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Health Care M&ANEWS

Volume 19, Issue 2February 2014

InsIde the health Care M&a Market

IN THIS ISSUE

EHR Deals Ramp Up

The giants in the electronic health record space aren’t really threatened by the thousands of smaller companies trying to get a toehold in this market. But changes in technology and federal requirements have opened up new opportunities for both strategic and financial buyers.

Testing, Testing, 1,2,3: Laboratories See New M&A Interest

Despite some analysts’ predic-tions that the Laboratory space would stay quiet in 2014, six deals were an-nounced in January. Could this be the start of something big? Page 1

M&A in January

The new year got off to a promis-ing start in virtually every sector. The Services sector was tied with the Tech-nology side in the number of deals announced, and revenue was almost as evenly split—something that doesn’t occur very often.

Page 19

...Departments

Technology Deal Summaries Page 4Additional Transactions Page 7Health Care Technology Page 10

ServicesDeal Summaries Page 12Additional Transactions Page 13Health Care Services Page 17

The market for electronic medi-cal and health records (EMRs or EHRs) has gained a lot of

attention in recent years, thanks to the Health Information Technology for Economic and Clinical Health Act (HITECH Act), which was part of the American Recovery and Reinvestment Act of 2009. Under HITECH, Medi-care and Medicaid provide incentives to eligible professionals and hospitals for the adoption and meaningful use of certified EHR technology.

As of November 2013, more than 93% of all eligible hospitals and 82% of all eligible professionals have

January was a busy month for M&A in the Laboratory segment. Six deals were made public with two

disclosed prices totaling $4.72 billion. Although the deals are recorded as part of the Laboratories, MRI & Dialysis sector, all six of the January 2014 deals involved a laboratory company, whether commercial, specialty or in clinical research.

In last month’s roundup of trends to watch for in each health care sector, we found consensus among industry analysts who predicted a slow year

Look Beyond the ehR GiantsSpecialty MarketS are Where pe Money iS GoinG

the LaBs space Wakes Up atypical Deal-MakinG hitS a typically Sleepy Market

for M&A in the Laboratory space, as headwinds persisted on reimburse-ment from both CMS and commercial payors. Also, a slowdown in utiliza-tion by consumers has taken its toll on revenues from the commercial operations, thanks to high-deductible health plans and growing co-pays. Both Quest Diagnostics (NYSE: DGX) and Laboratory Corporation of America (NYSE: LH) cited the lower volume in their year-end earnings reports.

The largest January deal was

(continued on page 2)


registered to participate in the EHR Incentive Programs, according to a CMS data brief. Most have received incentive payments for complying with Meaningful Use Stage 1 requirements, but Stage 2 has been more difficult to implement, as more data-sharing requirements come into play. So when the 2014 deadline for meeting Stage 2 regs loomed, the rising furor convinced CMS to postpone the deadlines. Stage 2 is now set to roll out through 2016 and Stage 3 won’t begin until at least October 2016 for hospitals and January 2017 for physicians.

In the meantime, the market for

February 2014Health Care M&A News


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(continued from page 1)EHRs has been dominated by companies such as Epic Sys-tems Corp., Allscripts (NASDAQ: MDRX), eClinical-Works, NextGen Healthcare (NASDAQ: QSII) and GE Healthcare Strategic Sourcing (acquired by The Gores Group in March 2013, and renamed Meridian Medical Management). In December, Modern Healthcare ranked them as the top five largest vendors of EHR systems, based on the number of providers in which the company was the primary vendor. Epic led the list with 19.4% of all providers (79,031), through to number 25, Henry Schein (NASDAQ: HSIC), with 0.4% (1,638 providers). Their products go beyond simply EHRs to billing, revenue cycle management and other services. GlobalData pegs McKesson Corporation (NYSE: MCK) as the HIT soft-ware and services leader based on 2012 revenue of $3.3 billion, followed by Cerner Corporation (NASDAQ: CERN) and Allscripts, with revenues of $2.7 billion and $1.5 billion, respectively.

The top 25 are still consolidating. In September 2013, Vitera Healthcare Solutions, LLC (number eight

on Modern Healthcare’s list), which is owned by Vista Equity Partners, paid $644 million for ninth-ranked Greenway Medical Technologies (NYSE: GWAY). The transaction created a company that serves nearly 13,000 medical organizations and 100,000 providers with certified, end-to-end clinical and financial technology products.

“For a 100-plus bed hospital, the market is always going to be Epic, Cerner, Allscripts and maybe eClini-calWorks,” said Tom O’Connor, managing director at BerkeryNoyes. “It’s the smaller players, those specialty niche ones, that we think are really interesting. They’ve targeted unloved or unserved verticals, whether it be physical therapy or dentists.”

Cain Brothers managing director Ray Falci agreed. “The market is looking at EMRs that are targeting specific specialties that maybe the big guys haven’t adequately addressed or just don’t have a good targeted solution for. Things like surgery centers, anesthesiologists and ortho-pedists. That’s where the one-size-fits-all of some of the bigger vendors isn’t playing out effectively.”

That’s where most of the M&A action has been lately. Already in 2014 two deals have been announced in this segment of the eHealth sector: perioperative information systems company Surgical Information Systems paid an undisclosed amount for AmkaiSolutions, which focuses on the ambulatory surgery market; and Physio-Control acquired Sansio, a cloud-based solution provider for home healthcare agencies and emergency fire and medi-cal responders.

Last year, at least eight deals involved targets with an EHR component, and seven buyers were private equity firms. Besides the Greenway/Vitera deal, the only other one to come with a price was DMH International’s (OTCBB: DMHI) $750,000 acquisition of Touch Medi-cal Solutions. Besides The Gores Group acquisition of GE Healthcare Strategic Sourcing, PE firm Francisco Partners and an affiliate made deals for NextTech, which specializes in systems for bar iatric surgery, dermatology and several other practice areas, as well as American HealthTech, which specializes in EHRs and software for post-acute care facilities. In June, Vitera purchased Suc-cessEHS, serving the ambulatory healthcare market, for an undisclosed amount.

