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Go to http://www.mossadamscapital.com to learn more about Healthcare Information Technology · A one year delay in ICD-10 implementation was recently approved, to the relief of some and the anguish of others. · Despite the recent selloff, HCIT stocks continue to trade at a healthy premium to the broader market and the industry is still expected to outpace the S&P 500 index in both revenue and EBITDA growth. · M&A activity maintains its upward trend as the fragmented landscape continues to consolidate.
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1 HEALTHCARE INFORMATION
TECHNOLOGY
M A R K E T M O N I T O R
S P R I N G 2 0 1 4
Healthcare Information Technology
2 HEALTHCARE INFORMATION
TECHNOLOGY
Contents
MARKET OVERVIEW 3
PUBLIC HCIT VALUATION METRICS 5
HCIT SECTOR TRANSACTION ACTIVITY 7
MOSS ADAMS OVERVIEW 14
SELECT MOSS ADAMS CAPITAL TRANSACTIONS 18
3 HEALTHCARE INFORMATION
TECHNOLOGY
Despite ICD-10 Delay, Favorable Industry Dynamics Still Driving Growth Delay in ICD-10
At the end of March, the Senate approved a measure to delay ICD-10 implementation as part of the “doc fix” legislation, pushing the
timeframe back by one year. While this additional time will be helpful to those providers that were not yet prepared for the transition, it
may prove costly to those that were.
Population Health
Population Health has emerged as one of the most popular buzzwords around the HCIT industry lately. While some companies have
introduced new products to address the movement towards a value-based care system, others have opted to do it via acquisitions.
Life sciences software and IT services spend
The software and IT services spend in the life science industry is showing continuous growth with the trend expected to continue as most
processes in the industry still need to be upgraded to newer software. Furthermore, despite the accelerated growth in the global life
sciences market, companies are facing margin pressure given the changes in their pricing, reimbursement challenges and rising costs of
compliance.
Global Life Sciences IT Software & Services Spend
Sources: CMS, Gartner, industry articles and Moss Adams Capital analysis.
$4,541 $4,863 $5,182 $5,514 $5,900 $6,305
$7,410 $7,802
$8,216 $8,643
$0
$2,000
$4,000
$6,000
$8,000
$10,000
2011 2012 2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E
$ in millions
Life Science MDM Spend
Life Science Content Management Spend
Life Science CRM Spend
4 HEALTHCARE INFORMATION
TECHNOLOGY
U.S. middle market M&A transaction volume in Q1 2014 rose 28% from one year ago but stayed flat compared to the prior quarter.
In deal value terms, U.S. middle market M&A activity in Q1 2014 grew 25% from a year earlier but dropped 22% compared to the prior quarter.
Q1 2014 EBITDA multiples of middle market transactions fell slightly from the prior quarter but increased significantly from year ago levels.
EBITDA valuation levels of middle market deals remain at high levels last seen in Q4’10.
Q1’14 EBITDA margins of reportable transactions showed higher levels vs both last year and quarter.
Middle Market M&A: Continued Flat Volumes, High Deal Valuations
U.S. Middle Market M&A 1 U.S. Middle Market M&A Valuations 2
1) Middle market M&A includes transactions with undisclosed values, and disclosed values where EV < $500 million. 2) Middle market M&A includes transactions with disclosed EBITDA, where EV < $500 million and EV/EBITDA < 10x. Note: transactions with disclosed EBITDA represent <5% of all transactions. Source: S&P Capital IQ.
