M&A activity across the healthcare industry continues to be strong. During the second quarter of 2016, TripleTree tracked 369 healthcare mergers and acquisitions that had either closed or been announced, compared to 386 transactions in Q2 2015. The announced and closed transactions in Q2 2016 had total and median enterprise values of $93.3 billion and $40.7 million, respectively; whereas, during this same period last year, total and median enterprise values clocked in at $146.6 billion and $30.3 million, respectively.
The healthcare services, facilities and technology sectors saw the most activity with 240 announced transactions in Q2 2016. The life sciences technology and services sector announced 77 deals, and the healthcare equipment, distributors and supplies sector announced 52 transactions. Transaction count by size is broken-out below along with detail on the more notable transactions announced during the quarter.
Envision Healthcare (Envision), of Greenwood Village, Colorado, provides an array of ambulatory, emergency room and staffing services via its EmCare Holdings (EmCare), American Medical Response (AMR) and Evolution Health business units. EmCare focuses on providing facility-based physician services including emergency, hospitalist, anesthesia and surgery offerings, while the AMR unit delivers emergency and non-emergency medical transport services for communities, healthcare facilities and payers. Evolution Health delivers population management services across the post-acute, home and mobile care settings.
AMSURG, headquartered in Nashville, operates ambulatory surgery centers in partnership with physicians throughout the U.S. and provides outsourced physician services to hospitals, ambulatory surgery centers, and other healthcare facilities. AMSURG is primarily focused in the areas of anesthesiology, radiology, children’s services, and emergency medicine.
The merger is structured as an all-stock deal where Envision shareholders will be slight majority owners of the new company, making the newly combined entity one of the largest specialty providers of physician services across the U.S. with expectations for $100 million in synergies over the next three years. The combined companies have revenues and EBITDA in excess of $8.5 billion and $1.1 billion, respectively, for the 12 months ended March 31, 2016.
The level of consolidation across the hospital and payer markets has put pressure on providers, such as Envision and AMSURG, to seek partners to enhance their competitive footing across customers, competitors and suppliers. Prior to the merger, AMSURG had made several strategic moves. In 2014, AMSURG acquired Sheridan Health, a multi-specialty physician service provider, for $2.4 billion to expand its customer base across the physician outsourcing market. Last year, AMSURG offered to acquire Team Health for approximately $8 billion, but subsequently pulled its bid after the Company declined to move forward.
As the market continues to shift to value-based care from fee-for-service, hospital systems are looking for partners that support value-based reimbursement initiatives, such as bundled payments. The merger between Envision and AMSURG further supports these emerging models through collective focus on improving outcomes, efficiencies and patient satisfaction across ambulatory/community-based care settings. Post-merger, the combined entities will offer services from pre-hospital care to acute, post-acute and outpatient care settings, providing hospitals with a suite of solutions versus the traditional fragmented offerings.
Operating across 100 countries, Quintiles is the world’s largest provider of product development and integrated healthcare services, and works with biopharmaceutical companies and other life science companies seeking to outsource clinical trials and other product development initiatives. Quintiles is headquartered in Durham, North Carolina and has more than 32,000 employees globally.
IMS Health is one of the largest global healthcare information and technology services companies assisting its customers with capabilities to better track pharmaceutical market trends and enrich data. Specifically, its products provide customers with capabilities to better track pharmaceutical sales, prescribing and medical treatment trends, and uses anonymous healthcare data to deliver real-world disease and treatment insights. Its 15,000 employees across 100 countries are focused on serving customers across the pharmaceutical, medical device manufacturing and delivery, provider, payer, government, and research markets.
The combination of Quintiles and IMS creates one of the largest global healthcare information technology companies serving the pharma industry, with combined revenues of $7.2 billion and adjusted EBITDA of $1.7 billion based on combined 2015 financials. At a time when large pharmaceutical companies are under pressure to cut costs related to lower reimbursement rates and increased costs of developing new drugs, R&D outsourcing and data analytics tools have become increasingly important in the drug and medical device R&D workflow. IMS tracks pharma usage data post commercialization while Quintiles tracks data related to drugs in the development phase, making the combined entities equipped to offer its customers an end-to-end solution spanning from outsourced clinical trials through to sales analytics once a product hits the market. As a result, management expects synergies to cause revenue growth rates to increase by 1-2% by the third year and generate $100 million in potential cost savings, delivering tremendous value to its pharmaceutical customer and other segments of the broader healthcare industry. Technically, IMS Health shareholders will represent ~51% of the combined company on a fully-diluted basis. Interestingly, TPG had ownership stakes in both companies with representation on both companies’ boards.
Verisk Health was a business unit of Verisk Analytics, the Jersey City, New Jersey-headquartered company focused on risk-assessment services and analytical tools for property and casualty insurance, financial services, energy, and human resources industry verticals. Verisk Health offers data services, analytics and advanced technologies that cut across population health, payment accuracy, revenue integrity, and quality improvement initiatives. Verisk Health’s broad suite is designed to assist health plans, employers, providers, and other risk-bearing entities better gauge the health and risk of their populations.
Coming off the heels of Veritas Capital’s sale of Truven Health Analytics to IBM’s Watson Health for $2.6 billion in February (Veritas acquired Truven from Thompson Reuters for $1.25 billion in 2012), Veritas is making another move in the healthcare data analytics space through its acquisition of Verisk Health – specifically, a move into the payer and employer markets (Truven’s services had significant adoption in the provider market). This move parallels broader thematic trends across the healthcare industry as an increasing number of market participants are utilizing data analytics to assist with the transition to value-based care from fee-for-service, emphasizing cost reduction while simultaneously improving quality.
Veritas Capital has the potential to drive value in a way that Verisk Analytics could not by facilitating strategic bolt-on acquisitions and investing to enhance Verisk Health’s portfolio of solutions during the next three to six year hold period. The divesture was driven by Verisk Analytics’ desire to focus on serving customers within its core market segments, providing actuarial and underwriting data to the property and casualty insurance, financial services, and energy industries.
TripleTree will be actively monitoring these, and other, transactions given their market disruption potential. We anticipate the pace of M&A activity to continue across both strategic and financial acquirers focused on healthcare, particularly around prominent market themes (e.g., value-based care, expansion of managed government programs, and integration of disparate technology solutions).
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