The deal-making will likely heat up this year, as the Stage 2 deadline approaches and future incentive pay-


February 2014 Health Care M&A News

ments are on the line. “You’ll see shakeout,” O’Connor said. “I mean, there’s 10,000 [EHR companies]. We don’t need 10,000. The top four will take most of the share and then a few other winners will break out. I think CureMD is a good example.” CureMD markets a cloud-based, software-as-a-Service (SaaS) technology solution to more than 100,000 healthcare users nationwide. It acquired AviaraMD, a medical billing services company, in No-vember 2013.

Cloud-based solutions are also getting investor atten-tion. “I’m seeing a lot of activity with EHRs that are web-based, fully hosted, subscription-based revenue models,” said Falci. “It’s another generation that are differentiated by the technology underpinnings of their platform. A few of them in the last six to 12 months have raised very sig-nificant amounts, like $30 to $60 million in private equity money. There’s definitely a lot of interest.”

One example: Bain Capital Ventures and Spectrum Equity took minority stakes in MedHOK, a cloud-based healthcare software company, for $77.5 million in Janu-ary. “It was a very interesting deal, but they are a patient population, health management platform,” O’Connor noted. “It’s all these niche companies that are starting to get a little more mature. There’s always some that break out and really get traction.”

icd-10 deadLine cReates oppoRtUnity

Another fast-approaching deadline is the implemen-tation of ICD-10, or the 10th revision of the International Statistical Classification of Diseases, a next-generation coding system for reporting medical diagnoses and inpa-tient procedures. Its predecessor, ICD-9, has been used in the United States since the 1970s, but its approximately 7,000 codes pale in comparison to ICD-10’s 70,000-plus.

CMS postponed the October 1, 2013 implementation deadline to this October 1, and will not likely move the goalposts again. Failure to comply will mean healthcare providers could miss payments for services they provide after that date. With revenue on the line, the companies that serve this area are getting more attention from private equity, too.

“With ICD-10, and ACA, and all the readmissions penalties coming up, we’re seeing a lot of interesting deals,” O’Connor said. “It’s mostly the smaller companies that are growing very rapidly and the SaaS models are sell-ing out to strategic buyers who want to be in this market

but who would rather buy than build. Typically, they’re still going for three to five times revenue. They tend to be about $200 million of enterprise value with 30% to 50% growth rates.”

Care coordination, sometimes called population health management, will be a big piece of the eHealth mar-ket in the near future, Falci predicted. “The whole concept of proactively identifying your high-risk members of any population, whether you’re a doctor or a health plan, is getting way more structured and standardized. Once you do that, using the EMR is at the beginning of a platform to figure out a multitude of ways to interact with a patient.”

“It’s an offshoot of having that core EMR,” he continued, “but it’s going to lead to things like mHealth and all the consumer-based technology solutions that are being brought to market to take the data from the EMR to create programs that give you an effective channel to communicate with the member or the patient, and hope-fully manage his or her health.”

So while EHRs may look like commodities today, the company with the right solution to influence patient outcomes stands a good chance of attracting private equity interest. And we know where that can lead.



deaL sUmmaRies—technoLoGy BiotechnoLoGy

TARgET LISTINg AcqUIRER LISTINg DATE PRIcE

Assets from Thermo Fisher NYSE: GE Healthcare NYSE: GE 1/6/2014 $1,060,000,000Waltham, Massachusetts TMO Waukesha, Wisconsin

in BRief: Thermo Fisher Scientific sold its HyClone cell culture media and sera, gene modulation and magnetic beads business to help finance its acquisition of Life Technologies, announced in April 2013. The products are a strong strategic fit for GE Healthcare.

Biohaven Pharmaceutical Private Portage Biotech Inc. OTCQB: 1/6/2014 $3,500,000British Virgin Islands Toronto, Ontario PTGEF

in BRief: Biohaven has a worldwide license from Yale University to use intellectual property relating to the use of certain glutamate modulating agents in the treatment of neuropsychiatric disorders. The price is for a 54% equity stake in Biohaven.

Rights to ImmTACs Private MedImmune, Inc. NYSE: AZN 1/8/2014 $20,000,000Oxon, England Gaithersburg, Maryland

in BRief: Immunocare Limited will research and develop novel cancer therapies in collaboration with MedImmune, using Immunocare’s Im-mune Mobilizing Monoclonal T-cell Receptor Against Cancer (ImmTAC) technology. MedImmune has the right to further develop the products.

Sirna Therapeutics, Inc. NYSE: MRK Alnylam Pharmaceuticals NASDAQ: 1/12/2014 $175,000,000Whitehouse Station, New Jersey Cambridge, Massachusetts ALNY

in BRief: Sirna, a subsidiary of Merck, has intellectual property and RNAi assets, including pre-clinical therapeutic candidates, siRNA-conju-gate and other delivery technologies. Alnylam’s current focus is on RNAi therapeutics, making the acquisition a strong strategic fit.

Rights to PDGFR-beta antibody NASDAQ: Bayer Group XETRA: 1/13/2014 $25,500,000Tarrytown, New York REGN Leverkusen, Germany BAYN.DE

in BRief: Regeneron Pharmaceuticals will jointly develop an antibody to the Platelet Derived Growth Factor Receptor beta as a potential thera-py with Bayer’s Eylea, to treat wet age-related macular degeneration. The first in-human clinical studies are planned to begin early this year.

4-Antibody AG Private Agenus Inc. NASDAQ: 1/13/2014 $10,000,000Basel, Switzerland Lexington, Massachusetts AGEN

in BRief: 4-Antibody has developed a fully human antibody drug discovery platform which generates a pipeline of novel therapeutic candi-dates. Agenus gains two checkpoint antibody programs, as well as others targeting numerous checkpoint molecules.

Rights to HDACi portfolio NASDAQ: BioMarin Pharmacetuical NASDAQ: 1/21/2014 $2,000,000Waltham, Massachusetts RGEN Novato, California BMRN

in BRief: Repligen Corporation offered the rights to its HDACi portfolio, with potential applications for Friedreich’s ataxia and other neurologi-cal disorders.

