healthcare services quarterly update q2 …...healthcare services m&a activity in q2 2019...
TRANSCRIPT
QUARTERLY UPDATE Q2 2019
HEALTHCARE SERVICES
Page 2
INDUSTRY OVERVIEWM&A TRANSACTIONS & PERFORMANCE
DENTAL NEWS AND
DEVELOPMENTS
OPTOMETRY NEWS AND
DEVELOPMENTS
PHARMACY NEWS AND
DEVELOPMENTS
Sources: Capital IQ, IBIS World, Health Canada, AEGIS Dental NetworkData as of June 30, 2019.
Healthcare Services M&A activity in Q2 2019 exceeded $750 million in disclosed transaction value across 43 deals.Although transaction value disclosures were low, deal volume remained strong with the number of transactions farexceeding the first half of 2018. The current market for Healthcare Services M&A has experienced a shift towards smaller-sized deal-flow, underscoring uncertainty and volatility in the healthcare industry as operators adapt to regulatorychanges and thinning margins. However, M&A activities remain helpful for maturing organizations seeking new revenuestreams and expanding into new regions, often searching for alignment with more sustainable platforms.
All figures are in $CAD.
• Canadian dental practices are continuing to experience a fundamental shift in structure andoperation. Solo practitioners still dominate the landscape, however, there is an increasing trendof dentists moving into a multi-practice system. As of 2018, 11% of practices had five or moredentists. Key advantages in a multi-practice structure are associate support and buying power.
• Nationally, the number of patients treated by dentists daily continues to decline. Dentists aretreating 11 patients on average per day as compared to 12.5 patients over the last decade.
• The optometry industry continues to face strong competition in Q2 2019 from online anddiscount retailers. Headwinds have also arisen from regulatory changes in provinces that havederegulated prescription eyewear. These changes are resulting in slower growth for 2019.
• As a result, practices are moving away from retail as a main source of revenue towards high-value services for age-related ailments. Practices that are able to specialize in products such ascataract surgery and diabetes complications will benefit from Canada’s aging population.Specialized practices should command stronger margins than traditional sources.
20182015 2016 2017 2019
2.6
21.2
5.9
0.6
0.4
3.2
5.9
10.5
6.3 6.8
10.3
2.9
8.0
0.5
0.3 0.8
-
10
20
30
40
50
60
70
-
5.0
10.0
15.0
20.0
25.0
Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2
Tran
sact
ion
Volu
me
(Num
ber o
f Dea
ls)
Tran
sact
ion
Valu
e ($
Bill
ions
)
NORTH AMERICAN HEALTHCARE SERVICES M&A ACTIVITY
Transaction Value Transaction Volume
• In June, the Advisory Council on National Pharmacare produced its final report, outliningrecommendations on the implementation of a Canadian pharmacare system. The reportproposed an implementation timeline which included preparing a list of essential medicines by2022 and implementing a full drug formulary by 2027.
• Other recommendations include a cap on out-of-pocket costs at $5 per prescription, with acopayment of $2 for essential medicines, and an annual maximum of $100 per household. Theaverage Canadian currently spends $452 out of pocket annually on prescription medication. TheCouncil did not propose any changes to pharmacy mark-up structures.
Page 3
SELECT RECENT M&A TRANSACTIONS
Source: Capital IQ and PitchbookTEV refers to total enterprise value.Unless otherwise denoted, all figures are in CAD.
• IRIS, The Visual Group Inc. provides eye care servicesfor patients. The company offers vision healthcareservices (vision testing and correction services), eyesurgeries, dispensing eyewear services, etc. IRIS isbased in Laval, Que. and operates as the optometricdivision of publicly listed New Look Vision Group.
• The acquisition includes all of the optical assets andbusiness of the Darryl Sher Group, operating six retailoptical clinics in Toronto, Ont. and surrounding areas.The clinics will rebrand under the IRIS banner.
