VOLUME 20 | ISSUE 5 He alth Ca re M A News · 2016-03-25 · wo deals announced in 2015 have set a higher bar for the frag-mented and still forming urgent care center market. In March,

Health Care M&A News Inside the Health Care M&A Market

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HealthCareMandA

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T he health care industry is rife with not-for-profit organizations across every sector. Although many people assume that all not-for-profits are charitable organizations, the defining factor is that an

organization uses its surplus revenues to further a purpose or mission, rather than distributing that surplus to its directors or other stakeholders as profit or dividends. Despite the title, not-for-profits can be very profit-able, even though their profits must be retained to further the entity’s mission, expansion or other plans.

When it comes to health care mergers and acquisitions, not-for-profits make up a small but healthy share in any given year, with hospitals and health systems comprising the largest number. That trend didn’t change in 2014, although some new trends emerged. The fifth edition of The Not-for-Profit Health Care Acquisition Report, 2015 analyzes these trends in greater depth, but here are some topline results.

Not-for-Profit Targets Still PopularMedical Technology Joins Hospitals and Long-Term Care Targets

T wo deals announced in 2015 have set a higher bar for the frag-mented and still forming urgent care center market. In March, Humana Inc. (NYSE: HUM) announced the sale Concentra Inc.,

which operates urgent care, occupational medicine, physical therapy, primary care and wellness programs. The buyer was a joint venture, MJ Acquisition, formed by Select Medical Corporation (NYSE: SEM) and private equity firm Welsh, Carson, Anderson & Stowe and they paid $1.06 billion.

About three weeks later, in April, Optum, a subsidiary of UnitedHealth Group (NYSE: UNH) paid an undisclosed price for MedExpress, which operates 141 full-service neighborhood medical centers in 11 states. In the acquisition announcement, MedExpress stated it planned to accelerate its expansion by opening 25 to 30 additional centers in 2015.

Urgent Care M&A Is Ratcheting Up ‘Be Patient’ Is Still the Watch Word for Investors

Continued on page 2

Continued on page 4

Not-for-Profits It’s not all just hospitals and long-term care facilities. But those sectors do represent the majority of NFP activity .................... . Page 1

Urgent Care M&A Market Recent transactions for urgent care centers are just the tip of the iceberg, according to our expert webinar panel. Here’s where the market is today ................................... Page 1

From Our DatabaseBiotechnology deals have led the pack in 2015, and are on track to post the highest annual per-deal price ...................... Page 10

April Deal RoundupApril’s deal volume and value took a nose dive. A similar event happened in March 2014, but this could be the real thing ............. Page 19

DepartmentsTechnologyDeal Summaries ................................. Page 6Additional Transactions ..................... Page 7Health Care Technology ................... Page 16

ServicesDeal Summaries ............................... Page 12Additional Transactions ................... Page 14Health Care Services ....................... Page 17

MAY 2015

In This Issue

Health Care M&A News

2 www.healthcaremanda.com

In 2014, there were 167 deals in which the buyer or the target were not-for-profit organizations, or 13% of all health care M&A in 2014. By contrast, there were 130 deals involving at least one not-for-profit entity in 2013, or 12% of that year’s total. Over the past five years, however, the highest percentage of deals involving a not-for-profit was in 2011, when 179 deals made up 17% of all transactions.

NFP TargeTs

Approximately 11% of 2014’s health care transactions were for not-for-profit targets, with 149 transactions announced. By comparison, NFP targets made up 10% of the annual totals posted between 2011 and 2013, and only 8% of the annual total in 2010.

Continued from page 1 As expected, hospitals made up the majority of these acquisitions, accounting for more than half (52%). Every acquirer was either a hospital, health system or a health care management services company, although not all acquirers were not-for-profits themselves. Prime Healthcare Servcies, for example, is a privately held hospital management company which made four acquisitions last year. It was one of eight privately held companies that made 13 hospital acquisitions in 2014.

Three publicly traded companies—Community Health Systems (NYSE: CYH), HCA (NYSE: HCA) and LifePoint Hospitals Inc. (NASDAQ: LPNT)—made seven deals, although the four acquisitions by LifePoint were consummated through its joint venture with not-for-profit Duke University, Duke LifePoint Healthcare.

Not-for-profit long-term care companies were the second most popular targets, comprising 22% of these deals in 2014. Of the 39 deals announced, all the acquirers were also in the long-term care business, with the exception of two hospitals and Aviv REIT (NYSE: AVIV). Aviv and The Ensign Group (NASDAQ: ENSG) were the only two publicly traded acquirers, and each made one not-for-profit acquistition.

Medical Technology targets made up 10% of the not-for-profit acquisitions, or 15 deals. Although not-for-profit transactions are conducted primarily in the health care services segment, a handful come from the health care technology segment, comprised of the Biotechnology, eHealth, Medical Device and Pharmaceutical sectors—which we have labeled Medical Technology for the purposes of the report. In virtually all these cases, the target business was associated with a research university or similar not-for-profit foundation that sells or licenses intellectual property to a buyer who goes on to commercialize the acquired technology in the health care field.