Trianta Immunotherapies Private Medigene AG FRA: MDGI 1/27/2014 $5,480,000Munich, Germany Martinsreid, Germany

in BRief: Trianta is developing three immunotherapy platforms with programs in clinical development to treat various types of tumors. Two of its vaccines are currently being evaluated in clinical trials.


mVisum Private Vocera Communications Private 1/13/2014 $3,500,000Siklerville, New Jersey San Jose, California

in BRief: mVisum provides alarm management technology that helps clinicians reduce “alarm fatigue” through a secondary alarm notification that uses audio-visual cues and contextual data, via smartphone or other devices.

deaL sUmmaRies—technoLoGy eheaLth




TYRX, Inc. Private Medtronic, Inc. NYSE: MDT 1/6/2014 $160,000,000Monmouth Junction, New Jersey Minneapolis, Minnesota

in BRief: TYRX develops implantable combination antibiotic drug and implanted medical devices designed to reduce surgical site infections. Medtronic is expanding its product offerings to include broader healthcare services that provide better clinical outcomes.

Alverix, Inc. Private BD NYSE: BDX 1/7/2014 $40,000,000San Jose, California Franklin Lakes, New Jersey

in BRief: Alverix and BD have had a successful partnership to launch the BD Veritor System, and each expects to develop and commercialize additional next-generation point-of-care platforms as part of BD’s growing diagnostics business.

MEDITE Group Private CytoCore, Inc. OTCBB: 1/13/2014 $2,156,080Orlando, Florida Chicago, Illinois CYOE

in BRief: The MEDITE Group owns subsidiaries in Austria, Germany and the Americas. It specializes in medical laboratory automation equip-ment for pathology, histology and cytology, and sells its products in 70 countries.

Shape-sensing technology NASDAQ: Intuitive Surgical NASDAQ: 1/22/2014 $12,000,000Roanoke, Virginia LUNA Sunnyvale, California ISRG

in BRief: Intuitive will acquire the fiber optic shape-sensing and localization technology from Luna Innovations Incorporated. Luna is seeking to monetize the value of its innovation rather than waiting for revenues from development and potential supply agreements.

Span Diagnostics Ltd. Private ARKRAY, Inc. Private 1/24/2014 $11,700,000Surat, India Minneapolis, Minnesota

in BRief: Span Diagnostics specializes in developing, manufacturing and selling clinical test reagents, primarily for infectious disease and bio-chemistry diagnosis. This acquisition gives ARKRAY entry into the Indian market and expands its lineup of rapid test reagents.

DVS Sciences, Inc. Private Fluidigm Corporation NASDAQ: 1/29/2014 $207,500,000Sunnyvale, California South San Francisco, California FLDM

in BRief: DVS Sciences produces multi-parameter single-cell protein analysis systems. Its acquisition will expand Fluidigm’s analytic breadth and increase FLDM’s revenues from single-cell product lines immediately. The transaction is expected to close in February 2014.

Solana Surgical, LLC Private Wright Medical Group, Inc. NASDAQ: 1/30/2014 $90,000,000Memphis, Tennessee Arlington, Tennessee WMGI

in BRief: Solana Surgical is a global orthopedic company and a leader in sterile, disposable instrument kits. The acquisition leverages Wright’s own foot and ankle product lines and accelerates growth opportunities for its direct sales force.

OrthoPro, LLC Private Wright Medical Group, Inc. NASDAQ: 1/30/2014 $36,000,000Salt Lake City, Utah Arlington, Tennessee WMGI

in BRief: OrthoPro provides innovative foot and ankle products, such as the Phalinx Cannulated Hammertoe Fixation System. This acquisition increases Wright’s focus on the surgical podiatry market.

deaL sUmmaRies—technoLoGy medicaL devices



deaL sUmmaRies—technoLoGy phaRmaceUticaLs


Aptalis Pharma Private Forest Laboratories, Inc. NYSE: FRX 1/8/2014 $2,900,000,000Bridgewater, Alabama New York, New York

In Brief: Aptalis, a portfolio company of TPG, is a privately held speciaty pharmaceutical company specializing in the gastrointestinal and cystic fibrosis markets. Forest expects to realize $125 million in cost synergies after the transaction closes in the first half of 2014.

Treatments for blood disorders NASDAQ: Biogen Idec NASDAQ: 1/9/2014 $20,000,000Richmond, California SGMO Weston, Massachusetts BIIB

in BRief: Biogen Idec and Sangamo Biosciences have entered into an exclusive worldwide collaboration and license agreement to develop ther-apeutics for hemoglobinpathies. Biogen will advance its expertise in non-malignant hematology with Sangamo’s genome-editing technology.

LNA drug platform Private Roche Holding AG SIX: RO 1/9/2014 $10,000,000San Diego, California Basel, Switzerland

in BRief: Santaris Pharma A/S is entering an alliance with Roche to discover and develop novel RNA targeted medicines using its proprietary Locked Nucleic Acid (LNA) drug platform.

Rights to ADX-N05 Private Jazz Pharmaceuticals plc NASDAQ: 1/13/2014 $125,000,000Morrisville, North Carolina Dublin, Ireland JAZZ

In Brief: Aerial Biopharma is selling worldwide development rights to ADX-N05, a late-stage investigational compound for excessive daytime sleepiness. SK Biopharmaceuticals will retain its rights in certain Asian countries.

Rights to ADC technology NASDAQ: AbbVie NYSE: 1/8/2014 $25,000,000Bothell, Washington SGEN North Chicago, Illinois ABBV

in BRief: Seattle Genetics develops and commercializes antibody-drug conjugates (ADC). This deal furthers its collaboration with AbbVie, which dates back to March 2011, prior to AbbVie’s spinoff from Abbott Laboratories in Janaury 2013.

NuPathe, Inc. NASDAQ: Teva Pharmaceutical Industries NYSE: 1/21/2014 $144,000,000Malvern, Pennsylvania PATH North Wales, Pennsylvania TEVA

in BRief: NuPathe is a specialty pharmaceutical company focused on diseases of the central nervous system, including neurological and psychi-atric disorders. Its primary product is Zecuity, a transdermal patch to treat migraine headaches.