Closed April 11, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
TEV/Revenue Undisclosed
acquired
• Established in 2005, Rubicon operates over 100pharmacies across British Columbia, Alberta,Saskatchewan and Manitoba. Rubicon operates itspharmacies under a number of different independentretail banners.
• Located in Penticton, B.C., Rage’s Pharmacy operatesunder the PharmaChoice banner. The pharmacy hasbeen providing their community with exceptionalservice and care for 15 years.
Closed April 1, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
TEV/Revenue Undisclosed
acquired
• Young Innovations is a global manufacturer anddistributor of branded oral care products used bydental professionals in preventive, restorative andother procedures. Young is a portfolio company of NewYork-based private equity firm, The Jordan Company.
• Germiphene Corporation manufactures and distributesdental healthcare products internationally. Thecompany specializes in infection control and preventionproducts. Germiphene is located in Brantford, Ont.
Closed June 3, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
TEV/Revenue Undisclosed
acquired
Six Retail Optical Clinics in Southern
Ontario
• Vancouver, B.C.-based WELL Health Technologiesfocuses on consolidating and modernizing clinical anddigital assets within the healthcare sector. Theacquisition of KAI will expand WELL’s electronic medicalrecords (EMR) services to over 850 medical clinicsacross Canada.
• KAI Innovations provides software as a service-basedEMR services to approximately 560 clinics in Ontario,supporting over 2,000 registered doctors andpractitioners.
Closed May 30, 2019
TEV *$17.8 million
TEV/EBITDA Undisclosed
TEV/Revenue 5.07x
acquired
*Note: Aggregate purchase price was $10.75 million at closing, witha conditional performance-based earnout of up to $7 million.
Page 4
MACROECONOMIC INDICATORS
-5,000
10,00015,00020,00025,00030,00035,00040,00045,000
CAD
PER CAPITA DISPOSALBLE INCOME -CANADA
Historical Forecast
Source: IBIS World, F indicates forecast.
The healthcare industry is affected by a number of key macro economic industry growth drivers. Below, we highlight totalpublic and private health expenditure, per capita disposable income, national unemployment rates and the agingpopulation in Canada. According to economic trend projections, the forecast is positive for each indicator over the nextfive years, supporting the view of continuing industry stability and growth.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Thou
sand
s of P
eopl
e
POPULATION AGED OVER 65 -CANADA
Historical Forecast
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Thou
sand
s of P
eopl
e
POPULATION AGED OVER 65 -CANADA
Historical Forecast
-
25
50
75
100
125
150
175
200
CAD
Billi
ons
TOTAL HEALTH EXPENDITURE -CANADA
Historical Forecast
0%
1%
2%
3%
4%
5%
6%
7%
8%
Perc
enta
ge
NATIONAL UNEMPLOYMENT RATE
Canada U.S.
Page 5
PUBLIC COMPARABLE ANALYSISGROWTH, MARGINS & MULTIPLES
11.8x
12.5x
7.5x
8.6x
15.9x
0.0x 5.0x 10.0x 15.0x 20.0x
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
5%
40%
2%
16%
22%
0% 10% 20% 30% 40% 50%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
0.3%
-0.1%
1.3%
0.6%
-0.1%
-0.5% 0.0% 0.5% 1.0% 1.5%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
13.4x
12.3x
8.2x
9.2x
17.1x
0.0x 5.0x 10.0x 15.0x 20.0x
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
2%
37%
2%
16%
17%
0% 10% 20% 30% 40%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
11%
2%
7%
0%
3%
-2% 0% 2% 4% 6% 8% 10% 12%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
Source: Capital IQ. Data as of June 30, 2019.Above noted healthcare peer groups are market capitalization weighted indexes, including the constituents listed on page 7.LTM refers to last twelve months. NTM refers to next twelve months. Figures above are based on median peer group metrics.
