Healthcare Sector M&A Perspectives

April 4, 2016

Disclaimer

Confidential

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Healthcare Trends

Major Themes in Healthcare

• • • •

Value-based reimbursement models Stewardship of scarce healthcare resources Team-based care models with high patient engagement Focus on chronic health and preventive medicine

• • • •

Large, multi-specialty groups are proving to be a superior model Hospitals are catalyzing aggregation due to access to capital Most hospitals have not yet proven to be effective “employers” of physicians Only physicians can unlock the potential of population health

• • • •

Disintermediation of payers in certain MSAs Optum (United) is aggressively acquiring physicians Payers are anxious about being commoditized or disintermediated Vertical integration with providers is a strategy for longer-term relevance

• • • •

CMS is moving decisively toward bundled payment models Post-acute care represents most of the variability in cost of care In most larger MSAs, new post-acute care venues will be needed Non-ownership collaboration models will be necessary in many markets

• • • •

Lower cost information delivery technology Collection of clinical data and analysis using Big Data to refine protocols Tools to improve access to data and clinicians (email, telemedicine, etc.) What will be the Uber of Healthcare?

4

 

Technology-Enabled Healthcare

 

Post-Acute Coordination

 

Payer-Provider Vertical Integration

 

Aggregation of Physicians

 

Population Health Management

Current System is Fragmented and Rewards Volume over Value Outside of a handful of closed networks, a patient navigating the healthcare delivery system today will encounter many providers who are not financially or clinically integrated

Long-Term

5

Acu

ity /

Rev

enue

ACUTE CARE General Acute Care Hospital

COMMUNITY-BASED CARE Ambulatory Surgery

Urgent Care

Diagnostic Imaging

Physician Clinics

Wellness Center/Retail Pharmacy

POST-ACUTE CARE

Acute Care

Inpatient Rehab

Skilled Nursing

Home Health

Outpatient Rehab

Migration to Population Health Managing the shift from fee-for-service reimbursement, which constitutes ~90% of the market today, to fee-for-value models is a fundamental force driving increased M&A and investment activity

Reimbursement Pressure from Public and Private Payers

Demand for Coordinated Care Models

Quality and Price Transparency

Increasing Consumerism and Employer Engagement •

•

•

Provider-centric

FFS-based Payment

Loosely Integrated Provider Networks

Procedure Oriented

•

•

•

Patient-centric

Value-based Payment

Tightly Integrated Provider Networks

Health Oriented

Sophisticated EMR and Healthcare IT Systems

• •

6

 

Today  

Key Drivers of Change  

Tomorrow

Integrated Systems will View Interventional Care as a Cost Center Payers are increasingly transferring financial risk and clinical accountability to providers, incenting increased coordination and technology to provide high quality, low cost care

General Acute Care Hospital

7

Acu

ity /

Cos

t INTERVENTIONAL CARE

Ambulatory Long-Term Surgery Acute Care

Urgent Care Inpatient Rehab

PREVENTIVE CARE

Diagnostic Imaging/Clinical Labs

Physician Clinics

Wellness Center/Retail Pharmacy

 

Skilled Nursing

Home Health

Outpatient Rehab

TECHNOLOGY SOLUTIONS

EMR Email and Apps Remote Monitoring TeleMedicine

Value-based Payment Models Demand Advanced Capabilities Alternative payment and population health models require higher levels of integration and accountability relative to the traditional fee-for-service model

Financial Risk and Care Provider Integration and Accountability

Condition or Service Line Programs

Degree of Care Provider Integration and Accountability

Keys to Success Market Density Reputation Care Coordination IT Infrastructure Cost Management Preventative Medicine

P P P P P P

P P P P P P

P Disease / Case Management P Predictive Analysis P

8

Leve

l of F

inan

cial

Ris

k to

Pro

vide

r

Fee-for-Service Alternative Payment Models Population Health Models

 

Population Health Models Shared Savings

Shared Risk  

Alternative Payment Models Primary Care Incentives

Performance-based Contracts

Capitation and Population Based C

 

Fee-for-Service Condition or Service Line Progr

CMS Moving to Alternative Payment Models and Population Health CMS intends to link 50% of reimbursement to Alternative Payment Models by 2018 from ~20% today