JHP Pharmaceuticals, LLC Private Par Pharmaceutical Companies Private 1/21/2014 $490,000,000Parsippany, New Jersey Woodcliff Lake, New Jersey

In Brief: Warburg Pincus is selling JHP Group Holdings, which includes JHP Pharmaceuticals, a specialty pharmaceutical company that ac-quires, develops and sells branded generic sterile injectable products.

additionaL deaL sUmmaRies—technoLoGy SEcTOR TARgET AcqUIRER DATE

BIOTECHNOLOGY Biozone Pharmaceuticals Cocrystal Discovery, Inc. 1/3/2014 Virosome vaccine technology RSV Corporation 1/6/2014 CGRP antibody Eli Lilly and Company 1/13/2014 Rights to NeuVax Dr. Reddy’s Laboratories 1/14/2014 Dermagraft Organogenesis Inc. 1/17/2014 TiGenix B.V. PharmaCell B.V. 1/24/2014



additionaL deaL sUmmaRies—technoLoGy (cont’D)

SEcTOR TARgET AcqUIRER DATEBIOTECHNOLOGY Collagen Solutions LLC Collbio Ltd. 1/27/2014

eHEALTH Total Therapeutic Management, Inc. Indegene 1/2/2014 Q-Centrix LLC Sterling Partners 1/9/2014 ClarusHealth Solutions HealthSparq 1/13/2014 AmkaiSolutions Surgical Information Systems 1/14/2014 Unibased Systems Architecture, Inc. Streamline Health Solutions, Inc. 1/16/2014 Sansio Physio-Control, Inc. 1/31/2014

MEDICAL DEVICES Excelsius Surgical Globus Medical, Inc. 1/8/2014 Norland assets Swissray International, Inc. 1/9/2014 Rights to advanced adipose tissue injector LifeCell Corporation 1/27/2014 Fontona d.d. The Gores Group 1/30/2014

PHARMACEUTICALS CDK9 inhibitor program AstraZeneca plc 1/3/2014 Trinity Rx Solutions, LLC Fresh Start Private Management 1/6/2014 Rights to Betimol Akorn, Inc. 1/9/2014 United Medical Grupo Biotoscana SL 1/13/2014 Actavis’ generics in Western Europe Aurobindo Pharma, Ltd. 1/17/2014

the $4.1 billion offer for Johnson & Johnson’s (NYSE: JNJ) Ortho-Clinical Diagnostics business by private equity giant The Carlyle Group, L.C. (NASDAQ: CG). The target had been on the market since late last year, and Carlyle emerged the winner in an auction that involved competition from a team of The Blackstone Group and Danaher Corp. (NYSE: DHR). While JNJ accepted Carlyle’s bid, talks with trade unions and other groups have just begun. The deal is expected to close around the middle of the year.

Two of January’s deals marked exits by private equity companies. Welsh, Carson, Anderson & Stowe sold its full-service commerical lab company, Solstas Lab Partners Group, to Quest for $570 million. Although Quest spent the past 18 months divesting non-core operations, this acquisition gives it a strong presense in the Southeast, where Solstas has extensive operations. In a Canadian transaction, Persistence Capital Partners sold Lab Bio-Medic, based in Quebec, to Gamma-Dynacare Medical Laboratories in Ontario for an undisclosed price.

So what is the attraction for private equity in an industry fraught with external and organic pres-sures? We spoke with Jefferies senior vice president Brian Tanquilut in December about the outlook for the laboratory space in 2014 and beyond. “For private equity, it’s a good cash flow business,” he said in that

conversation. “People ask all the time if Quest and/or LabCorp would be attractive to private equity? If you think of all the companies that are shutting down R&D and outsourcing test-ing to the Myriad Genetics (NASDAQ: MYGN) of the world, you don’t need to develop everything in-house. I don’t think Quest or LabCorp are going to go private, but private equity is looking at smaller companies and saying, we can use cash flows and make money on it.”

According to The Wall Street Journal sources, Carlyle Group hopes to develop new products for Ortho-Clinical’s blood-testing business and ramp up research. It also plans to bolster sales and marketing in the U.S. and Europe and expand the business into emerging markets. That’s more than enough to make the company attractive to strategic buyers a few years from now, if all goes according to plan.

Like so many other healthcare sectors, specialization is driving interest among acquirers. National Dentex Corpora-tion paid an undisclosed price for Tri-County Dental Labora-tory in Washington, Missouri in January. And Colorado-based ALN Medical Management, LLC, an outsource provider of revenue cycle management, IT and consulting services, acquired HemaSource, LLC, a Colorado lab company that provides outsourced blood services to hospitals and surgical centers in the Rocky Mountain region.

This sudden spate of laboratory deals may play itself out quickly, but the interest in genetic testing and outsourcing services probably will not. There’s more to come, no doubt.

(continued from page 1)



heaLth caRe technoLoGy neWs

The year is off to a promising start for Technology transactions. Every sector except Pharmaceuticals bested its December 2013 performance (we must note that the Pharma sector had an exceptionally busy December, with 21 deals reported) and all but eHealth topped its year-ago deal activity. eHealth managed to equal its January 2013 level of seven deals. As with every new year, there is a lot of talk and optimism that this one will be bigger and better than the last. For the moment, that optimism seems to have some truth to it, especially in the Biotech and Pharma sectors.

BiotechnoLoGy

At long last, Thermo Fisher Scientific (NYSE: TMO) completed the acquisition of Life Technologies Corporation (NASDAQ: LIFE) on February 3. The deal, announced in April 2013, turned out to be the year’s largest, with a final price of $15.1 billion. Of that, $13.6 billion was in cash, representing $76.13 per share for Life Technologies, plus the assumption of $1.5 billion in net debt. The majority of Life Technologies now becomes a new reporting segment called Life Sciences Solutions, that combines Thermo Fisher’s Biosciences businesses. Thermo Fisher’s global chemicals business is now part of the Laboratory Products and Services segment, and two small diagnostics businesses within Life Technologies have shifted to the Specialty Diagnostics segment.

As a condition to completing the transaction, in Janu-ary Thermo Fisher agreed to sell its cell culture (sera and media), gene modulation and magnetic beads businesses to GE Healthcare (NYSE: GE) for $1.06 billion. For GE, the deal represents a strong strategic fit and brings complementary product offerings that will expand and accelerate its development of end-to-end technologies for cell biology research, cell therapy and the manufacture of new biological medicines and vaccines. This transaction is expected to close in the first quarter of 2014.