LTM REVENUE GROWTH NTM REVENUE GROWTH
LTM EBITDA MARGIN
LTM EV/EBITDA NTM EV/EBITDA
NTM EBITDA MARGIN
4%
15%
12.0x
0.4%
17%
11.2x
Page 6
PUBLIC COMPARABLE ANALYSISPERFORMANCE ANALYSIS
Source: Capital IQ. Data as of June 30, 2019.Above noted healthcare peer groups are market capitalization weighted indexes, including the constituents listed on page 7.LTM refers to last twelve months.
HEALTHCARE PEER GROUP SHARE PRICE PERFORMANCE – Q2
HISTORICAL LTM EV/EBITDA – Q2
SHARE PRICE PERFORMANCE – LTM*
0.2%0.0%
-4.1%-0.6%
2.7%
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
-19.5%
19.6%
-5.9%
23.1%
8.4%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
11.7x13.0x
8.3x8.8x
16.9x
5.0x
10.0x
15.0x
20.0x
Retail Pharmacy Pharmaceuticals Pharmaceutical DistributorsHealthcare Service Providers Healthcare/Dental Equipment & Supplies
Page 7
PUBLIC COMPARABLE ANALYSISTRADING MULTIPLES & OPERATING STATISTICS
Source: Capital IQ. Data as of June 30, 2019.LTM refers to last twelve months. NTM refers to next twelve months.
We have selected a group of publicly traded healthcare entities for this high-level analysis. These public companies helpact as a proxy for the industry, and provide strong industry context.
CompanyMarket
CapitalizationEnterprise
Value RevenueRevenue Growth EBITDA
EBITDA Margin
Revenue Growth
EBITDA Margin
NTM EV/EBITDA
LTM EV/EBITDA
LTM EV/REV
Retail PharmacyCVS Health Corporation $92,595 $207,114 $280,174 12.7% $18,221 6.5% 18.5% 6.8% 9.2x 11.6x 0.8xDiplomat Pharmacy, Inc. $595 $1,427 $7,227 13.9% $138 1.9% (10.3%) 2.3% 9.6x 10.5x 0.2xRite Aid Corporation $563 $9,285 $29,227 0.7% $635 2.2% (3.2%) 2.4% 14.0x 15.1x 0.3xCentric Health Corporation $38 $136 $122 9.1% $2 1.5% 3.8% 7.5% 14.3x 75.3x 1.1xMedian $579 $5,356 $18,227 10.9% $386 2.0% 0.3% 4.6% 11.8x 13.4x 0.5xMean $23,448 $54,490 $79,187 9.1% $4,749 3.0% 2.2% 4.8% 11.8x 28.2x 0.6x
PharmaceuticalsJohnson & Johnson $483,719 $503,261 $109,054 3.7% $37,469 34.4% (2.0%) 35.7% 13.2x 13.7x 4.7xPfizer Inc. $314,596 $360,758 $71,986 2.3% $29,898 41.5% (2.8%) 41.3% 12.5x 12.3x 5.1xMerck & Co., Inc. $282,391 $306,332 $57,570 5.8% $21,507 37.4% 2.5% 40.4% 12.9x 14.6x 5.4xMylan N.V. $12,838 $30,724 $15,029 (5.3%) $4,636 30.8% 3.3% 30.0% 6.6x 6.8x 2.1xBausch Health Companies Inc. $11,608 $42,712 $11,228 (2.4%) $4,483 39.9% (0.1%) 40.9% 9.3x 9.7x 3.9xMedian $282,391 $306,332 $57,570 2.3% $21,507 37.4% (0.1%) 40.4% 12.5x 12.3x 4.7xMean $221,031 $248,757 $52,973 0.8% $19,598 36.8% 0.2% 37.6% 10.9x 11.4x 4.2x