1,828 1,895
2,011
2,281
2,855 2,953 2,927
3,080 2,984
3,682 3,681
3,852
3,539 3,453
3,622
3,986
3,134
3,319
4,092 4,054 3,997
$21$25
$28
$36$32
$43
$56 $55
$47
$71 $72$70
$52$56
$52
$66
$44
$50
$65
$71
$55
$0
$20
$40
$60
$80
$100
$120
$140
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011 2012 2013 2014
Tran
saction
Valu
e ($b
n)N
um
ber
of
Tra
nsa
ctio
ns
Number Value
5.7x 5.6x 5.7x
6.4x
4.8x
6.7x
6.4x
7.0x6.7x 6.8x 6.8x 6.9x
5.9x
6.4x6.2x 6.2x 6.4x
6.0x6.2x
7.2x7.0x
18.1%
10.7%11.3%
16.7%
15.0%14.2%
15.3%14.5%
16.7%16.6%16.9%
15.0%
12.4%13.0%
14.6%
16.7%
15.3%14.8%13.7%
10.6%
17.0%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0 x
1.0 x
2.0 x
3.0 x
4.0 x
5.0 x
6.0 x
7.0 x
8.0 x
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2009 2010 2011 2012 2013 2014
EB
ITD
A M
argin
EV
/Tra
ilin
g E
BIT
DA
Mu
ltip
le
EV/EBITDA EBITDA Margin
5 HEALTHCARE INFORMATION
TECHNOLOGY
Healthcare IT stocks took a hit toward the end of the first quarter as several companies announced disappointing numbers and a bill to
delay ICD-10 compliance was passed in the Senate. Despite this pullback, the HCIT index has still outperformed the broader market
over the last three years and all three subcategories within the HCIT sector (Practice Management Software, Data
Analytics/Internet/Niche, and Pharma/Clinical Trials) are still expected to outperform the broader market over the next 12 months.
Note: The Healthcare IT Index is composed of the public companies included on page 5. Source: S&P Capital IQ.
Historical Performance: Healthcare IT vs. S&P Next 12 Months: Estimated Sales & EBITDA Growth
Despite Sell-off, HCIT Still Expected to Outperform the Overall Market
4.5% 5.0%
13.2% 15.3%12.8%
48.8%
109.2%
15.5%
0%
20%
40%
60%
80%
100%
120%
S&P 500 PMS Data Analytics/Internet/ Niche
Pharma/ ClinicalTrials
Est. NTM Sales Growth
Est. NTM EBITDA Growth
HCIT Index
51%
S&P 500
38%
-25%
0%
25%
50%
75%
100%
Ma
rke
t P
erf
orm
an
ce
6 HEALTHCARE INFORMATION
TECHNOLOGY
Note: Not meaningful (NM) if EV/Sales is greater than 10x, or EV/EBITDA is greater than 50x. NA if denominator is 0, for percentages and multiples, or if estimates are not available. NTM figures are based on the median estimate of Wall St. analysts.
Selected HCIT Public Company Valuations
Source: S&P Capital IQ.
($ in millions, except per share amounts)
5/6/14 TTM Data EV Multiple
Company Name
Share
Price
52 Week
High - Low
Market
Cap
Enterprise
Value Sales EBITDA
EBITDA
Margin Sales EBITDA
TTM
Sales
TTM
EBITDA
NTM
Sales
NTM
EBITDA
HCIT - Practice Management Software
Cerner Corporation $50.15 $63.07 - $45.81 $17,220 $16,349 $2,939 $774 26.3% 17.0% 59.8% 5.6x 21.1x 4.8x 13.2x
Allscripts Healthcare Solutions, Inc. 15.06 19.68 - 12.54 2,702 3,201 1,373 10 0.7% 4.3% 2155.3% 2.3x NM 2.2x 14.4x
MedAssets, Inc. 22.02 26.58 - 16.31 1,343 2,119 678 202 29.8% 5.2% 18.4% 3.1x 10.5x 3.0x 8.9x