In fact, the largest not-for-profit deal in 2014, by dollar value, falls in this category. Royalty Pharma paid $3.3 billion for the royalty rights to cystic fibrosis treatments that were owned by a not-for-profit affiliate of the Cystic Fibrosis Foundation.

Health Care M&A News Inside the Health Care M&A Market

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HealthCareMandA 3

Not-for-Profit Targets, by Sector, 2014

Source: The Health Care M&A Information Source, April 2015

NFP acquirers

Not-for-profit organizations made 77 acquisitions in 2014, accounting for more than half (52%) of these buyers. Privately held entities were on the buy-side of 47 deals (32%) and publicly traded companies made just 25 deals (17%).

Not surprisingly, hospitals and health systems accounted for 72% of the 95 deals involving a not-for-profit buyer. Only eight deals were made by not-for-profit long-term care operators (three buyers were not disclosed, and one, Bethesda Senior Living Communities, made two acquisitions).

Six deals were made by not-for-profit home health and hospice agencies. Five of the targets were other not-for-profit home health or hospice agencies, with the exception being a privately held assisted living facility.

Where’s The BeeF?

Dollar volume is an inexact measure in any health care sector, but particularly in the not-for-profit arena. That’s because not-for-profits are set up primarily as

membership or board-only organizations, and do not have shareholders to account to. A merger between two not-for-profit hospitals, for example, is typically transacted as a member substitution, with no monetary value. In some instances, a monetary value is disclosed as a capital commitment to the target facility or its charitable foundation.

That said, $5.7 billion was recorded in 2014 to finance not-for-profit transactions, about 1% of the year’s total $388 billion. Just 42 of the 149 transactions disclosed a price, or capital commitment. As noted above, the largest was Royalty Pharma’s $3.3 billion deal with the Cystic Fibrosis Foundation. Without that transaction, the year’s total for not-for-profit deals would fall to $2.4 billion.

Among those deals with prices, seven of the 10 largest were for hospitals or health systems, and two were for pharmaceutical targets owned by not-for-profit entities. The largest long-term care target was a portfolio of seven senior housing properties owned by a not-for-profit organization.

The Not-for-Profit Health Care Acquisition Report, 2015 edition will be published this month (May), with more detail on the trends that emerged last year. □

52%

22%

10%

6%4% 3% 2% 1%1% Hospitals

Long-Term Care

Medical Technology

Home Health & Hospice

Other Services

Behavioral Health Care

Managed Care

Rehabilitation

Labs, MRI & Dialysis



Continued from page 1

The two transactions represented a ground-shift in the urgent care market, where barriers to entry have been low, thanks to the strong interest from insurance companies and local health systems. Tailwinds continue to blow from the ACA’s emphasis on lowering costs and bringing newly insured patients into the market.

In smaller to mid-sized markets, physician groups, private equity firms and other investors have backed and built urgent care centers, hoping to attract attention from larger investors, insurers or health systems. That happened in April, when a chain of 12 urgent care centers was purchased by University of Colorado Health for an undisclosed sum. In some markets, their buyout hopes weren’t realized, as hospitals and health systems built their own urgent care and outpatient clinics. For outside investors looking into some local franchises, there’s just not enough EBITDA to make a five- to seven-year commitment viable.

The timing worked well for our recent webinar, “Urgent Care Centers M&A: Buying, Selling and Valuing,” and the expert panel of Joshua Kaye, managing partner at DLA Piper; Blayne Rush, president of Ambulatory Alliances; and Scott Witter, director of business development and mergers and acquisitions at U.S. HealthWorks, had a lot to say about the state of the market and where they think it’s headed. Here are some highlights of our discussion.

MarkeT Drivers

Besides the ACA’s push to lower health care costs and enroll more insured consumers, insurers are fully behind both efforts. At the same time, health care costs are shifting from employers to employees, who are now looking for more cost-efficient, cost-effective treatment options, especially if they are in narrow-network plans.

Add to that the shortage of primary care physicians, and the increasing demand for timely treatment. “By 2020, I think there’s going to be a shortage of about 45,000 primary care physicians,” said U.S. HealthWorks’ Witter. “You really see urgent care as an alternative to fill the gap

beyond the primary care physicians.”

Kaye added that he’s seeing interest from insurers to invest in urgent care facilities, thanks to their established relationships with health systems which are already looking for ways to offer an alternative care setting, whether through urgent care or ambulatory surgery centers. Some insurers have joint ventured with physicians as a delivery model of health care. “The growth of urgent care centers is as much driven by interest in the payer community in looking for alternatives to their emergency rooms and offering a lower cost setting for their patient populations,” Kaye said.

More and more on the services side we’re hearing that old marketing term, branding, come into play. For investors thinking of getting into the urgent care space, Kaye did say that branding opportunities were an important consideration. “As insurers set up joint ventures with facilities around their patient populations, it’s important to get in front of those populations that they might otherwise not be able to capture.”

Where iT’s heaDeD

Rush set the record straight, that there is no agreed-upon number of urgent care clinics at the moment. His firm’s database shows that “a lot of the growth comes from same-store growth, acquisitions and de novos,” he said. “That slowed down in 2014.”