CMS Payments by Type

2008 2014 2016P 2018P

100% 60% 55% 50% 40%

30% 20%

20% 15% 10%

Fee-for-Service

Fee-for-Service Linked to Quality

Alternative Payment Models (Including Population-based Payment)

Source: Centers for Medicare & Medicaid Services. 9

Multiple Factors are Driving Physicians into Organized Models The trends accelerating the movement to group practice appear unlikely to subside in the near term

Employed or Affiliated Physicians as % of Total (Numbers in thousands)

793

2000 2005 2009 2013*

Number of Physicians Employed or Affiliated Physicians

*Estimated Source: Accenture and MGMA. 10

 

Ability to Practice Medicine in Patient-Centric, Aligned Models

 

Risk of Being Excluded From Networks

 

Lifestyle Expectations of Younger MDs

 

757  

67%

723  

57%

 683

 

51%  

43%

 Increasing Expense and

Complexity of Managing Small Practice

 

Consolidation of Payers and Hospitals

Sector M&A Trends

Acute Care Hospitals Viewpoint: Spurred by demographic change, an improving economy, and ongoing reform, patient volume growth is improving the operational and financial outlook for hospital operators

Industry Drivers and Trends Number of Hospitals in Health Systems (2003- 2014)(1)

3,300

3,200

3,100

3,000

2,900

2,800

2,700

2,600

2,500

2,400

• Volume Growth > Q3 2015 marked 6th consecutive quarter of volume growth, with

inpatient volumes rising 0.9% YoY and outpatient volumes increasing by 2.7%

> Growth driven by large, urban hospitals (+3.4%), births (+4.3%) and emergency department visits (+3.2%)

> Q4 volumes projected to be below projections for publicly traded operators due to weaker than expected flu season

• Medicaid Expansion > State governments who have resisted Medicaid expansion are under

new pressure to act following the ACA’s second upholding by SCOTUS

> SCOTUS’ ruling in King vs Burwell is believed to have been the last significant chance to judicially remove the Affordable Care Act. 30

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Increased YoY Growth in Outpatient Volumes (2013-

2015)1.0% 0.8% 0.6% 0.4% 0.2% 0.0%

(0.2%) (0.4%) (0.6%) (0.8%)

states have already expanded Medicaid, the remaining 20 are

IndustcroyncDenrtirvaeterdsinathnedSTourtehnadndsMidwest

• Payer mix improvement is slowing > Medicare continues to grow but at a slowing pace

• Consolidation is under heavy FTC and AG scrutiny > In April 2014, ProMedica was ordered to divest St. Luke’s Hospital

following their denied petition to overturn the FTCs ruling that the acquisition was anti-competitive

> State attorney general decisions have scuttled transactions in MA, CA, and CT

Sources: American Hospital Association annual hospital survey; UBS Research “A Very Good Day for Hospital Stocks, SCOTUS Affirms Subsidies in Healthcare.gov States”, 6/25/15; Morgan Stanley Research “3Q15 Hospital Survey”, 10/6/15 1) 2015 AHA data does not have a finalized year-end total yet due to outstanding regulatory clearance for several Q4 transactions in PA and IL. 12

 

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3

2013 2014 2015

$53.0 7.8x

$106.3 16.7x

$54.0 8.0x

$74.0 3.7x

N/A

Acute Care Hospitals Active M&A market for deals of all sizes as benefits of consolidation increase Notable M&A Transactions ($ in millions)