Big Pharma is on the prowl for more promising products, and more biotech deals are on the horizon, if the news coming out of last month’s JP Morgan Chase & Co. Healthcare Summit can be believed. Allergan (NYSE: AGN) CEO David Pyott said his company is ready to spend up to $10 billion on new acquisitions and deals to expand its core focus, even to the point of add-ing a new drug category to its ophthalmics and medical

aesthetics businesses. Roche Holding AG (SIX: RO), which last month announced a $10 million collabora-tion with Danish firm Santaris Pharma A/S on its LNA drug platform, is reportedly still on the prowl for more partnerships and acquisitions. Bristol-Myers Squibb (NYSE: BMY) also let it be known that it is looking for deals involving experimental treatments in the oncology field, having abandoned its research programs in diabetes, hepatitis C and neuroscience late last year. In December, the company sold off its share of the global diabetes assets it held in partnership with AstraZeneca plc (NYSE: AZN) for $2.7 billion upfront and up to $1.4 billion in additional milestones. We’ll see how this plays out in 2014.

eheaLth

Only one deal came with a price in the eHealth sector last month—the $3.5 million acquisition of mVisum, a privately held company that is tackling the threat of “alarm fatigue” among healthcare providers and clinicians. With all the mechanical chirps and beeps filling hospital rooms and nurses’ stations, practitioners become desensitized to potential crisis situations that an alarm may be flagging. mVisum’s technology works on any smartphone, acting as a secondary alarm that provides context, such as wave-forms like ECGs, and vital signs, to give clinicians more information about the nature of the alarm. Its configu-rable dashboards let users monitor alarms and responses from anywhere. Vocera Communications, Inc. (NYSE: VCRA), which provides integrated communication so-lutions for mission-critical mobile environments such as healthcare, hospitality, energy, retail and education, announced the agreement on the day it closed, January 13. Its own voice communication, secure messaging and care experience solutions are exclusively endorsed by the American Hospital Association. Vocera expects nominal incremental revenue this year, and the transaction will be slightly dilutive to 2014 earnings. As revenue ramps up

The Month in M&A at a Glance:Health Care Technology, January 2014 Sector Deal Volume Combined PricePharmaceuticals 12 $3,714,000,000Biotechnology 15 1,301,480,000Medical Devices 12 559,356,080eHealth 7 3,500,000 Total 46 $5,578,336,080

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deaL sUmmaRies—seRvices BehavioRaL heaLth caRe


Inpatient psychiatric facility Nonprofit Acadia Healthcare Company NASDAQ: 1/6/2014 $20,000,000Seattle, Washington Franklin, Tennessee ACHC

in BRief: Highland Medical Center sold its inpatient facility, which has a certificate of need for 135 beds but currently operates just 63 beds. Acadia plans to add 22 beds in a unit that was not in use and will transition an additional 50 beds to inpatient psychiatric beds from other uses.

Riverside Center Private Acadia Healthcare Company NASDAQ: 1/6/2014 $10,500,000Riverside, California Franklin, Tennessee ACHC

in BRief: The Riverside Center for Behavioral Medicine is a 68-bed acute inpatient psychiatric facility. Acadia expects the addition of this and the Seattle facility to be accretive to its financial results for 2014.

deaL sUmmaRies—seRvices LonG-teRm caRe


North Ridge Nonprofit Aviv REIT NYSE: AVIV 1/6/2014 $40,000,000New Hope, Minnesota Chicago, Illinois

in BRief: North Ridge is a rental CCRC that includes 124 independent living units, 73 assisted living units and 351 skilled nursing beds. Oc-cupancy is stabilized, with the SNF beds averaging above 95% occupancy. Aviv will lease the property to Mission Health in Tampa, Florida.

Warrenton Nursing Home Private Global Healthcare REIT OTCQB: 1/6/2014 $3,500,000Warrenton, Georgia Atlanta, Georgia GBCS

in BRief: Warrenton House is a 110-bed skilled nursing facility that was owned by a single-purpose LLC of which Chris Brogdon, CEO of Global Healthcare REIT, was 95% owner. This acquisition is the second skilled nursing facility by the REIT.

The Solana at Cinco Ranch Private American Realty Capital Private 1/7/2014 $71,250,000Katy, Texas New York, New York

in BRief: This high-end community opened in 2009 with 126 independent living units and 32 assisted living units. In 2013, six additional AL units were built plus 20 new memory care units. Occupancy has been at 98%, and the new units were 92% pre-leased.

8 senior living properties Private Capital Health Group, LLC Private 11/15/2013 $96,600,000Utah and Nevada Baltimore, Maryland

in BRief: The portfolio includes eight properties in Utah (7) and Nevada (1) with about 25% of the total 657 units independent living and 75% assisted living and memory care. Most of the properties have occupancy between 88% and 95%.

deaL sUmmaRies—seRvices LaBs, mRi & diaLysis


Ortho-Clinical Diagnostics, Inc. NYSE: JNJ The Carlyle Group NASDAQ: CG 1/16/2014 $4,150,000,000New Brunswick, New Jersey Washington, D.C.

in BRief: Johnson & Johnson’s sale of its Ortho-Clinical business was widely reported, and The Carlyle Group managed to best several other suitors. CG expects to tap into the demand for sophisticaed medical diagnostic products and services worldwide.

Solstas Lab Partners Group Private Quest Diagnostics NYSE: DGX 1/22/2014 $570,000,000Greensboro, North Carolina Madison, New Jersey

in BRief: Solstas Lab Partners, a portfolio company of Welsh, Carson, Anderson & Stowe, is a full-service commercial lab company. It operates in nine southeastern states and will bolster Quest’s presence in that part of the country. The acquisition is expected to close in the first half of 2014.




Chateau Vestavia Private CNL Lifestyle Properties, Inc. Private 1/15/2014 $18,500,000Vestavia Hills, Alabama Orlando, Florida

in BRief: Chateau Vestavia opened in 1994 with a second phase completed in 1997. The senior living community has 90 independent living units, 49 assisted living units and 24 memory care units. Occupancy was 90%.

The Communities of Solarbron Nonprofit Not disclosed Nonprofit 1/16/2014 $12,500,000Evansville, Indiana Indiana

in BRief: This CCRC was owned by a Revocable Living Trust. It has nine villas, 157 independent living units (69% occupancy), 35 assisted living units (64% occupancy) and 33 skilled nursing beds (97% occupancy). It was built in stages between 1985 and 2009 on 73 acres.