For investors, “the green space is still there, but it’s shrinking. A lot of the larger players are focused more on acquisitions than de novos, these days,” he added. “I think we’re in the very early stage of consolidation. We’re going to see interesting things going on in this market.”

Witter noted that MedExpress had been owned by Excellere Partners beginning in 2007. When it changed hands a few years later, “the deal tripped a trigger in the private equity world, and your saw a lot of private equity interest in 2010, 2011 and 2012, jumping on regional

Continued on page 8

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Deal Summaries: Technology Biotechnology

TARGET LISTING ACQUIRER LISTING DATE PRICE

Clexion antibody assets Private Agenus Inc. NASDAQ: 4/8/2015 $4,000,000 Cambridge, Massachusetts Lexington, Massachusetts AGEN

In Brief: Celexion, LLC is selling its SECANT® yeast display platform, designed for the generation of novel monoclonal antibodies to enable highly efficient interrogation of drug targets such as checkpoint proteins.

License to immuno-oncology drug Private Roche SIX: RO 4/20/2015 $25,000,000 Uttar Pradesh, India Basel, Switzerland

In Brief: Curadev Pharma develops cancer treatments that use the body’s immune system to combat tumors. Its top prospect is a small-molecule treatment, now in pre-clinical development, that targets the enzymes IDO1 and TDO, pathways tumors use to hide from T cells.

Collaboration on MEDI4736 NYSE: AZN Celgene Corporation NASDAQ: 4/24/2015 $450,000,000 Gaithersburg, Maryland Summit, New Jersey CELG

In Brief: MedImmune Ltd., the biotechnology subsidiary of AstraZeneca plc, has agreed to work with Celgene to develop and commercialize an anti-PD-L1 inhibitor, MEDI4736, for the treatment of blood cancer.

License to AG-881 NASDAQ: Celgene Corporation NASDAQ: 4/29/2015 $10,000,000 Cambridge, Massachusetts AGIO Summit, New Jersey CELG

In Brief: Agios Pharmaceuticals develops treatments in the cancer metabolism and rare genetic disorders of metabolism fields. Its small molecule, AG-881, is in preclinical studies.

License to therapeutic antibodies Private Celgene Corporation NASDAQ: 4/29/2015 $30,000,000 Toronto, Ontario Summit, New Jersey CELG

In Brief: Northern Biologics, a portfolio company of Versant Ventures, has developed a portfolio of antibody-based therapeutics for oncology and fibrosis. Celgene has options to in-license drug candidates and to acquire Northern Biologics upon conclusion of the collaboration.

Deal Summaries: Technology Medical Devices


Xlumena, Inc. Private Boston Scientific Corp. NYSE: BSX 4/1/2015 $62,500,000

Mountain View, California Marlborough, Massachusetts

In Brief: Xlumena develops, manufactures and sells minimally invasive devices for endoscopic ultrasound guided transluminal drainage within the gastrointestinal tract. Its portfolio includes the Axios™ and Hot Axios™ Stent and Delivery Systems.

Spinal Modulation, Inc. Private St. Jude Medical, Inc. NYSE: STJ 4/20/2015 $175,000,000 Menlo Park, California St. Paul, Minnesota

In Brief: In 2013, St. Jude made a $40 million equity investment in Spinal Modulation and received both an exclusive option to distribute its Axium™ Neurostimulator System, and an exclusive option to acquire the company.

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Deal Summaries: Technology Pharmaceuticals


Branded drug portfolio BR: UCB Dr. Reddy’s Laboratories, Inc. NYSE: RDY 4/1/2015 $127,176,181 Brussels, Belgium Hyderabad, India

In Brief: UCB S.A. is selling its established branded drug portfolio in India, Nepal, Sri Lanka and the Maldives. The sale supports its strategy to focus on its neurology portfolio in India.

Certain assets from Alkermes NASDAQ: Recro Pharma, Inc. NASDAQ: 4/13/2015 $50,000,000 Dublin, Ireland ALKS Malvern, Pennsylvania REPH

In Brief: Alkermes plc and its affiliates are selling the worldwide rights to IV/IM meloxicam, a proprietary Phase 3-ready, long-acting COX-2 NSAID for moderate to severe acute pain, a manufacturing facility, royalty and formulation business.

Innocutis Holdings LLC Private Cipher Pharmaceuticals Inc. NASDAQ: 4/13/2015 $45,500,000 Charleston, South Carolina Mississauga, Ontario CPHR

In Brief: Innocutis is a pharmaceutical and medical device company specializing in the development and commercialization of therapies and devices focused on medical treatment of dermatological conditions. It has a portfolio of established branded prescriptions.

23 U.S. generic drug products IDT Australia ASX: IDT 4/13/2015 $13,500,000 Boronia, Australia

In Brief: An undisclosed global generic drug maker sold these 23 U.S. products to IDT in November 2014, but it was not announced until this month. The therapeutic markets where these drugs apply include neurology, infectious disease, cardiovascular and respiratory.