Pharmaceutical DistributorsWalgreens Boots Alliance, Inc. $64,586 $87,358 $184,302 6.3% $10,017 5.4% (1.3%) 6.2% 7.8x 9.0x 0.5xMcKesson Corporation $32,764 $40,940 $286,450 2.9% $5,450 1.9% 1.0% 2.0% 7.2x 7.7x 0.1xCardinal Health, Inc. $18,363 $25,746 $191,836 6.8% $3,709 1.9% 1.7% 1.9% 7.1x 7.1x 0.1xAmerisourceBergen Corporation $23,440 $25,905 $234,100 9.9% $3,043 1.3% 2.5% 1.3% 8.3x 8.7x 0.1xMedian $28,102 $33,423 $212,968 6.5% $4,580 1.9% 1.3% 1.9% 7.5x 8.2x 0.1xMean $34,788 $44,987 $224,172 6.5% $5,555 2.6% 1.0% 2.8% 7.6x 8.1x 0.2x
Healthcare Service ProvidersHCA Healthcare, Inc. $60,524 $110,358 $63,849 7.6% $12,526 19.6% 5.9% 19.0% 8.6x 9.0x 1.8xUniversal Health Services, Inc. $15,371 $20,925 $14,554 3.9% $2,266 15.6% 2.6% 16.4% 8.6x 9.4x 1.5xTenet Healthcare Corporation $2,787 $26,106 $24,271 (4.8%) $3,860 15.9% (1.4%) 14.9% 7.3x 6.9x 1.1xCommunity Health Systems, Inc. $398 $19,405 $18,501 (4.9%) $1,922 10.4% (8.6%) 12.8% 9.0x 10.3x 1.1xMedian $9,079 $23,516 $21,386 (0.4%) $3,063 15.7% 0.6% 15.6% 8.6x 9.2x 1.3xMean $19,770 $44,199 $30,294 0.4% $5,143 15.4% (0.4%) 15.8% 8.4x 8.9x 1.4x
Healthcare/Dental Equipment & SuppliesBecton, Dickinson and Company $88,916 $114,972 $22,770 26.2% $6,689 29.4% 2.1% 31.0% 15.9x 17.6x 5.2xBaxter International Inc. $54,655 $58,442 $14,812 3.0% $3,494 23.6% 0.3% 24.7% 15.9x 17.1x 4.0xDENTSPLY SIRONA Inc. $17,862 $19,836 $5,315 (1.8%) $883 16.6% (0.1%) 21.8% 17.2x 23.0x 3.8xHenry Schein, Inc. $13,630 $16,711 $17,761 12.5% $1,523 8.6% (25.3%) 8.9% 14.1x 11.2x 1.0xPatterson Companies, Inc. $2,800 $3,664 $7,502 2.0% $345 4.6% (0.5%) 4.4% 11.1x 10.9x 0.5xMedian $17,862 $19,836 $14,812 3.0% $1,523 16.6% (0.1%) 21.8% 15.9x 17.1x 3.8xMean $35,573 $42,725 $13,632 8.4% $2,587 16.6% (4.7%) 18.2% 14.8x 15.9x 2.9x
(Figures in CAD millions, except percentages and ratios)
LTM Operating Figures NTM Consensus Estimates Valuation
Page 8
MNPCF – LEADERSHIP TEAM
DUE DILIGENCE LEADERSHIP
TRANSACTION LEADERSHIP
Aleem BandaliManaging Director
Dale AntonsenManaging Director
John CaggianielloManaging Director
[email protected] 416.513.4177
Brett FranklinPresident
Mike ReynoldsManaging Director
Johnny EarlManaging Director
[email protected] 604.637.1514
Dan PorterManaging Director
Stephen ShawManaging Director
Kevin TremblayManaging Director
Mark RegehrManaging Director
Craig MaloneyManaging Director
Patrick KhouzamManaging Director
Jason BurgessManaging Director
Erik St-HilaireManaging Director
Page 9
MNPCF – RECENTLY CLOSED DEALS
NATIONAL