For-Profit JVs / Investments Enter pr ise

Value EBIT DA M ultiple Announced T ar

get Acquir or

12/29/15 2 IU Health Hospitals Community Health Systems

N/A N/A

11/03/15 Akron General Cleveland Clinic $186.3 NMF

10/12/15 Crozer-Keystone Health System

Prospect Medical Holdings $100.0 8.8x

06/10/15 Trinity Health Hospital Billings Clinic RegionalCare

N/A N/A

01/29/15 Community Medical Center Billings Clinic RegionalCare

CONFIDENTIAL

12/22/14 Bert Fish Medical Center

Florida Hospital $40.0 NMF

10/06/14 Culpeper Regional Hospital

UVA Medical Center $10.0 0.7x

08/28/14 Lodi Memorial Hospital Adventist Health CONFIDENTIAL

03/31/14 Fairmont General Hospital Alecto Healthcare $15.3 NMF

02/12/14 East Orange General Hospital

Prospect Medical Holdings $32.0 16.5x

01/29/14 Hackettstown Regional Medical Center

Atlantic Health System CO NFIDENTIAL

10/03/13 Citrus Memorial HCA $140.0 NMF

08/27/13 Sharon Regional Health System

Community Health Systems

$70.0 13.4x

Sector Valuation Snapshot ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /

as of 4/1/16

as % of 52- W eek H igh

M ar ket Value

Enter pr ise Value

Revenues EBIT DA Pr ice / Ear nings 2017E P/E/G Companies LT M CY 16E CY 17E LT M CY 16E CY 17E CY 16E CY 17E

Acute Car e - H ospitals HCA Holdings, Inc. Tenet Healthcare Corp. Community Health Systems, Inc. Universal Health Services Inc. LifePoint Health, Inc.

$79.20 28.89 18.67

125.39 69.16

82.9% 47.4% 28.7% 84.4% 78.4%

$33,850.9 2,955.2 2,106.2

12,783.4 3,153.0

$65,210.9 19,642.2 19,706.2 16,474.3 5,686.3

1.6x 1.1 1.0 1.8 1.1

1.6x 1.0 1.0 1.6 0.9

1.5x 1.0 0.9 1.5 0.8

8.3x 9.0 8.3 9.9 8.8

7.8x 8.0 6.9 9.3 7.3

7.4x 7.6 6.7 8.7 6.8

12.7x 15.8 NM 17.0 18.3

11.5x 11.5 NM 15.6 15.5

1.1x 0.9 0.4 1.8 2.1

13

M ean 64.4% - - 1.3x 1.2x 1.1x 8.9x 7.9x 7.4x 16.0x 13.5x 1.3x M edian 78.4% - - 1.1 1.0 1.0 8.8 7.8 7.4 16.4 13.5 1.1

10/03/13 CharterCARE Health Partners Prospect Medical Holdings CONFIDENTIAL

02/06/14 Garden City Hospital Prime Healthcare Services $48.8 7.8x

12/30/13 Casa Grande Regional Medical Banner Health $87.0 NMF

03/14/14 Conemaugh Health System Duke LifePoint Healthcare $75.0 1.7x

10/02/14 W atertown Regional Medical Center LifePoint Health $40.0 5.6x

07/11/14 MedW est Haywood Duke LifePoint $28.5 NMF

11/06/14 SwedishAmerican Health System University of W isconsin Health $179.5 4.0x

03/27/15 Carroll Hospital Center LifeBridge Health $50.0 1.6x

01/08/15 Nason Hospital Conemaugh Health System $12.0 NMF

09/01/15 W est Jefferson Medical Center LCMC Health $200.0 NMF

10/29/15 W heaton Franciscan Healthcare Ascension N/A N/A

11/12/15 RegionalCare Hospital Partners Apollo Global Management N/A N/A

04/01/16 5 Tenet Atlanta-Area Hospitals W ellStar Health System $575.0 CO NFIDENTIAL

03/22/16 Capella Healthcare RegionalCare Hospital Partners N/A N/A

 Tenet

 

Aetna & Banner Health Risk Sharing Agreement

Billings Clinic & RegionalCare

Cerberus Capital Management

CCMP & Canada Pension Plan Investment Board

 IASIS Healthcare (TPG)

Leonard Green & Partners

The Carlyle Group & TPG Capital

 TPG Capital

 Warburg Pincus

Ambulatory Surgery Centers Overview Viewpoint: Favorable given relative cost effectiveness and volume growth potential

Subsector Overview Medicare-certified ASCs in the United States • The ASC market is expected to be ~$25 billion a year sector, growing

at roughly ~2% a year

Due to broad market saturation, the growth in the total number of ASCs has slowed in recent years and attractive de novo opportunities have become difficult to find

Same-facility case volumes at ASCs have been under pressure over the past few years; however, ACA implementation and a broad health care industry shift to outpatient care are anticipated to cause an increase in same-facility case volumes going forward

6,000 20% 5,443 5,344 5,346 5,159 4,837 5,000 •

15% 4,102 4,000

8.6% 3,000 10% •

2,000 5% 3.3%

1,000 1.8% 0.9%

• Three-way joint venture partnerships, including physicians, hospital, and ASC management company, continue to be attractive