Quanticel Pharmaceuticals Private Celgene Corporation NASDAQ: 4/27/2015 $110,000,000 San Diego, California Summit, New Jersey CELG

In Brief: This acquisition culminates a 2011 strategic alliance between the two companies. Since then, Quanticel has industrialized its single-cell platform for analysis of tumor cellular content. Multiple drug candidates are expected to enter clinical trials in early 2016.

Additional Transactions Technology

SECTOR TARGET ACQUIRER DATE

BIOTECHNOLOGY vivoPharm Pty Ltd. Protea Biosciences Group, Inc. 4/7/2015 License to ADAM8 inhibitor drugs Medivir AB 4/13/2015 CollabRx, Inc. Medytox Solutions, Inc. 4/16/2015 IBA Molecular North America Illinois Health and Science 4/17/2015 T cell research collaboration Astellas Pharma, Inc. 4/21/2015

eHEALTH Rycan Healthland 4/1/2015 Progeny Software, LLC Ambry Genetics 4/1/2015 Phoenix Health Systems Medsphere Systems Corp. 4/7/2015 Acceron, Inc. Mansa Capital Management LLC 4/7/2015 Gennius, Inc. Quality Systems Inc. 4/9/2015 Valiant Health Health Care Excel, Inc. 4/10/2015 c2b Horizons, LLC PatientBond, LLC 4/10/2015 Provider Advantage NW, Inc. The SSI Group, Inc. 4/13/2015



Additional Transactions Technology (cont’d)


eHEALTH Phytel IBM 4/13/2015 Explorys IBM 4/13/2015 Systems Designs, Inc. ABILITY Network 4/14/2015

MEDICAL DEVICES EmboMedics AngioDynamics 4/9/2015 Medical Measurement Systems Laborie Medical Technologies 4/13/2015 European implant business Lima Corporation 4/17/2015

PHARMACEUTICALS Tanomed AB Karo Bio Akribolag 4/10/2015 Rights to DE-105 R-Tech Ueno, Ltd. 4/27/2015

Continued from page 4

platforms that they could build off of. “There are still a lot of opportunities out there,” he added, but some geographies are getting a little crowded.”

Thanks to the mentality that “if we build it, patients will come,” Witter added, “it’s taken a bit longer for some of the private equity groups to build up their patient bases with a lot of the clinics that they built. We’ve seen a few groups step on each other’s toes and some practices have suffered.”

The chaNgiNg iNvesTor Mix

In recent years, more strategic buyers have entered the market, and some from outside the typical health care system or insurer mold. The Select Medical/Welsh Carson joint venture to buy Concentra is a good example. “It was not something that anybody anticipated,” Witter said, “but you can certainly see how it works when you look at the two groups”

Size plays a big part in attracting investor interest, as Kaye noted. “There are so many operators out there that have a meaningful presence in a geographic community with eight to 10 centers.” However, that size player may not be attractive to a large private equity sponsor, Kaye said, “because there’s just not enough EBITDA there to put meaningfully deployed capital to work in that type of play.”

At the same time, there are other players that are looking to grow, and may very well get to the size where they are consolidated into larger operators who have between 30 and 50 centers.

“I can’t count how many times I get a call from a physician or business entrepreneur who say they want to get into the urgent care space and within a year, they’ve got six to 10 locations opened up,” Kaye added. “The EBITDA coming from each of those units may not be tremendous, but they’re quickly assembling a nice little platform that may be prepared for an acquisition on at least a smaller scale.”

Rush noted that, after a slowdown in 2013 when most of the sizable platforms had recently traded, 2014 was when the hospital players came back to the urgent care market in earnest. “You’re going to see more of the hospital players get in in a big way in 2015,” he predicted. “There’s no real national player, from that standpoint. There are a lot of regional guys, and I think some will get married here in a short period of time.”

But don’t count out the private equity side. “Obviously the financial sponsors are out there,” Rush said. “And the payers and physician groups—and I mean these national multi-state physician groups that are backed by private equity—they have to show growth to their investors. If they have a big presence in pediatrics, and there’s some regional platform that’s focused on pediatric urgent care, that’s a great fit, and a great buyer.” □

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From Our DatabaseWhat Is the Average Price of a Biotechnology Deal, and What Are the Trends in 2015?

T his year, the Biotechnology sector has taken the lead for merger and acquisition activity in the health care technology category. Last year,

Pharmaceutical deals were flourishing, and that sector ended the year with 188 announced transactions and $213 billion in combined spending. Biotech didn’t stand a chance.

This year, 74 biotechnology transactions are already on the books, through the first week in May, with a combined total of nearly $35.8 billion. By contrast, there have been 54 pharmaceutical deals announced, with approximately $50 billion committed. The spending discrepancy aside, 2015 seems to be the year of biotech deals.

We checked our database to see how this sector has played out in the past decade, and found quite a range of deals and average annual prices. 2008 was the heyday for biotechnology deals, with a total of $93.9 billion,

making for an average price-per-deal of $802.6 million.That was the year Roche (SIX: RO) acquired the remaining interest in Genentech (formerly NYSE: DNA) for $48.6 billion, which amounted to 48% of the sector’s 2008 total. Subtracting this outlier, spending would have only been about $45.3 billion that year.

