The Health Care M&A Report

THE HEALTH CARE M&A REPORT, CARE M&A THE HEALTH THE HEALTH CARE M&A REPORT SECOND QUARTER 2011 A SUPPLEMENT TO THE HEALTH CARE M&A MONTHLY SECOND QUARTER 2011 I II III IV IRVING LEVIN ASSOCIATES, INC. ASSOCIATES, LEVINIRVING IRVING LEVIN ASSOCIATES, INC. Health Care and Housing Investments since 1948 268 1/2 Main Avenue Norwalk, CT 06851 IRVING 203-846-6800 800-248-1668 LEVIN ASSOCIATES, INC. Fax 203-846-8300 Health Care and Housing Investments since 1948 [email protected] www.levinassociates.com www.levinassociates.com THE HEALTH CARE M&A REPORT SECOND QUARTER 2011 A SUPPLEMENT TO THE HEALTH CARE M&A MONTHLY Other Irving Levin Associates Publications and Services Newsletters The Health Care M&A Monthly Senior Living Business The SeniorCare Investor Annuals Health Care Services Acquisition Report Senior Care Acquisition Report Hospital M&A Market: Five-Year Review and Outlook Biotechnology Acquisition Report Pharmaceutical Acquisition Report, Medical Device Acquisition Report Transaction Database Deal Search Online (www.dealsearchonline.com) The Health Care M&A Report Second Quarter, 2011 ISSN 1076-3511 ISBN 1-933707-71-2 (Volume 2) ISBN 1-933707-69-0 (Four-Volume Set) Published by: Irving Levin Associates, Inc. 268-1/2 Main Avenue Norwalk, CT 06851 203-846-6800 Fax 203-846-8300 [email protected] www.levinassociates.com Publisher: Eleanor B. Meredith Senior Editor: Stephen M. Monroe Editor: Sanford B. Steever Advertising: Karen Pujol Annual subscription $2,497 © 2011 Irving Levin Associates, Inc. All rights reserved. Reproduction or quotation in whole or part without permission is forbidden. First Class Postage is paid at Norwalk, CT. This publication is not a complete analysis of every material fact regarding any company, industry or security. Opinions expressed are subject to change without notice. Statements of fact have been obtained from sources considered reliable but no representation is made as to their completeness or accuracy. POSTMASTER: Please send address changes to The Health Care M&A Monthly, 268-1/2 Main Avenue, Norwalk, CT 06851. TABLE OF CONTENTS INTRODUCTION……………………………………………….. v BEHAVIORAL HEALTH CARE……………………………… 1 BIOTECHNOLOGY……………………………………………. 7 E-HEALTH…………………………………………………….. 21 HOME HEALTH CARE and HOSPICE…………………….. 33 HOSPITALS……………………………………………………. 41 LABORATORIES, MRI and DIALYSIS…………………….. 61 LONG-TERM CARE………………………………………….. 67 MANAGED CARE…………………………………………….. 93 MEDICAL DEVICES…………………………………………. 99 PHARMACEUTICALS…………………………………….…121 PHYSICIAN MEDICAL GROUPS…………………………. 143 REHABILITATION………………………………………….. 161 OTHER………………………………………………………... 167 INDEX…………………………………………………………. 181 INTRODUCTION This is the 72nd issue of The Health Care M&A Report, which tracks the merger and acquisition market in the health care industry. General trends in the market are discussed in this Introduction and supported by data from individual deals that appear in the body of the text. Each entry details a transaction, describing the target and acquirer. It also provides the price, terms, acquisition multiples and other financial information, where these are available. Finally, the commentary section offers additional analysis. This issue reports on 245 separate transactions that were announced in the second quarter of 2011 and lists them alphabetically by target within 13 separate health care sectors. Behavioral Health Care Managed Care Biotechnology Medical Devices E-Health Pharmaceuticals Home Health Care Physician Medical Groups Hospitals Rehabilitation Laboratories, MRI & Dialysis Other Long-Term Care Below we illustrate some of the more significant trends in the health care merger and acquisition market with a series of charts, providing details of its size and of the kinds of players involved. These general figures and statistics are followed by sections on the M&A market for each of the 13 sectors of the health care industry. Finally, the financial and strategic details of the individual deals that make up this market are set out in the body of the Report. The Health Care M&A Report, Second Quarter, 2011 v NOTABLE TRENDS DURING Q2:11 Notable trends in the second quarter’s health care M&A market which impacted multiple sectors or the overall market include the following. These are discussed further in the individual sections below. 1. After three strong quarters, financial buyers took a break from their buying spree. Only 10 deals were made, all for relatively modest prices. Instead, private equity firms capitalized on prior investments by selling off companies worth $17.6 billion, accounting for 24% of all health care M&A dollars during Q2:11. This activity coincides with the run up in stock prices during the period from April through June, allowing private equity firms and other financial investors to sell at relatively high levels. The proceeds from these sales will allow them to repay investors and to replenish their funds for future investment. 