Hospitals and health systems continue to pursue ASC partnerships and acquisitions as part of their long-term growth strategy

Payers have been actively acquiring and partnering with physician groups and facility-based providers including ASCs as a part of a focus on a population health management delivery model

ASCs valuations can vary greatly depending on a number of factors including majority/minority ownership interest, specialty type, in or out- of-network payor model, and physician commitment & stability

0.0% 0 0%

2005 2007 2009 2011 2013 2015 • # of ASCs % Growth

• U.S. ASC Case Mix GI

Ortho

Pain Mgmt

Opthalmology

ENT

General

Urology

OB/GYN

Plastic

Podiatry

Other

4% 3% 7% • 2%

8%

22% Regulatory / Reimbursement Environment

15% • In November 2015, CMS finalized a 0.3% net increase for ASCs and

0.3% net decrease for hospital outpatient services for 2016

• Expected net flat to slightly positive updates in coming years 16% 16%

• Rates are beginning to migrate towards ASC levels and away from higher HOPD rates

14 Source: Wall Street research, SEC filings, Verispan and Cain Brothers’ estimates.

NA 6.5x

NA 6.0x

6.0

$10.9 13.0x

$10.9 13.0x

Ambulatory Surgery Centers Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments EBIT DA

M ultiple(1)

Enter pr ise

Value Announced T ar

get Acquir or

Arcapita

Caltius Capital Mgmt

Symbion Surgery Partners

$792.0 10.1x 6/13/2014 Chicago Growth Partners

East Brunswick Surgery Center

Surgical Care Affiliates

$49.8 9.3x 12/31/2013

DFW Capital Partners

Physicians Endoscopy, LLC

Pamlico Capital

NA 8.5x 9/3/2013

$135.0 6.8x 1/24/2013 Covenant Surgical Partners

DFW Capital Partners Enhanced Equity Funds

11/8/2012 American Institute of Gastric Banding

United Surgical Partners International Inc

CONFIDENTIAL

HealthCor Partners 5/15/2012 Foundations Surgery Affiliates

Graymark Healthcare

$51.2 6.0x

10/6/2011 National Spine & Pain Centers

Sentinel Capital Partners

NA 7.3x H.I.G (Public)

8/24/2011 National Surgical Care

AmSurg $135.0 7.9x

ICV Partners 1/21/2011 NovaMed Surgery Partners Holdings

$214.0 8.5x

Irving Place Capital

LLR

Sector Valuation Snapshot ($ in millions, except per share data) Pamlico Capital

Closing Price Enterprise Value / Sentinel Capital Partners as of

3/23/16 as % of 52- W eek H igh

M arket Value

Enterprise Value

Revenues EBIT DA LT M CY 16E CY 17E LT M CY 16E CY 17E

(1) Physician-Partnered Facilities Texas Pacific Group (Public)

A m S u r g Corp.

Medical Faci l i t ies

Corp. Surgical Care Aff i l ia tes Surgery Partners

$65.05 9.81

39.54

16.45

74.4% 69.2% 87.7%

73.7%

$3,518.5 306.1

1,630.7

811.9

$6,004.0 308.5

2,443.1

2,011.6

2.3x 1.0 2.5

1.5

2.1x 1.0 2.3

1.8

NA 1.0 NA

1.6

12.4x 5.8

14.4

9.1

10.9x 5.9

12.9

10.7

NA 5.8 NA

8.8 Welsh, Carson,

Anderson & Stowe (Tenet majority owner)

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (1) EBITDA equal to EBITDA less minority interest. (2) Enterprise Value per USPI/Tenet Healthcare investor presentation. EBITDA Multiple based on Cain Brothers’ estimates. EBITDA multiple is blended to include sale of 50.1% at close and estimated future valuation(s) of 49.9% interest.