Despite a one-day sell-off in late April, biotechnology stocks are still hot. In early May, the NASDAQ Biotechnology Index (NBI) was gaining, within 35 points of its 52-week high of 3,704. Investors’ appetite for high-growth stocks continued as generally upbeat earnings announcements were rolling in. However, in the midst of the huzzahs came word that Omni Bio Pharmaceutical, Inc. (OTCPK: OMBP) was closing due to lack of funds.

The NBI has risen more than 60% in the past 12 months. From the looks of the chart below, it could keep climbing. We’ll keep you posted. □

Average Price per Biotech Transaction, 2004 to 2014

Deals Total

Deals with prices Average price*

2004 96 65 $6,764,873,000 $104,074,969

2005 113 98 $23,196,902,050 $236,703,082

2006 115 90 $36,407,170,500 $404,524,117

2007 145 112 $43,105,127,700 $384,867,212

2008 148 117 $93,901,257,347 $802,574,849

2009 193 155 $47,445,849,040 $306,102,252

2010 129 106 $60,905,909,900 $574,584,056

2011 82 64 $33,192,553,240 $518,633,644

2012 107 75 $18,687,410,316 $249,165,471

2013 85 47 $29,562,410,316 $628,987,454

2014 136 74 $20,954,360,606 $283,167,035

2015 (thru May 6) 74 46 $35,785,642,899 $777,948,759

* = based on deals with prices. Source: The Health Care M&A Information Source, May 2015

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Deal Summaries: Services Behavioral Health Care


Avancer Homes Private Investment group Private 4/16/2015 $10,700,000 Genoa, Illinois

In Brief: Avancer Homes is the largest for-profit operator of group homes in Illinios, with 18 homes with the capacity for 101 residents. Also included in the sale was Genesis Works, a 21,000 square foot Development Training Center with the capacity for 130 clients each day.

Deal Summaries: Services Hospitals


Ardent Health Services Private Ventas, Inc. NYSE: VTR 4/6/2015 $1,750,000,000 Nashville, Tennessee Chicago, Illinois

In Brief: Ardent Health Services is one of the 10 largest for-profit hospital companies in the country. It is owned by private equity funds managed by Welsh, Carson, Anderson & Stowe. Ventas will own 10 hospitals, comprising about 3.2 million square feet and 2,045 beds.

Pennock Health Services Nonprofit Spectrum Health Nonprofit 4/15/2015 $56,000,000 Hastings, Michigan Grand Rapids, Michigan

In Brief: Pennock Health operates an 88-bed acute care facility, Gun Lake Medical Center, two diagnostic centers and a 50-physician medical group. Effective May 1, it was integrated into Spectrum Health and renamed Spectrum Health Pennock.

Deal Summaries: Services Laboratories, MRI & Dialysis


New York Radiology Partners Private RadNet, Inc. NASDAQ: 4/14/2015 $34,000,000 New York, New York Los Angeles, California RDNT

In Brief: This transaction represents RadNet’s second significant acquisition in Manhattan. New York Radiology Partners operates eight facilities throughout the city’s boroughs and completes more than 800 procedures a day, and more than 200,000 annually.

Deal Summaries: Services Long-Term Care


Mira Vista Care Center Private CareTrust REIT, Inc. NASDAQ: 4/1/2015 $9,125,000 Mount Vernon, Washington San Clemente, California CTRE

In Brief: Mira Vista is a 94-bed/48-unit SNF located just north of Seattle, with 34,200 square feet. It was built in 1987 by the seller, who has been involved in seniors housing for over 40 years. It had an occupancy of 87%. The owner will exit the market with this sale.

32 IL communities Private NorthStar Realty Finance Corp. NYSE: NRF 4/1/2015 $875,000,000 Various states New York, New York

In Brief: Harvest Facility Holdings, an affiliate of Holiday Retirement, is selling 32 independent living communities with a total of 3,983 units across 12 states. NRF and NorthStar Healthcare Income formed a joint venture, in which NRF will own 60%.

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Deal Summaries: Services Long-Term Care


4 assisted living communities Private ROC Seniors Housing Fund Private 4/6/2015 $74,000,000 Various locations, Texas Orlando, Florida

In Brief: Development of these four assisted living and memory care communities began in 2011. Each community has 75 units serving 57 assisted living residents and includes a separate secured wing that serves 40 Alzheimer’s and dementia care residents.

Michael A. Maltoz Skilled Nursing Nonprofit Ownership group Private 4/9/2015 $22,700,000 Yonkers, New York Scarsdale, New York

In Brief: The facility was built in 2001 by St. John’s Riverside Hospital and was operated by not-for-profit Riverside Health Care System. Occupancy fell from 96% in 2012 to 93% in October, 2014. It will be renamed Adira at Riverside Rehabilitation and Nursing.

Emeritus at Spring Valley Private Real estate investment firm Private 4/10/2015 $6,550,000 Las Vegas, Nevada San Diego, California

In Brief: Spring Valley is a 46-unit assisted living facility, licensed for 72 beds, which is all memory care. It was built in 1999 with 31,727 square feet, and occupancy has ranged between 83% and 95% (based on beds) in the past 18 months. It had a 30% Medicaid census.

