Demystifying Healthcare ValuationsMarch 2015

Presenter:Chip Measells, MBA, CVAwww.healthcarevaluations.netwww.wyattmatas.com

Contact Information:202.618.4713

chip@healthcarevaluations.net

What we will cover today

3

A. Demystifying Healthcare Valuations

B. Public Company Valuations

C. Healthcare Transaction Trends

D. Segment Coverage

1. Healthcare Staffing

2. Outpatient Rehab

3. Home Care

4. Behavioral Health

Why Valuations Are Needed

4

Strategic Valuations Needs

Mergers, Acquisitions & Recapitalizations Exit Strategy Planning Growth Opportunities

Tax Compliance Valuation Needs

Estates Gifting Trust Transactions

Controversy Resolution Valuation Needs

Shareholder Disputes Corporate & Shareholder Divorce

Buy-Sell Planning & Trigger Events

Financing Reporting Valuation Needs

Purchase Price Allocation Rights Valuation & Impairment Testing Benefit Plans

The Business Transfer Matrix

5

PARTIAL SALE/TRANFER

TOTAL SALE/TRANSFER

VOLUNTARY TRANSFER

• Outside Investor(s)• “Inside” Sale to Management• “Inside” Sale to ESOP• Combination/Cash Out• Going Public• Gifting Programs• Buy-Sell Agreements

• Sale of Business• Stock-for-Stock Exch.• Installment Sale to

Relatives/Insiders• ESOP/Management

Buyout• Buy-Sell Agreements• Liquidation

INVOLUNTARY TRANSFER

• Divorce• Forced Restructuring• Shareholders Disputes• Buy-Sell Agreements

• Divorce• Bankruptcy/Forced

Restructuring• Buy-Sell Agreements• Liquidation • Death

The Business Transfer Matrix

6

Market Approach

Based upon transaction data from

similar businesses

Asset Approach

Based upon the entity’s underlying assets and liabilities

Income Approach

Based upon the entity’s

ability to generate net

cash flow

Approaches to Value

7

Income

Market

Asset

Discounted Cash FlowOr

Capitalized Earnings

Estimated Future EarningsOr

Historical Earnings

Comparable SaleOr

Guideline Company

Private Company Transactions Involving Similar

BusinessesOr

Public Company Stock Prices

Adjusted Net AssetsAppraised Value of Assets

and Liabilities

Market Approach

8

• The value of the company reflects the price at which comparable companies are purchased under similar circumstances.

• Requires that comparable transactions be available.• Guideline publicly-traded company method• Comparative transaction method

Market Approach

9

Earnings xMultiple

(P/E Ratio)= Value

Company Data InformationMarket Data

Financial Statements

Management Discussion

Other Company Information

Market Pricing(Comparable Transaction)

Industry Benchmarks

Industry Expectation

Economic Outlook

Investment/Growth Decisions

Transaction Requirements

Death & Taxes

$1,000,000 x 5 $5,000,000=

Market Approach

10

Market Approach

11

Public Market

1210/9/2014

Public Company Valuation Trends—3 Months

1310/9/2014

Emergency ServicesDiagnostic Imaging

Acute-Care HospitalsSpeciality Managed Care

Contract Pharma ManufacturingDialysis Imaging

Behavioral Health / ManagementAssisted Living

Medical Devices and ProdcutsHome Care, Hospice and Home Infusion

Long-Term CareInformation Services

Specialty Pharmacy ManagementSurigcenters / Rehabiliation

Dental ProductsContract Research Organizations

Life Sciences ToolsHealth Care Staffing

Durable Medical EquipmentPhysician Practice Management

Medical / Surgical / Dental Supllies & DisstributionHMO - Medical

Clinical LaboratoriesSpecialty Pharmacy

Disease Management

-15.0% -10.0% -5.0% 0.0% 5.0% 10.0% 15.0% 20.0%

-10.5%-10.3%

-8.4%-4.1%

-1.7%-1.0%

0.0%2.1%

4.0%4.0%4.0%

4.7%6.0%6.3%

6.7%7.3%

7.8%8.0%8.1%

9.1%9.2%

11.9%12.0%

13.7%17.3%

Median % Change--3 Months

Public Company Valuations Trends—12 Months

1410/9/2014

Emergency ServicesSpeciality Managed Care

Long-Term CareAssisted Living

Specialty Pharmacy ManagementInformation Services

Life Sciences ToolsDialysis Imaging

Diagnostic ImagingMedical Devices and Prodcuts

Health Care StaffingDisease Management

Physician Practice ManagementMedical / Surgical / Dental Supllies & Disstribution