15

M ean 76.2% - - 1.8x 1.8x 1.3x 10.4x 10.1x 7.3x M edian 74.1% - - 1.9 1.9 1.3 10.8 10.8 7.3

1/5/2011 National Surgical Hospitals Irving Place Capital CONFIDENTIAL

Median M e an High Low

8.5x 8.7x 13.0x 5.3x

7/1/2011 Surgery Center Partners Sutter Health/Surgical Care Affiliates CONFIDENTIAL

9/1/2011 Titan Health Corp USPI $48.4 9.9x

3/26/2012 Capitol Spine & Pain Centers National Spine & Pain Centers NA NA

1/8/2013 National Pain Institute Prospira PainCare NA NA

9/20/2012 Pacific Endoscopy Center, LLC Covenant Surgical Partners $36.1 8.5x

6/3/2013 Health Inventures Surgical Care Affiliates $18.5 5.3x

12/6/2013 IMS Health ICV Partners NA NA

5/29/2014 Sheridan Healthcare AmSurg $2,350.0 12.2x

1/8/2016 Blue Chip Surgical Center Partners NueHealth CONFIDENTIAL

6/8/2015 Optim Health National Surgical Healthcare CONFIDENTIAL

3/23/2015 United Surgical Partners International(2) Tenet Healthcare $4,200.0 12.1x 3/6/2015 Green Clinic Surgical Hospital Northern Louisiana Medical Center CONFIDENTIAL

7/16/2014 Siouxland Surgery Center USPI CONFIDENTIAL

demand

Behavioral Health Overview Viewpoint: Very favorable given increasing volumes stemming from increased reimbursement coverage and declining social stigmas traditionally associated with mental illness/addiction treatment

Industry Drivers and Trends $53 Billion Target Market • The behavioral health sector, including the chemical dependency

segment, represents a total market opportunity of ~$53 billion

The behavioral health facility market is exhibiting favorable business trends:

Psych  Hospitals  5.7%  •

22.6%   Behavioral  Health  &  Addiction  Clinics  

> Public awareness of behavioral health and substance abuse issues is at an all time high, with focused media attention on celebrity health issues 41.5%  

– As a result, treatment of these issues is more “accepted” and more treatment options are available Behavioral  Health  &  Addiction  

RTCs  > Approximately 25% of Americans experience a mental disorder in a given year

According to the NIH, an estimated 20% of people in the U.S. have used prescription drugs for non-medical reasons

30.2%  Eating  Disorder  Clinics  

>

Growing Demand for Care and a Shortage of Providers Legislative Initiatives and Destigmatization Drive Continued Growth • Recent favorable legislation is expanding healthcare coverage

• 44 million Americans suffer from mental illness in a given year > It is estimated that there are over 22 million people over the age of 12 in the

U.S. that have a substance abuse disorder

• Suicide is the 10th leading cause of death in the U.S., killing more that 42,000 people annually Depression and anxiety are leading causes of debilitating symptoms The U.S. needs more than 2,800 more psychologists to address current

> Mental Health Parity and Addiction Equity Act: Insurers are required to provide coverage for behavioral health in a way no more restrictive than other services Anna Westin Act (in process): Clarifies that the parity laws should require insurance companies to cover full treatment for eating disorders Affordable Care Act: Generally increases insurance coverage (~32mm additional individuals gaining coverage) and allows children to stay on parents insurance until age 26

• • >

Press coverage has brought the national spotlight on eating

disorders and addiction

>

• Advocacy groups educate and bring awaren_e s_s : Source: United States Department of Health and Human Services, Parthenon Market Study Report., SAMSHA, NAMI. 16

$215.0 NA 7.2x

$73.0 NA NA

(in millions)

Behavioral Health Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enterprise Value /

Announced T arget Acquiror Enterprise Value LT M Sales LT M EBIT DA

12/01/15

D&SCommunity Services

Comvest Partners

CONFIDENTIAL

11/13/15 Meridian Behavioral Health

Audax Group $120.0 NA 10.0x

10/30/15

RHA Health Services

Formation Capital

NA NA NA

09/03/15

Providence Community Services

Molina Healthcare

~$200.0 NA 9.8x

07/27/15

The Ranch at Dove Tree

Summit Behavioral Healthcare

$36.0 NA 9.0x

05/13/15

The Oxford Centre American Addiction Centers, Inc.

$35.0 2.9x 6.3x

03/02/15

Quality Addiction Management

Acadia Healthcare Company, Inc.