Regency Place Private Solstar Investments Private 4/10/2015 $8,650,000 Sacramento, California Solana Beach, California

In Brief: Regency Place is a senior living community with 46 assisted living units (licensed for 55 beds) built in 2000 and 26 independent living units built in 1994. Three hospice beds are included in the AL license. Occupancy dipped from 92% in 2013.

Independent living community Private Not disclosed 4/15/2015 $24,300,000 Vancouver, Washington

In Brief: This independent living community was built in 2005 and has a mix of studios, one- and two-bedroom units. There are 101 independent living apartment units plus 26 cottage-style deluxe units on the campus.

3 assisted living communities Private The Ensign Group, Inc. NASDAQ: 4/16/2015 $11,275,000 Boise and Twin Falls, Idaho Mission Viejo, California ENSG

In Brief: This portfolio includes a 103-unit property in Boise with 79% occupancy, an 89-unit property in Twin Falls with 60% occupancy and a 75-unit property in Twin Falls with 73% occupancy. There are a total of 136,931 square feet.

Arbor Terrace at Citrus Park Private Capitol Seniors Housing Private 4/23/2015 $20,000,000 Tampa, Florida Washington, D.C.

In Brief: Arbor Terrace is a 92-unit assisted living community with 52 assisted living units, 14 transitional memory care units and 26 memory care units. It opened in April 2015 and was built on 6.34 acres with 79,035 square feet. The sale occurred with the certificate of occupancy.

15 CCRCs Private NorthStar Healthcare Income Private 4/23/2015 $640,000,000 Various states New York, New York

In Brief: Arcapita is selling 15 continuing care retirement communities (CCRCs) in 11 states. The portfolio consists of six entrance-fee and nine rental CCRCs, totaling 3,637 units. About 65% are rental properties and 35% are entrance-fee.



Deal Summaries: Services Long-Term Care (cont’d)


Alta Manor Assisted Living Private DiNapoli Capital Partners Private 4/24/2015 $16,550,000 Roseville, California Walnut Creek, California

In Brief: Alta Manor is an assisted living and memory care community with 86 units, 60 of which are designated for assisted living and 26 for memory care. It expanded from just 70 units in 2008 and has an occupancy rate over 70%.

Deal Summaries: Services Other Services


Accountable Health Solutions Private Hooper Holmes, Inc. NYSE: HH 4/20/2015 $7,000,000 Des Moines, Iowa Olathe, Kansas

In Brief: Accountable Health Solutions offers comprehensive health and wellness programs to employers and health plan clients. It combines smart technology, healthcare and behavior change expertise to improve health, increase efficiencies and reduce costs.

Additional Transactions Services


HOME HEALTH & HOSPICE Your Home Advantage Humana At Home 4/21/2015

HOSPITALS Robinson Health System University Hospitals 4/1/2015 Wellmont Health System Mountain States Health Alliance 4/2/2015 Raritan Bay Health Services Corp. Meridian Health Services 4/7/2015 Houston Orthopedic and Spine Hospital Memorial Hermann Health System 4/13/2015 Victory Medical Center Houston Nobilis Health Corp. 4/20/2015 Optim Healthcare National Surgical Healthcare 4/21/2015 Lancaster General Health Penn Medicine 4/21/2015 St. Joseph’s Hospital Health Center Trinity Health System 4/28/2015

LABS, MRI & DIALYSIS Optimal Radiology Aris Radiology 4/7/2015 CynoGen, Inc. Rosetta Genomics Ltd. 4/9/2015 M-Vu® Breast Density iCAD, Inc. 4/28/2015 Carmenta Bioscience, Inc. Progenity, Inc. 4/29/2015

LONG-TERM CARE Panorama Gardens Nursing and Rehab The Ensign Group, Inc. 4/2/2015 Coral Desert Rehabilitation and Care The Ensign Group, Inc. 4/2/2015 23 Canadian retirement communities Health Care REIT, Inc. 4/2/2015 Aspens at Twin Creeks Kayne Anderson Real Estate 4/7/2015 Cedarlake Village American House Senior Living 4/7/2015 Royal Oak Retirement Residence Private investor 4/10/2015 Remington Park at Baytown Capital Senior Living Corp. 4/15/2015 Union Printers Home New investment group 4/15/2015 The Verandas Not disclosed 4/19/2015 Maggie Johnson Nursing Center Private owner/operator 4/30/2015

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HealthCareMandA 15

Additional Transactions Services


PHYSICIAN MEDICAL GROUPS Halifax Anesthesiology Associates, PA Sheridan Healthcare 4/1/2015 Children’s ENT of Houston MEDNAX, Inc. 4/1/2015 Geriatric Associates, PC IPC Healthcare, Inc. 4/2/2015 Meridian Medical Associates SC DuPage Medical Group 4/6/2015 Towson Dermatology & Cosmetic Center ADCS 4/15/2015

REHABILITATION Occupational Physician Services of Louisville U.S. HealthWorks 4/27/2015