Behavioral Health / ManagementAcute-Care Hospitals

Contract Pharma ManufacturingDental Products

Contract Research OrganizationsSurigcenters / Rehabiliation

Clinical LaboratoriesDurable Medical Equipment

Home Care, Hospice and Home InfusionHMO - Medical

-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0%-18.8%

-17.7%-1.9%

3.3%4.5%

8.2%8.9%9.7%

12.4%16.5%16.8%

18.5%19.6%20.3%20.4%20.4%21.4%

24.3%25.1%

28.6%28.9%29.3%30.3%

43.6%

Median % Change--12 Months

Private Equity Interest in Healthcare

1510/9/2014

4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 -

50

100

150

200

250

300

350

236 219 229 221

291

200 209

304

248

304 290 279 292

106

18 11

20 12

22

16 12

18

15

22 14

11 15

4

Quarterly M&A Activity

Number of M&A Tranaction Strategic Acquirer Number of M&A Tranaction PEG Acquirer

Private Equity Interest in Healthcare

16

20042005

20062007

20082009

20102011

20122013

2014

2015YTD

020406080

100120140160

5869

94113

79

42

71 65 65 61 62

4

4060 62

95

49 50

80

120139 144 143

8

PEG Investment and Exits

PEG INVESTMENTS AND EXITS Number of InvestmentsPEG INVESTMENTS AND EXITS Number of Exits

SegmentNumber of Companies

Biotechnology 3Healthcare Technology 17Healthcare Distribution 8Healthcare Equipment 21Healthcare Facilities 45Healthcare Services 48Healthcare Supplies 10Life Sciences Tools & Services 17Managed Healthcare 4Pharmaceuticals 19

Private Equity Investments-Last 3 Years

Sector Coverage

10/9/2014

Disclaimer: Because each segment we discuss is so broad and each has its own sub-segments, we use valuation ranges in discussing valuation

multiples. A professional business valuation should be conducted to determine the precise value of a business.

18

Healthcare Staffing

Valuations: 3-6x EBITDA, bonus for niche and scale.

• Hospitalist• Specialty Staffing• Niche Travel Staffing

Hot Segments

10/9/2014

2009 2010 2011 2012 2013 20140

20

40

60

80

100

120

140

160

70

9585

109125

142

Healthcare Staffing Transactions

19

Behavioral Health

BH Includes• Adult Mental Health• Addiction/Sub Abuse• Brain Injury• Intellectual/

Developmental Disabilities

• Youth Services

• Addiction/Sub Abuse• Autism Care/Treatment• In Home BH/Mental

Health Care

Hot Segments

Valuations: 3-8x EBITDA

10/9/2014

Q1-10

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

Q3-14

Q4-14

0

5

10

15

20

25

30

6 68

5

12

1618 18

20

15

22

25

22

1816

2422

2022

25

Behavioral Health Transactions

20

Medicare Home Healthcare

Valuations: 3-5x EBITDA, bonus for CON and scale.

10/9/2014

2010 2011 2013 20140

10

20

30

40

50

60

70

4551

62

54

Medicare Home Health Transactions

21

Hospice Transactions

Valuations: 4-6x EBITDA, bonus for CON and scale.

10/9/2014

Q1-10

Q2-10

Q3-10

Q4-10

Q1-11

Q2-11

Q3-11

Q4-11

Q1-12

Q2-12

Q3-12

Q4-12

Q1-13

Q2-13

Q3-13

Q4-13

Q1-14

Q2-14

Q3-14

Q4-14

Q1-15

0

2

4

6

8

10

12

14

16

78

14

10 10

6

1011

9

7

12

10 10

45

6

4 4

6

3

6

Hospice Transactions by Quarter

22

Other Home Care

Home Infusion—Services Valuation: 4-6x EBITDA

Private Pay Home CareValuation: 3-5x EBITDA—Bonus for Scale

Medicaid/Personal CareValuation: 2-4x EBITDA

10/9/2014

23

Outpatient Rehab

Valuations: 4-8x EBITDA

10/9/2014

2010 2011 2013 20140

10

20

30

40

50

60

70

29 31

42

59

Outpatient Physical Therapy Transac-tions

Presenter:Chip Measells, MBA, CVAwww.healthcarevaluations.netwww.wyattmatas.com

Contact Information:202.618.4713

chip@healthcarevaluations.net