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Healthcare Services Quarterly Update Third Quarter 2018 OLICONNECT Realizing Value … Delivering Results OLICONNECT CAPITAL PLACEMENTS • MERGERS, ACQUISITIONS & DIVESTITURES • RESTRUCTURINGS OLICONNECT Healthcare Services | Third Quarter 2018 Table OLICOf ContentsONNECT Q3 2018 Highlights October, 2018 Recent Representative With almost 420 healthcare transactions announced, M&A transaction volume in Q3 2018 was up 8% as compared to the same time a Transaction year prior, according to preliminary figures from Irving Levin Associates Inc., marking the third straight quarter with transaction volume exceeding 400. The services sector accounted for 63% of the deal volume in Q3 2018 with long-term care totaling 24% of the service sector transactions. Transaction value in Q3 2018 was relatively modest, totaling approximately $30.4 billion, 30% lower than the same page 4 quarter in 2017. The largest acquisition in the period was the take-private transaction of LifePoint Health (NASDAQ: LPNT) by RCCH HealthCare Partners, a portfolio company of Apollo Global Management, for $5.6 billion. LifePoint and many of its peers face higher Market Overview medical costs, fewer patient admissions and changes to reimbursement policies in Medicare and Medicaid that have pressured profits. The newly combined system will operate a diversified portfolio of healthcare assets, including 84 non-urban hospitals, outpatient centers, physician practices, and post-acute service providers across 30 states. page 6 With a record $1 trillion in cash to invest, private-equity firms have turned to “asset light” healthcare services. In October, KKR completed its acquisition of Envision Healthcare Corporation (NYSE: EVHC) for approximately $9.9 billion and in August a portfolio company of Veritas Capital acquired Cotiviti Holdings, Inc. (NYSE: COTV), a provider of healthcare-focused payment accuracy solutions, for almost Notable Industry $5 billion. Financial buyers have been particularly active with physician medical groups, especially specialty practices, announcing more Developments than 20 direct acquisitions of physician practices so far this year. The high degree of interest in specialty physician groups such as dermatology, ophthalmology and all forms of dentistry has driven multiples well north of 10x EBITDA this year as these specialties are not page as far along the consolidation spectrum as compared with anesthesiology, emergency medicine and hospitalist providers. Private equity 8 interest in orthopedic practices is also increasing, driven by the migration of hip and knee replacements to less expensive outpatient settings and the dramatic increase in the volume of such procedures. Selected M&A The healthcare industry is currently experiencing significant horizontal integration, with several non-traditional players entering the market Transactions By Sector that are likely to disrupt traditional delivery channels for patient care. The announced mergers of CVS Health (NYSE: CVS) with Aetna (NYSE: AET) and Cigna (NYSE: CI) with Express Scripts (NYSE: ESRX) are expected to provide payors with greater control in directing page 10 patient care. Further, Amazon’s (NASDAQ: AMZN) recent $1 billion acquisition of prescription drug delivery business, PillPack, will bring a new level of competition to pharmacy benefit management. Additionally, Best Buy’s (NYSE: BBY) $800 million acquisition of GreatCall, Inc., a provider of connected health and personal emergency response services, in August 2018 provides an interesting new competitor Valuation Metrics in the home health and person care markets. By Sector We welcome your comments and hope you find our SOLIConnect report informative. page 20 Notes Matt Caine Gregory Hagood Edward R. Casas, MD, MM, MPH Managing Director Senior Managing Director Senior Managing Director page 24 [email protected] [email protected] [email protected] Page 2 Page 3 OLICONNECT Healthcare Services | Third Quarter 2018 OLICONNECT Recent Representative Transaction Page Left Intentionally Blank SOLIC Capital Advisors provided transition planning and wind-down oversight to Chatham County Hospital Authority and Memorial Health, Inc. in connection with the sale of Memorial University Health Center to Hospital Corporation of America (HCA). Page 4 Page 5 OLICONNECT Healthcare Services | Third Quarter 2018 MarketOLICONNECT Overview S&P Healthcare Index vs. the S&P 500 S&P Healthcare Index vs. the S&P 500 Enterprise Value To Revenue Enterprise Value To EBITDA Total Enterprise Value / Revenue Total Enterprise Value / EBITDA 4.8x 5.0x 20.0x 19.1x 2.80x 15.00x 15.8x 15.5x 14.50x 4.0x 2.60x 3.4x 15.0x 11.9x 12.3x 14.00x 11.1x 11.5x 3.0x 2.40x 2.2x 10.0x 13.50x 2.0x 8.6x 2.0x 2.20x 1.3x 1.3x 1.3x 13.00x 5.0x 0.9x 2.00x 1.0x 12.50x 1.80x 0.0x 0.0x 12.00x Alternate Diagnostic Healthcare Healthcare Healthcare IT Hospital LT Care / Managed Alternate Diagnostic Healthcare Healthcare Healthcare IT Hospital LT Care / Managed Site Services Distributors Equip. & Providers Senior Living Care Site Services Distributors Equip. & Providers Senior Living Care S&P 500 (^SPX) - TEV/Total Revenues S&P 500 Health Care (Sector) (^HCX) - TEV/Total Revenues Supplies Supplies S&P 500 (^SPX) - TEV/EBITDA S&P 500 Health Care (Sector) (^HCX) - TEV/EBITDA S&P Healthcare Index vs. the S&P 500 S&P Healthcare Index vs. the S&P 500 Price / Diluted EPS Relative Performance (%) Revenue and EBITDA multiples 40.00x 114.00% for the S&P 500 increased 38.00x 112.00% by approximately 4% in Q3 36.00x 34.00x 110.00% 2018, while the healthcare 32.00x 108.00% 30.00x 106.00% sector saw a 9% increase in 28.00x 104.00% 26.00x 102.00% revenue multiples and an 11% 24.00x increase in EBITDA multiples. 