OTHER SERVICES 3 radiation oncology centers Scripps Health 4/1/2015 Diabeter Medtronic plc 4/2/2015 MedExpress Optum 4/9/2015 Endoscopy Center of West Central Ohio Physicians Endoscopy 4/13/2015 Accovion Clinipace Worldwide 4/13/2015 Dermatology & Laser Center at Harvard Park ADCS 4/14/2015 BioOutsource Ltd. Sartorius Stedem Biotech SA 4/17/2015 12 Colorado urgent care centers University of Colorado Health 4/21/2015 Cisrura Holding Company Inc. InfuSystem Holdings, Inc. 4/21/2015 Ruess Pharmacies, Inc. Lifecare Pharmacy 4/28/2015 Aventec Healthcare Limited Omnicell, Inc. 4/30/2015

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Health Care Technology NewsDeal volume and values dropped sharply in April, although the highs that were posted in previous months were looking less and less sustainable. So it is with some relief that we report that mergers and acquisitions in the technology sectors generated just $1.11 billion last month, down 97% compared with the previous month and off 98% from the same month the year before. Technololgy deals made up only 34% of the month’s dollar volume. More detail on deal volume is on page 19.

BioTechNology

Following the downward trend, deal volume in Biotechnology dropped 55%, and spending fell to a mere $519 million, well off the $25.5 billion posted in March 2015. Still, one company was very busy in the weeks before reporting first quarter earnings, announcing four deals in April. That was Celgene Corporation (NASDAQ: CELG), a global biopharmaceutical company that is focused on treatments for hematology and inflammation and immunology disorders.

The first and largest deal involved a collaboration with MedImmune Ltd., the biotechnology subsidiary of AstraZeneca plc (NYSE: AZN), to develop and commercialize an anti-PD-L1 inhibitor, MEDI4736, for the treatment of blood cancer. Celgene paid $450 million upfront, and promised additional funding and global commercialization costs, and looks forward to receiving royalty rates starting at 70% of worldwide sales.

Next, it paid $110 million to acquire Quanticel Pharmaceuticals, a portfolio company of Versant Ventures, which has a proprietary platform for the single-cell genomic analysts of human cancer. Then on April 29, two licensing deals were announced, one for therapeutic oncology antibodies from Northern Biologics (another Versant portfolio company) for $30 million, and another for Agios Pharmaceuticals’ (NASDAQ: AGIO) pre-clinical cancer drug candidate, AG-881, for $10 million, with the potential for up to $70 million in future milestones.

ehealTh

Big news in the digital health world came out of the HIMSS15 conference held in early April. Thanks to that conference, deal announcements were up 17% in April compared with the month before (to 17 deals), although disclosed prices were down 81%, to $5.5 million last month.

The big news came from IBM (NYSE: IBM), which acquired two privately held companies, Explorys and Phytel, for undisclosed prices. At the same time it announced the formation of a new healthcare unit, IBM Watson Health, which will use cognitive computing to make sense of the volumes of personal health data that is created daily. It also established Watson Health Cloud, a secure and open platform for physicians, researchers, insurers and other healthcare companies to access individualized insights and get a better handle on things that affect people’s health.

To support all those goals, IBM partnered with Epic Systems and the Mayo Clinic to apply Watson’s abilities to mining data in electronic health records, as well as partnering with 14 cancer centers to identify personalized treatments for lymphoma, melanoma, pancreatic, ovarian, brain, lung, breast and colorectal cancers. It’s collaborating with Apple (NASDAQ: AAPL), Johnson & Johnson (NYSE: JNJ) and medical device giant Medtronic (NYSE: MDT) to create new offerings that leverage information collected from health, medical and wearable fitness devices. Small wonder Fitbit, a portfolio company of Qualcomm Life, filed for an initial public offering in May with a placeholder value of $100 million, and hopes for much higher returns. We expect to see a lot more M&A activity in this space, as Watson’s findings and results are made public.

PharMaceuTicals

Billion-dollar deals in the Pharma sector dried up in April, as deal volume fell 70% and dollar volume dropped by

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HealthCareMandA 17

93%, to $346 million, compared with $34.6 billion in March. There’s still hope for more M&A in coming months, as demand for prescription medicines in the United States rose 13%, to $374 billion, in 2014, the largest percentage since 2001. Those figures were released by IMS Health (NYSE: IMS), which attributed the jump to the expensive new breakthrough hepatitis C treatments.