$53.0 NA 8.7x

01/08/15

Crossroads Treatment Center

Revelstoke Capital Partners

$48.0 NA 8.0x

12/19/14

Hanley Center and Gate Lodge

Origins Behavioral Healthcare

NA NA NA

12/03/14

Castlecare Residential Care and Education

Priory Group NA NA NA

09/30/14

Rosewood Rivermend Health

$50.0 NA 9.0x

Sector Valuation Snapshot ($ in millions, except per share data)

Closing Pr ice

as of 3/23/16

as % of 52- W eek H igh

Enter pr ise Value

Revenues EBIT DA Pr ice / Ear nings 2017 P/E/G Behavior al LT M LT M CY 16E CY 17E

Universal Health Services Inc. Acadia Healthcare Company, Inc. Civitas Solutions, Inc.

AAC Holdings, Inc.

$116.65 52.37

16.91 19.88

78.5% 61.2%

55.9% 42.7%

$15,190.9 6,815.0

1,242.3 578.6

1.7x 3.8

0.9 3.0

9.2x 17.7

9.5 20.8

15.8x 18.5

21.3 20.8

14.5x 15.4

17.9 17.5

1.6x 0.6

1.8 0.9

M edian 58.6% - 2.3 13.6 19.6 16.5 1.3

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 17

M ean 59.6% - 2.3x 14.3x 19.1x 16.3x 1.2x

09/18/14 Matrix Medical Network Providence Service Corp. $400.0 2.1x 8.7x

10/29/14 CRC Health Group Acadia Healthcare Company, Inc. $1,207.7 2.8x 13.4x

12/15/14 Recovery First, Inc. American Addiction Centers, Inc. $13.1 NA NA

12/30/14 Park Bench Counseling Group Elements Behavioral Health NA NA NA

01/26/15 Clinical Services of Rhode Island, Inc. American Addiction Centers, Inc. $2.0 NA NA

05/12/15 Five Behavioral Treatment Providers (YTD) Civitas Solutions, Inc. ~$38.0 NA 4.0x

06/08/15 Sunspire Health Kohlberg & Company $120.0 NA 10.0x

09/03/15 Monte Nido and Affiliates Levine Leichtman Capital Partners $280.0 NA 16.0x

09/18/15 Foundations Recovery Network Universal Health Services Inc. $350.0 NA 12.1x

11/03/15 Discovery House Acadia Healthcare Company, Inc. ~$100.0 NA ~9.0x

01/04/16 Priory Group Acadia Healthcare Company, Inc. ~$2,200.0 2.5x 11.2x

11/24/15 AdvoServ W ellspring Capital Management CONFIDENTIAL

 Audax Group

 American Capital

 Bregal Partners

 Clearview Capital

 Comvest Partners

 Cressey & Co

 Dobbs Management Group

 Frazier Healthcare, NEA

 H.I.G.

 Lee Equity Partners

 Trinity Hunt Partners

 Vestar Capital Partners

 Webster Capital

Wellspring Capital Management

Welsh, Carson, Anderson & Stowe

N

Clinic-Based Physician Services Overview Viewpoint: Hospitals will increasingly outsource specialty services and departments to gain efficiencies and reduce operating costs

Industry Drivers and Trends Cost per Episode

• Approximately 9,300 urgent care centers in U.S. Emergency Rooms $26

> >

>

>

700 – 800 new clinics open every year Average of 342 weekly patient visits per center

Over 150 million total visits annually

85% are open 7 days/week

Physician Offices

Urgent Cares

• Demand for next generation primary care delivery models driven by: Retail Clinics

> Of an estimated 1.0 billion visits made to physician offices in 2009 on-Pharmacy Cost Pharmacy Cost

– About one-third are minor and require little continuity of care

– 34% are for a new problem Projected PCP Shortage

> 14 - 27% of emergency department visits could be handled by urgent care centers, saving up to $4.4 billion a year 52,000

> Shortage of primary care physicians, aging population, expanded coverage with health care reform

• Urgent care and retail clinics offer more convenient, less expensive, high-quality environment

2015 2020 2025

Source: National Ambulatory Medical Survey: 2009. Urgent Care Association of America, 2010 Benchmarking Study. “Physician Office vs. Retail Clinic: Patient Preferences in Care Seeking for Minor Illnesses,” Annals of Family Medicine, 2010. Project US Primary Care Physician Workforce Needs: 2010-2025. The Costs and Quality of Care for Three Common Illnesses at Retail Clinics as Compared to Other Medical Settings.