22.00x 100.00% 20.00x 98.00% S&P 500 Health Care (Sector) (^HCX) - P/Diluted EPS Before Extra S&P 500 (^SPX) - P/Diluted EPS Before Extra S&P 500 (^SPX) - Index Value S&P 500 Health Care (Sector) (^HCX) - Index Value Page 6 Page 7 OLICONNECT Healthcare Services | Third Quarter 2018 OLICONNECT Notable Industry Developments Medicare Hospice Payment Model Fails Its First Year The Growing Investment Opportunity in Urgent Care A Medicare model targeted at patients who wanted hospice as well as curative care lagged in its first Traditionally, primary care physicians (PCPs) have played an integral role year because hospice providers fled the program and doctors were disinterested in participating in it, in patient health, with many families maintaining long-lasting relationships according to a new federal evaluation. The CMS five-year experiment, known as the Medicare Care with the same PCP throughout their lifetime. While PCPs continue to play Choices Model, launched in January 2016. The model was created because Medicare previously a significant role, the number of PCPs is steadily decreasing due, in part, didn't pay for hospice. Under the initiative, hospices receive a monthly payment of $200 to $400 per to medical students pursuing specialties instead of general practices/family patient per month. Meanwhile, other providers can still bill Medicare for curative services. The model medicine. Additionally, more junior medical professionals are choosing to immediately began to face problems once it launched and by the end of its first year, 37 hospices, or pursue urgent care opportunities that offer a healthier work-life balance. more than a quarter of those that agreed to participate in the model, exited the effort. Hospices found As a result, urgent care is attracting some of the most talented medical the $400 payment offered by the CMS was not enough to cover their costs and they had difficulty professionals and, in turn, offering patients access to higher quality care. finding beneficiaries who met all of the eligibility criteria to get treatment under the model. Poised for tremendous growth, urgent care is currently an $18 billion industry that is expected to grow by 5.8% in 2018, according to the Urgent Care Association of America. Third Quarter 2018 Healthcare Stocks Emerge as Market Leaders in Q3 Medicare Advantage Premiums Hit Three-Year Low Investors Target Post-Acute Sector's Growing Demographic Medicaid Enrollment Drops as Employment Rises The healthcare sector is the best performer on the S&P Medicare Advantage plans' average monthly premium ProMedica and Welltower's acquisition of HCR ManorCare signals the Medicaid enrollment is dropping as the economy 500 index, up 13% in the third quarter. The sector's will be $28 next year, marking the lowest charges increasing value investors place in post-acute providers as they aim improves and unemployment drops, according to rally in the third quarter can be tied to a wide range in the last three years, according to the CMS. On to serve one of the country's fastest-growing demographics. Ohio- an A2 Strategy Group report released at Medicaid of companies, such as Pfizer, Humana, UnitedHealth average, Medicare Advantage premiums will decrease based hospital operator ProMedica finalized its $1.4 billion acquisition Health Plans of America's annual conference. Group and Abiomed, which saw shares rise at least by 6% from $29.81 per month in 2018. Nearly 83% of bankrupt nursing home provider HCR ManorCare in July. Running Medicaid enrollment has shrunk by 1.5% or 1.1 million 20% in 2018, according to a recent article in The Wall of Medicare Advantage enrollees who stay in their parallel to the deal, real estate investment trust Welltower agreed individuals since last year with enrollment hitting Street Journal. The heightened interest in healthcare current plan will have the same or lower premium in to buy ManorCare's skilled nursing and memory care real estate for 74.2 million. Thirty-four (34) states reported shrinking stocks coincides with strong profits in the industry, 2019. Premiums are decreasing as the number of approximately $2.2 billion. There will be fewer independent post-acute Medicaid enrollment this year, with an average which are expected to grow as the population ages.

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