Health Care Services NewsMergers and acquisitions on the services side were also off from the previous month, but actually topped their performance in April 2014. Deal volume was off 14% vs. March, but up 46% compared the same period a year earlier. Deal value was not as robust, declining 82% compared with March, to $3.6 billion from $20.1 billion. Compared with April 2014, however, deal value soared 240%. Thanks to the weakness on the technology side, the services side made up 76% of dollar volume in April.

hoMe healTh & hosPice

Not much activity was reported in this sector last month, but that could be changing, thanks to a proposed rule for hospices issued by CMS in late April. In fiscal year 2016, CMS would increase total payments to hospices by 1.3% (about $200 million). It also attempted to align per-diem payments with the intensity of a worker’s visit and the cost to provide care through a two-tiered system that would result in a higher base payment (approximately $188 per day) for the first 60 days of hospice care and a lower rate (about $147 per day) for 61 days or longer. The National Hospice and Palliative Care Organization asked for a trial period to test the system, before a final decision is announced.

hosPiTals

This usually unobtrusive sector shot to the top of the dollar volume list last month, thanks to Ventas, Inc.’s



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(NYSE: VTR) $1.75 billion bid for Ardent Health Services, one of the 10 largest for-profit hospital companies, which operates health systems in Lubbock, Texas; Tulsa, Oklahoma; and Albuquerque, New Mexico. Ardent Health generates approximately $2 billion in annual revenues, with more than 50% derived from commercial payers. Once again, Welsh, Carson, Anderson & Stowe got a mention, as the seller. Ventas will own 10 hospitals (and the related real estate), comprising about 3.2 million square feet and 2,045 beds. The deal comes as Ventas followed through on its previously announced plan to spin off most of its acute care/skilled nursing properties into a new company now called Care Capital Properties Inc.

MaNageD care

We admit, we’ve been beating this drum since the beginning of the year, but the tide is rising for M&A in the Managed Care sector. Last month CMS changed course and announced it will increase payments to health insurers operating Medicare Advantage plans by 1.25% in fiscal 2016. That was a pleasant surprise to many, after the Department of Health and Human Services proposed cutting those payments by 0.95% just last February.

Shares in Humana Inc. (NYSE: HUM), which is most often mentioned as a takeover target, rose on the news. First quarter earnings reports for the five largest insurers—Aetna (NYSE: AET), Anthem (NASDAQ: ANTM) Cigna (NYSE: CI), Humana and UnitedHealth Group (NYSE: UNH)—were all in positive territory, suggesting that they figured out the ACA’s impact on the industry. One factor that still hangs like the sword of Damocles over this sector, and a few others, is the pending SCOTUS decision in King vs. Burwell, due out in June. That should have an interesting impact on third-quarter earnings, if things don’t go as most analysts are hoping.

rehaBiliTaTioN

Like many other services sectors last month, Rehab operators got good news from CMS. The facilities could see a 1.7% rate increase in Medicare reimbursements in FY2016. The proposed rate adds up to about $130 million more than they received in FY2015, although it’s smaller than the raise received that year. The downside is that a portion of the reimbursement is contingent on reporting several new quality measures, which will also affect Long-Term Care providers. Still, it beats nothing. □

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HealthCareMandA 19

April Showers Dampened Health Care Deals and Dollars A Pause for Breath, or the Calm Before the Storm?

L ast month we compared the veriaible flood of deals in March 2015 with the same month in 2014, when deal-making activity all but dried up, making March

the worst month in an otherwise superlative year for health care deal making. It turned out that the blip that was March 2014 was only temporary, and the M&A flood gates opened again in April 2014. Here we are looking back at April 2015, and wondering if the phenomenon is repeating itself, or the first sign of a slow-down for the healthcare market. It’s tough to call. Deal volume in April was down 24%, to 99 announced transactions, compared with March’s robust total of 131 transactions. Still, April 2015 was

5% higher than April a year ago. But the month’s dollar volume, which is not shown below, plummeted 91%, to $4.7 billion, compared with March’s total of $53 billion. Compared with the same month a year ago (which posted $49.2 billion in spending), April 2015 was down 90%.

For months we’ve been saying those mega-billion-dollar totals were unsustainable for the long term. However, stories still abound with optimism for continued M&A in the health care space, pointing to the pharmaceutical industry as the engine expected to drive the train. Pfizer’s (NYSE: PFE) expected split isn’t anticipated for another couple of years, however, so we’re not holding our breath. May you live in interesting times. □

Deal Volume, April 2015 vs. March 2015 and April 2014

April 2015 Deals

March 2015 Deals

April 2014 Deals

Share of total Change Change

Services

Behavioral Health Care 1 1% 4 -75% 1 0%

Home Health & Hospice 1 1% 2 -50% 5 -80%

Hospitals 10 10% 9 11% 6 67%

Labs, MRI & Dialysis 5 5% 0 – 3 67%

Long-Term Care 22 22% 20 10% 11 100%

Managed Care 3 3% 2 50% 3 0%

Physician Medical 5 5% 7 -29% 3 67%

Rehabilitation 1 1% 4 -75% 1 0%

Other Services 12 12% 22 -45% 8 50%

Services subtotal 60 61% 70 -14% 41 46%

Technology

Biotechnology 10 10% 22 -55% 14 -29%

eHealth 17 17% 8 113% 10 70%

Medical Devices 5 5% 8 -38% 10 -50%

Pharmaceuticals 7 7% 23 -70% 19 -63%

Technology subtotal 39 39% 61 -36% 53 -26%

Grand total 99 100% 131 -24% 94 5%

Source: Health Care M&A News, May 2015



Documents

VOLUME 20 | ISSUE 5 He alth Ca re M A News · 2016-03-25 · wo deals announced in 2015 have set a higher bar for the frag-mented and still forming urgent care center market. In March,