2. Deal volume remains strong in facility-based services sectors such as Hospitals and Long-Term Care. Activity was promoted in part by a somewhat depressed real estate market and relatively low costs of borrowing. With rates to remain low for the next two years and the real estate market slow to recover, similar levels of activity may be expected in these two sectors going forward. 3. The Medical Device sector attracted the most investor interest and capital for deal making during the first half of the year. During Q2:11, for example, five of the top 10 deals, in terms of price, involved Medical Device businesses. In general, investors like Medical Device companies because they do not typically involve the “headline risk” or regulatory scrutiny of companies that are involved in making drugs, i.e., Biotechnology and Pharmaceutical companies. 4. Cross-sector deal making, with an acquirer in one sector buying a business in another, accounted for 24%, or nearly one-quarter, of all deals in Q2:11. a. Hospitals made 24 acquisitions in the Long-Term Care (3), Physician Medical Group (18) and Other (3) sectors to build up their ancillary care networks and position themselves to create accountable care organizations. b. Of the seven deals by Managed Care Organizations, three targeted other sectors to diversify away from pure-play health care insurance, which some see as vulnerable to health care reforms. They targeted businesses whose services they can use themselves and sell to others. c. The search for new drugs and revenue streams continues to blur the boundary between Biotechnology and Pharmaceuticals as participants in both industries sought to replace the loss of revenues from drugs going off patent. Pharmaceutical companies made a combined total of 14 deals in the Biotechnology (10) and Medical Device (4) sectors while Biotechnology companies made six deals in the Medical Device (3) and Pharmaceutical (3) sectors. The Health Care M&A Report, Second Quarter, 2011 vi QUARTERLY M&A DEAL VOLUME Health Care Mergers & Acquisitions Total Transactions By Quarter 300 251 245 233 234 232 114 200 119 101 105 123 100 137 Transactions 131 140 110 115 0 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Q2 2011 Quarter Services Technology Source: Irving Levin Associates, Inc. For reasons of timeliness, each transaction is tracked by the date of the announcement rather than the date of consummation, or closing date. This generally coincides with a significant event, such as the signing of a letter of intent or the receipt of regulatory clearance. It is assumed that once a letter of intent is signed, for example, the parties to the deal consider it to be economically viable relative to the market conditions at the time of the signing. The chart above presents these 245 deals in relation to the number of deals that were announced during the four previous quarters. With 245 deals announced during Q2:11, M&A activity was up 6% from the previous quarter’s 232 transactions, and up 5% from the 233 deals in the year-ago quarter (Q2:10). The 140 deals in the health care services segment represent 57% of the total transaction volume announced during Q2:11, with the 105 deals in the health care technology segment making up the remaining 43%. Year-over-year, the services segment is now capturing a larger proportion of this market’s deal volume as investor confidence and interest in these businesses increase. The Health Care M&A Report, Second Quarter, 2011 vii DEAL VOLUME BY SEGMENT AND SECTOR Q1:11 Q2:10 Q2:11 % % Sector Deals* Deals Change Deals Change Services Segment: Long‐Term Care 43 38 13% 27 59% Hospitals 31 24 29% 18 72% Physician Groups 27 18 50% 9 200% Home Health Care 7 6 17% 11 ‐36% Labs, MRI, Dialysis 4 11 ‐64% 16 ‐75% Managed Care 4 1 300% 3 33% Behavioral Health Care 3 4 ‐25% 4 ‐25% Rehabilitation 2 3 ‐33% 4 ‐50% Other 19 26 ‐27% 18 6% Services Subtotal 140 131 7% 110 27% Technology Segment: Medical Devices 36 44 ‐18% 44 ‐18% Pharmaceuticals 33 21 57% 43 ‐23% Biotechnology 20 24 ‐17% 25 ‐20% e‐Health 16 12 33% 11 45% Technology Subtotal 105 101 4% 123 ‐15% Grand Total 245 232 6% 233 5% *Preliminary figures The Health Care M&A Market—Deal Volume The table above lists the percentage contribution of each sector to the second quarter’s total deal volume, along with comparisons to the previous and year-ago quarters. In Q2:11, the three most active individual sectors were Long-Term Care (43), Medical Devices (36) and Pharmaceuticals (33). Combined, the top three figures captured 46% of the quarter’s total deal volume. The three largest sectors of the previous quarter in terms of deal volume (Medical Devices, Long-Term Care and Biotechnology/Hospitals) accounted for about 45% of that period’s total transaction volume. The Health Care M&A Report, Second Quarter, 2011 viii THE ACQUIRERS Acquirer Listing Sector Deals Bon Secours Charity Nonprofit Physician Medical Groups 5 Health System University General OTCBB: UGHS Long-Term Care 4 Health System AdCare Health AMEX: ADK Long-Term Care 3 The Ensign Group NASDAQ: ENSG Long-Term Care 3 Johnson & Johnson NYSE: JNJ Pharmaceuticals 3 Mednax, Inc.

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