Omnicell, Inc. 25.52 30.33 - 17.52 933 825 395 58 14.6% 10.1% 48.8% 2.1x 14.3x 1.9x 9.6x
Quality Systems Inc. 14.84 24.15 - 14.10 894 800 441 73 16.5% 5.0% 23.3% 1.8x 11.0x 1.7x 8.9x
Computer Programs & Systems Inc. 61.65 71.89 - 47.23 688 659 203 56 27.3% 4.4% 14.5% 3.2x 11.9x 3.1x 10.4x
Merge Healthcare Incorporated 2.20 4.71 - 1.99 209 418 219 25 11.6% (0.9%) 66.8% 1.9x 16.4x 1.9x 9.8x
Median $825 $441 $58 16.5% 5.0% 48.8% 2.3x 13.1x 2.2x 9.8x
Average $3,482 $893 $171 18.1% 6.4% 341.0% 2.9x 14.2x 2.7x 10.7x
HCIT - Data Analytics/Internet/Niche
athenahealth, Inc. $109.21 $206.70 - $82.01 $4,133 $4,227 $632 $58 9.2% 23.8% 136.0% 6.7x NM 5.4x 30.7x
WebMD Health Corp. 42.42 51.41 - 25.18 1,603 1,777 536 87 16.2% 9.2% 82.3% 3.3x 20.5x 3.0x 11.2x
Healthstream Inc. 23.80 39.77 - 20.76 656 554 141 24 17.0% 24.6% 7.8% 3.9x 23.2x 3.2x 21.5x
Vocera Communications, Inc. 12.29 19.71 - 11.78 309 187 105 (11) NA 7.2% NA 1.8x NA 1.7x NA
Streamline Health Solutions, Inc. 4.95 8.50 - 4.70 86 102 29 1 2.1% 13.2% 860.7% 3.6x NM 3.1x 17.3x
Median $554 $141 $24 12.7% 13.2% 109.2% 3.6x 21.8x 3.1x 19.4x
Average $1,370 $289 $32 11.1% 15.6% 271.7% 3.9x 21.8x 3.3x 20.2x
HCIT - Pharma/Clinical Trials
Catamaran Corporation $41.20 $60.93 - $40.52 $8,523 $10,133 $16,475 $725 4.4% 30.6% 15.5% 0.6x 14.0x 0.5x 12.1x
PAREXEL International Corporation 44.60 57.25 - 37.53 2,537 2,535 1,892 262 13.8% 9.1% 13.5% 1.3x 9.7x 1.2x 8.5x
Charles River Laboratories International, Inc. 50.96 62.50 - 40.55 2,465 2,949 1,174 256 21.9% 12.4% 15.6% 2.5x 11.5x 2.2x 9.9x
Medidata Solutions, Inc. 36.61 68.21 - 32.63 1,980 1,991 290 26 8.9% 23.5% 235.4% 6.9x NM 5.6x 23.1x
Simulations Plus, Inc. 6.07 7.09 - 3.91 98 88 10 4 37.6% 15.3% NA 8.5x 22.6x 7.4x NA
Median $2,535 $1,174 $256 13.8% 15.3% 15.5% 2.5x 12.7x 2.2x 11.0x
Average $3,539 $3,968 $255 17.3% 18.2% 70.0% 4.0x 14.4x 3.4x 13.4x
NTM Est. Growth
7 HEALTHCARE INFORMATION
TECHNOLOGY
The first quarter of 2014 ended with M&A activity continuing
the upward trend that started in the second quarter of last
year and showed a significant improvement over the same
period one year ago. Signs continue to point toward an
increase in activity within the fragmented landscape.
EV/EBITDA multiples for public HCIT companies dropped
significantly as stocks sold-off in response to the news of
another delay in ICD-10 compliance. However, the index
continues to trade at a significant premium to the S&P 500.
HCIT Sector M&A Transactions & Public Valuations
Source: S&P Capital IQ.
HCIT M&A Deal Volume HCIT Public Market Valuations
0
10
20
30
40
50
60
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
2010 2011 2012 2013 2014
Nu
mb
er
of
An
no
un
ced
Tra
nsa
ctio
ns
HCIT Index
18.8x
S&P 500
10.0x
5.0x
7.0x
9.0x
11.0x
13.0x
15.0x
17.0x
19.0x
21.0x
23.0x
25.0x
EV
/ E
BIT
DA
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