Arbors at Ranch Penasquitos Private The Carlyle Group NASDAQ: CG 1/24/2014 $19,500,000San Diego, California Washington, DC

in BRief: The Arbors was built in the late 1980s as a hotel and was converted to assisted living in the late 1990s. It has 56 assisted living and 31 memory care units. Occupancy has averaged above 90%.

The Haven Private Regional owner/operator Private 1/24/2014 $2,400,000Kerville, Texas Texas

in BRief: The Haven in Texas Hill Country is a 36-unit memory care facility that is licensed for 48 beds. It was built in 1997 on 2.5 acres, located about 65 miles northwest of San Antonio, and occupancy was just 56%. Senior Living Brokerage handled the transaction.

Summit Health & Rehab Private UHS-Pruitt Corporation Private 1/28/2014 $5,900,000Rome, Georgia Norcross, Georgia

in BRief: Located just north of Berry College in northwest Georgia, this skilled nursing facility has been renamed PruittHealth-Rome. It was built in 1983 and has average occupancy of 86% with a quality mix just under 30%.

deaL sUmmaRies—seRvices LonG-teRm caRe (cont’D)


HealthTronics Inc. NASDAQ: Altaris Capital Partners Private 1/9/2014 $85,000,000Austin, Texas ENDP New York, New York

in BRief: Endo Health Solutions is divesting HealthTronics, a specialty healthcare company that provides urological products and services, including advanced health record systems, billing and revenue management services. The transaction is expected to close by April 2014.

N. Scottsdale Family & Cosmetic Private Sebring Software OTCPK: 1/10/2014 $2,000,000Scottsdale, Arizona Sarasota, Florida SMXI

in BRief: With the acquisition of North Scottsdale Family & Cosmetic Dentistry, Sebring Software now manages 38 offices, with four practices in Arizona that specialize in family, cosmetic and restorative dentistry.

deaL sUmmaRies—seRvices otheR

additionaL tRansactions—seRvices SEcTOR TARgET AcqUIRER DATEBEHAVIORAL HEALTH Seaside Healthcare Pharos Capital Group, LLC 1/10/2014 HOME HEALTH & HOSPICE All Care Home Health LLC SCL Health and Univita Health 1/23/2014 Vineyard Nursing Association VNA of Cape Cod 1/29/2014




(continued from page 10)in 2015, it expects mVisum’s acquisition to become ac-cretive to earnings.

medicaL devices

This sector had a slow year last year, as far as M&A activity goes. A total of 103 deals were announced, down 29% from the 144 in all of 2012. This January’s total of 12 deals is a slight increase (9%) from the prior January, and potentially puts the sector on pace to equal its 2012 deal volume.

Wright Medical Group, Inc. (NASDAQ: WMGI) announced two of those deals on January 30, for total consideration of $126 million. Stakeholders in Solana Surgical, LLC, a global orthopedic company, received $90 million in the form of approximately $47.6 million in cash and $42.4 million in WMGI common stock. Solana has a growing product portfolio that includes foot and ankle products, sterile disposable instrument kits and a large focus on product innovation, marketing and medi-cal education. The second deal, for $36 million, was for OrthoPro, LLC, maker of foot and ankle products such as the Phalinx Cannulated Hammertoe Fixation System. The Solana Surgical deal closed on January 30 and the

OrthoPro deal is expected to close this month. Wright anticipates some “minor short-term dis-synergies in 2014” but expects growth to resume as it leverages its expertise in areas such as medical education and product development.

The addition of these two companies comes on the heels of Wright’s $75 million acquisition of the French surgical implant maker Biotech International in Oc-tober 2013, which expanded its sales channel in France and bolstered its international distribution network, and its divestiture of its OrthoRecon business in June 2013. MicroPort Medical B.V., a subsidiary of Chinese medical device maker MicroPort Scientific Corporation (HK: 0853), paid $290 million for the hip and knee implant business. With that deal, Wright set its focus exclusively on its Extremities segment, which includes foot and ankle, biologics and upper extremity products. With rev-enue of just $57.6 million (as of the third quarter ending on September 30, 2013), it still has a long way to go to catch the Big Feet in this sector, Stryker Corporation (NYSE: SYK) and Zimmer Holdings (NYSE: ZMH). In 2013 alone, Stryker paid more than $1.7 billion for three acquisitions, the largest of which was MAKO Surigical Corp. (NASDAQ: MAKO), for $1.65 billion. Zimmer’s two deals announced last year, for Normed Medizin-Technik GmbH and Knee Creations, LLC, came with



additionaL tRansactions—seRvices (cont’D) SEcTOR TARgET AcqUIRER DATE

HOSPITALS E.J. Noble Hospital Gouverneur Hospital 1/1/2014 Memorial Health System of East Texas Catholic Health Initiatives 1/13/2014 Grandview Medical Center TriStar Health 1/14/2014 Hackettstown Regional Medical Center Atlantic Health System 1/29/2014

LABS, MRI & DIALYSIS Lab Bio-Medic Gamma-Dynacare Medical 1/16/2014 HemaSource, LLC ALN Medical Management, LLC 1/16/2014 Phoenix Pharma Central Services Pte Ltd ACM Global Central Laboratory 1/23/2014 Tri-County Dental Laboratory National Dentix Corporation 1/29/2014

LONG-TERM CARE 4 CCRCs Griffen-American Healthcare 1/7/2014 Hanover Place Focus Healthcare Partners 1/13/2014 Encore Senior Living, LLC LCS 1/26/2014

MANAGED CARE PPOplus, LLC Stratose 1/17/2014 Dental Select Brent Williams 1/20/2014

PHYSICIAN MEDICAL Praxis mit Nahe DaVita 1/13/2014 Physicians Anesthesia Associates, P.A. MEDNAX, Inc. 1/28/2014

OTHER 5 European dental companies Henry Schein, Inc. 1/6/2014 Integrated Research Inc. JSS Medical Research 1/7/2014 Archimedes Evidera 1/8/2014 MediMedia Health’s sample management J. Knipper and Company 1/7/2014 Accelecare Wound Centers, Inc. Revelstoke Capital Partners 1/8/2014 Medvance Ltd. NAMSA 1/9/2014 BGS Pharmacy Partners, Inc. PharMerica Corporation 1/10/2014 American Homecare Federation, Inc. Diplomat 1/13/2014 CCBR-SYNARC BioClinica, Inc. 1/16/2014 Aragen Bioscience, Inc. GVK Biosciences 1/29/2014

undisclosed prices. The race goes on.

phaRmaceUticaLs

The Pharma sector ended 2013 with a bang, with a total of 21 deals in December alone. M&A activity in January was more typical of this sector, with 12 deals an-nounced and $3.7 billion committed. Five of these deals were outright acquisitions of another company, six were collaborations or alliances involving the rights to another company’s drug or specific therapeutic program, and one was a spin-off of commercial operations in Europe.

