities and technology (199 transactions); life sciences technology and services (59 transactions); and healthcare equipment and distribution (48 transactions) sectors.

Q2 experienced a steady uptick in aggregate announced and closed transaction value, led largely by a number of very large, high-profile trades, including AbbVie’s $54 billion buyout of pharmaceutical company Shire, the $46 billion acquisition of Allergan by Valeant Pharmaceuticals, and Medtronic’s acquisition of Covidien – valued at nearly $43 billion. These deals were all announced in Q2 but none were consummated during the quarter causing a significant decrease in closed M&A activity in Q2. The closed deal transaction value was led by the Carlyle Group’s $4.2 billion acquisition of Ortho-Clinical Diagnostics as well as a bevy of other trading activity. Q3 should be a very positive quarter for M&A activity with the significant deals that were announced but have yet to close.

During Q2 healthcare M&A closed transaction volume decreased substantially, down 19% Q/Q. Additionally the average enterprise value of closed deals decreased from around $425 million in Q1 2014 to $193 million in Q2 2014, total deal value shrunk by 69%.
 

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By our count, deal volume was distributed across the following sectors:

  • Healthcare Technology:  38 transactions
  • Managed Care:  Six transactions
  • Healthcare Facilities:  71 transactions
  • Healthcare Services:  84 transactions
  • Pharmaceuticals:  33 transactions
  • Biotechnology:  17 transactions
  • Life Sciences Tools and Services:  Nine transactions
  • Healthcare Supplies:  Seven transactions
  • Healthcare Distributors:  12 transactions
  • Healthcare Equipment:  29 transactions
 


Two Noteworthy M&A Transactions From the Quarter

  • West Corporation (Nasdaq:WSTC) a leading provider of technology-driven communication services, announced that it had signed a definitive agreement to acquire Health Advocate, the market leader in healthcare advocacy and navigation services, serving 40+ million Americans through over 9,000 employer and health plan clients. The transaction is indicative of West Corporation’s strategic desire to grow its healthcare practice and of Health Advocate’s fit within West’s strategic goals. The acquisition allows Health Advocate to maintain neutrality while taking advantage of all future opportunities across the expanded channels and markets it has access to with West’s support.  Health Advocate’s Core Advocacy service helps members personally navigate healthcare and insurance-related issues, saving them time and money. Health Advocate leverages the power of pricing transparency and personalized health communications to help members make better informed decisions and get more value out of the healthcare system. Additional services include wellness coaching, employee assistance programs (EAP), nurse lines, biometric screenings and chronic care solutions. Health Advocate’s leading-edge technology platform combined with clinical, health plan and claims billing experts can support consumers with a wide range of healthcare or health insurance issues.  (Note: TripleTree acted as the exclusive financial advisor to Health Advocate on that transaction).

 

  • WEX Inc. (NYSE: WEX), a provider of corporate payment solutions, acquired Evolution1, a leader in cloud-based technology and payment solutions in the healthcare industry. WEX paid $532.5 million in cash for Evolution1 as it will stand as the cornerstone of WEX’s healthcare offering. The acquisition satisfies WEX’s desire to extend its product offering to high-growth markets with complex payment systems, as the healthcare industry has numerous ever-changing reimbursement models.
    The payment system within the healthcare industry consists of three primary parties – consumers, providers and payers, with employers and exchanges as intermediaries – that all have different payment relationships and responsibilities according to an intricate set of business rules. To date, WEX has focused on virtual product solutions for payer to provider payments, which accounts for almost $1 trillion dollars of annual spend industry wide. This will continue to be an area of further opportunity for the Company.
    As a leading provider of technology-based solutions that simplify healthcare payments, Evolution1 will enable WEX to address multiple aspects of the healthcare payment system, expanding WEX’s addressable market while building on growth in its other core payment solutions. Evolution1 has a network of ~500 partner organizations that serve 90,000 employers and more than 10 million consumers across the country and has established strong partner loyalty with that group. Evolution1 processed over 65 million transactions and $5 billion in payment volume in 2013 alone.
    Early in 2014, WEX Management noted its desire to be acquisitive in 2014 and this transaction is a stake in the ground that proves that desire was true. WEX is compensating handsomely for Evolution1 as it is paying ~20x EBITDA which is indicative of the strategic synergies and WEX’s strong desire to move into the healthcare vertical. WEX has estimated that Evolution1 has a $1 billion market opportunity today which is expected to double by 2019. The transaction is expected to be accretive to WEX’s adjusted net income in the first 12 months after close.
    Additionally, WEX sees Evolution1 as an opportunity to address other aspects of the healthcare system, including consumer to provider payments as more spend is being shifted to the consumer. Evolution1 allows WEX to interface with consumers via its B2B model that provides services with intermediary third-parties that have direct interaction with consumers.
    The core competencies of WEX and Evolution1 give the combined entity a large runway for growth amongst an under-saturated healthcare market that is growing more complex. The complexity of the payment system has caused a more than desirable opportunity for companies like WEX to make a strategic bet on the market, as they did with Evolution1.

 

Public Markets

After a strong Q1 to open 2014, healthcare IPO activity decelerated in Q2 – 7 healthcare companies had successful IPOs totaling only $587 million of transaction value compared to 13 companies at over $1 billion in Q1. On the other hand, twenty-seven IPOs were announced during Q2 that have not yet closed, which represents an incremental ~$1.9 billion of enterprise value. While successful IPOs nearly halved in Q2 the announced deals accelerated setting the stage for an active Q3.

To recap, this Q2 Roundup was pulled from our Quarterly ValueTracker publication, which four times per year offers details on M&A and Capital Markets activity from the past quarter, and additional insights about related healthcare news and events.

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Chris Hoffmann
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Michael Noel