That spin-off was Actavis plc’s (NYSE: ACT) sale of its generics business in seven Western European markets to Aurobindo Pharma, Ltd. (BSE: AUROBINDOP.BO). The Hyderabad, India-based pharma produces and markets active pharmaceutical ingredients, intermediates and specialty generic drugs. This acquisition gives it scale, additional products and bigger market share in Belgium, France, Germany, Italy, Portugal and Spain. It also lets

Actavis focus on other markets, including Central and Eastern Europe, and Southeast Asia.

Actavis made other news last month with its an-nouncement that it was leaving China, a move that certain-ly goes against the tide of foreign companies trying to get into that country and tap its 1.3 billion potential customers. The reasoning is that China’s business environment is too difficult to justify the risk in investing a great deal of capital, as Actavis CEO Paul Bisaro told Bloomberg last month at the JP Morgan Chase & Co. Healthcare Summit. A week after that story, Actavis announced it would sell its interest in Actavis (Foshan) Pharmaceuticals Co. Ltd., a subsidiary based in Foshan, China, to Zhejiang Chiral Medicine Chemicals Co., Ltd., in which Actavis purchased a 90% interest in April 2008, for an undisclosed price. That was when the now-Dublin-based Actavis was headquartered in Iceland.

At the same time, Reuters reported that Actavis, Vale-ant Pharmaceuticals International (NYSE: VRX) and



Mylan Inc. (NYSE: MYL) have all expressed interest in acquiring Pfizer Inc.’s (NYSE: PFE) branded generics drug business, known as its Established Products division. None of the companies would comment for the article, which pointed out that one fly in the ointment is that the Established Products business was larger than any of its potential suitors. Now that earnings season is under way, we can report that Pfizer’s generic business raked in $9.45 billion in revenue for the full year 2013, and $7 billion for the first nine months. Valeant, which had not reported its earnings at press time, had $3.7 billion in revenues in the first nine monts of 2013, while Actavis posted $5.9 billion and Mylan, $5.1 billion for the same period.

heaLth caRe seRvices neWs

The Services sector did not fair as well in January 2014 as it did the year before. With 46 deals, this year’s deal-making activity was about 18% lower than it was January 2013. On the other hand, the new year began bet-ter than the previous one ended, up 15% compared with the 40 deals reported in December 2013. Some sectors have cooled off, such as Hospitals and Physician Medical Groups, compared with the year-ago period. Others such as Long-Term Care are seeing the same level of M&A activity as before.

BehavioRaL heaLth caRe

Acadia Healthcare Company (NASDAQ: ACHC) was back on the acquisition trail, announcing two deals on January 6. The larger one, at $20 million, was for an in-patient pyschiatric facility in Seattle, Washington, owned by Highline Medical Center. The facility has a certificate of need for 135 beds, but currently operates only 63 beds. Acadia plans to add 22 beds in a unit that was out of use and will transition another 50 beds to inpatient psychiatric beds from other uses, once the third-party provider leases expire at the end of 2014. The second deal, at $10.5 mil-lion, was for Riverside Center for Behavioral Medicine, located in Riverside, California, with 68 acute inpatient psychiatric beds. Acadia management makes no secret of its acquisition plans. It purchased six facilities in 2013, for a combined total of $121 million (only four deals had disclosed prices).

Acute inpatient psychiatric facilities are its primary focus, and it has rebalanced the bed mix from 27% acute-care in 2011 to 61% acute-care at the end of the third quarter of 2013. Of course, the number of beds grew from 1,970 to 4,100 in that time frame, and from 29 facilities to 47. The payor mix has shifted from 8% Medicare/67%



Sector Deal Volume Combined PriceLabs, MRI & Dialysis 6 $4,720,000,000Long-Term Care 13 $273,020,000Other 13 $87,000,000Behavioral Health Care 1 30,500,000Home Health & Hospice 2 —Hospitals 4 —Managed Care 2 —Physician Medical Groups 3 —Rehabilitation 0 —Total 46 $5,110,570,000

The Month in M&A at a Glance:Health Care Services, January 2014

Medicaid in 2011 to 23% Medicare/46% Medicaid in the same period. Commercial payors represented 20% in 2011 and 25% in 3Q:13.

There’s more to come, as Acadia management told attendees at the JP Morgan summit last month. The in-dustry is highly fragmented, with small establishments, stable pricing and significant barriers to entry thanks to a high degree of specialization and regulation. Broader market trends include HHS’s estimate that national spend-ing on mental health and substance abuse treatment will reach $239 billion this year, showing a compound annual growth rate of 6.4% since 2003. Awareness of mental health illnesses and the need for treatment has grown, as has the need for behavioral healthcare for children and adolescents.

home heaLth & hospice

The year got off to a slow start in this sector, but we expect bigger things to happen as the year progresses and more healthcare providers turn their attention to the post-acute end of the care continuum. Private equity is investing in new care models here, as Univita Health, which is backed by Genstar Capital, formed a joint venture with nonprofit SCL Health System. SCL Health System operates nine hospitals, four safety-net clinics, a children’s mental health center and more than 190 ambu-latory service centers in four states. In January, the joint venture acquired All Care Home Health, LLC, which provides skilled nursing, physical therapy, occupational therapy and social work services in metro Denver. The acquirers’ aim is to form a new, integrated acute- and post-acute care delivery model at three SCL hospitals in and around Denver, covering patients from the time of admission through the home-recovery process. The acquisition doesn’t impact All Care’s ongoing operations and the company will continue to serve its current patients, physicians and hospitals.

hospitaLs

Community Health Systems (NYSE: CYH) finally closed its $7.6 billion acquisition of Health Management Associates (NYSE: HMA) in January, after it agreed to divest hospitals in two states to satisfy antitrust concerns. The facilities are the 250-bed Riverview Regional Medi-cal Center in Gadsden, Alabama and the 116-bed Carolina Pines Regional Medical Center in Hartsville, South Caro-lina, together with all related assets. Once the deal closed

on January 22, Community Health Systems became the largest hospital chain in the country, by hospital count.

The previous title holder, HCA (NYSE: HCA), was in the hunt to regain its top position with its own acquisi-tion of Grandview Medical Center, a 70-bed hospital in Jasper, Tennessee, through its TriStar Division. A second deal for two Kansas City, Missouri-area hospitals owned by Ascension Health was scuttled by the Federal Trade Commission after a lengthy review. HCA already owns 10 hospitals in the Kansas City metro area, which was sure to attract attention from the regulatory powers that be. The scuttled deal with Ascension, announced last May, was for $282.8 million and included two surgery centers and subsidiaries in home health, physical therapy, physician services, cardiology and pharmacy.

LonG-teRm caRe

The largest deal in this sector was Capital Health Group’s $96 million purchase of eight senior living prop-erties in Utah (7) and Nevada. About 25% of the units are independent living ad 75% are assisted living and memory care. The average age of the properties is about 10 years, and most have occupancy rates between 88% and 95%. CHG joint-ventured with Hunt Realty Investments and the Teachers Retirement System of Texas for its share of the purchase, and joint venture partner AEW Capital Management, with its AEW Partners VII, LP fund, footed the remainder. In total, $46 million was invested in the deal.

manaGed caRe

Privately held Stratose, based in Atlanta, Geor-



gia, made its fifth acquisition in the past three years. This one was PPOplus, LLC of New Orleans. It may seem obvious, but PPOplus is a preferred provider organization focused on Arkansas, Louisiana and Mississippi. Stratose provides healthcare cost containment solutions.

The eyes aren’t smiling anymore at Wellpoint (NYSE: WLP). The company agreed to sell its online con-tact lens retail subsidiary, 1-800-CONTACTS, to private equity firm Thomas H. Lee Partners for an undisclosed price. Astute readers will recall that Wellpoint bought the consumer eyewear company in June 2012, in a deal valued at approximately $900 million, from Fenway Partners. The reason given at the time was that Wellpoint wanted to bolster its relationship with consumers, and migrate from a business-to-business to a business-to-consumer model. In the same announcement, WLP said it had entered into an asset purchase agreement for glasses.com and its vir-tual try-on technology with Luxottica, a major eyewear manufacturer. Both deals are expected to close in the first quarter of 2014.

physician medicaL GRoUps

The deals kept coming in this sector, undaunted by a federal judge’s order that Boise, Idaho-based St.

Luke’s Health System unwind its acquisition of Saltzer Medical Group in nearby Nampa, Idaho. This is the first time a federal court has decided an FTC case against a physician practice deal, and may not be the last. The U.S. District Court judge agreed with St. Luke’s competitors, St. Alphonsus Health System and Treasure Valley Hospital, that the integration of Saltzer made St. Luke’s the dominant player in the area, with 80% of the primary care physicians in Nampa. Their suit was filed in 2012. Watch for more FTC scrutiny this year.

otheR

The third bid was the charm for McKesson Corp. (NYSE: MCK), which last October offered $8.3 billion for Celesio AG, the German wholesale and retail pharma-ceutical company. McKesson’s first agreement was with Franz Haniel & Cie, which owned a 50.01% stake in Celesio. Other shareholders were slow to accept the EUR 23.00 per share offer, so McKesson made its “best and final offer” of EUR 23.50 on January 9. When that offer still failed to get the necessary 75% of shareholders on board, the company agreed to buy convertible bonds from hedge fund Elliott Management Corp., Celesio’s second largest shareholder. The two deals were finally enough to reach the 75% threshold, with a price of $8.42 billion.



Could the pundits be right? 2014 started out with some impressive stats for health care mergers and acquisitions. Our preliminary data shows at least

92 deals were announced last month, the second highest number for the month in the past 10 years. The record of 119 transactions was set not so long ago, in January 2012.

The dollar volume was also decent, even though less than half (just 40) of those deals came with prices. So far we’ve recorded nearly $10.7 billion committed to last month’s deals, which is the largest amount since Janu-ary 2009, when $73.7 billion was pledged. That fantastic amount was primarily for a single acquisition, of course: Pfizer, Inc.’s (NYSE: PFE) $68 billion bid for Wyeth, Inc. Sans that single deal, January 2009 wouldn’t rival this year’s strong performance.

Deal volume was split evenly between the Services and Technology sectors, with 46 acquisitions announced in each. Dollar volume didn’t differ substantially, either. Services deals amounted to $5.1 billion, compared with the Technology sector’s nearly $5.6 billion total.

As we’ve discussed else-where in this issue, some trends seem to be building in sectors such as Behavioral Health Care and Laboratories, MRI & Dial-ysis. eHealth deals seem to be making a comeback after a very slow 2013. Part of that decrease was due to cyclicality: with so many entrepreneurial startups featuring mobile health apps, wearable fitness data collectors and other electronic geegaws, the market needed some time to mature. Analysts have pre-dicted a shakeout is coming, and for some companies, it’s already occurred.

Physician Medical Groups will most likely keep up the steady pace of acquisitions in 2014. They may be more attractive to some acquirers now that Congress has agreed to pass the Sustainable Growth Rate and Medi-care Provider Payment Modernization Act, which would eliminate Medicare’s sustainable growth rate formula. If it isn’t enacted, a 24% physician pay cut automatically takes effect on March 31 (but it won’t).

Biotechnology and Pharmaceuticals are perennial chart toppers, and this year has started out in very positive territory for each sector. Deals for another company’s lead candidate or therapy programs will continue and possibly grow. What we’re keeping an eye on are the specialty and generic pharmaceuticals. Even as some companies pursue treatments for rare and orphan diseases, others are keen on acquiring a patent-expired drug that still has legs in the market. Who says they have to cut the price?

deaLs and doLLaRs pick Up in JanUaRy2014 GetS off to a StronG Start



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