18

 

36,000  

21,000

$544

$145 $21

$134 $22

$89 $21

Clinic-Based Physician Services Market Activity Notable M&A Transactions ($ in millions)

Private Equity Investments

Ent erprise V alue /

Moelis Capital Partners

Ent erprise

V alue

LT M

Revenue

LT M

EBIT D A Announced T arget Acquiror

01/25/16 Physiother apy Associates ~$400.0 NA ~12.0x Select Medical

01/04/15 Center for Vein Restor ation (W aud Capital) ~$150.0 ~3.0x ~12.5x Cor tec Gr oup Great Point Partners 12/15/15 Upstr eam Rehabilitation ~$300.0 NA ~10.0x Revelstoke Capital Par tner

s

11/03/15 Valley Anesthesiology & Pain Consultants Sher idan Healthcar e (AmSur g )

~$350.0 NA ~12.0x

09/01/15 Emer us ~$375.0 NA ~15.0x W elsh Car son Ander son & Stowe Sterling Partners 07/30/15 Rur al/Metr

o Envision Healthcar e ~$620.0 ~1.0x ~10.0x

Altaris Capital Partners

06/11/15 Reliant Hospital Par tner s

HealthSouth Cor por ation ~$730.0 NA 8.9x

05/12/15 Vir tual Radiologic Cor por ation MEDNAX ~$500.0 2.7x 11.1x

Bison Capital Partners

03/23/15 Concentr a (Humana) Select Medical & W elsh Car son, Ander son & Stowe

$1,055.0 1.1x ~8.5x

01/19/15 VISTA Staffing Solutions (On Assignment) Envision Healthcar e $123.0 0.9x 9.8x

Revelstoke Capital Partners

12/02/14 Gastr oenter ology Anesthesia Associates CRH Medical Cor por ation $58.6 2.3x NA

11/07/14 Acceler ated Rehabilitation Center s AthletiCo ~$440.0 NA ~11.0x

New Harbor Capital

Management

10/10/14 Results Physiother apy

Ster ling Par tner s

~$150.0 NA ~15.0x

Ares Management

Frazier Healthcare

TPG Growth

Goldman Sachs

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 19

06/25/14 Sound Inpatient Physicians Fr esenius Medical Car e $700.0 1.2x ~20.0x

10/27/14 Car eNow HCA ~$375.0 NA ~13.0x

11/12/14 Center r e Healthcar e Kindr ed Healthcar e, Inc. $195.0 NA 15.4x

12/19/14 OGH LLC (W elsh, Car son, Ander son & Stowe) AMN Healthcar e Ser vices $82.5 NA 8.3x

01/23/15 Encor e Rehabilitation Revelstoke Capital Par tner s ~$140.0 NA ~10.0x

04/08/15 MedExpr ess Ur gent Car e Optum (UnitedHealth) $1,500.0 NA ~15.0x

05/21/15 FastMed (Comvest) Abr y Par tner s ~$300.0 NA ~15.0x

07/06/15 Dental Car e Alliance (Quad-C) Har vest Par tner s NA NA ~13.5x

08/04/15 IPC Healthcar e Team Health $1,600.0 2.2x 10.7x

09/16/15 Alliance Healthcar e Ser vices (Nasdaq: AIQ) Fujian Thaihot Investment Co. ~$725.0 1.7x ~6.5x

11/18/15 B.E. Smith AMN Healthcar e Ser vices $160.0 1.6x ~10.5x

12/29/15 Spectr um Pr ofessional Ser vices Beecken Petty O'Keefe & Company $170.0 0.7x 10.6x

01/14/16 For efr ont Der matology (Var sity Healthcar e) Omer s ~$450.0 NA ~13.0x

Consumer & Digital Health Overview Viewpoint: Key features of health care consumerism are personal responsibility, self-care, choice, personalized care and convenience. Technology and entrepreneurs are converging in effort to make these features a reality

Key Trends Telehealth Market Projection Forecast of Telehealth Patients, Device, and Service Revenue • Consumer health is helping drive lower costs, better outcomes and higher

patient satisfaction based on the following macro trends and initiatives 5,000 8,000

7,000 6,000 5,000

4,000 3,000 2,000 1,000 0

> The Digitization of Health Care is Happening – The majority of providers using fully functioning EHRs and the majority of

consumers prefer to communicate via email with regard to healthcare concerns

Quality-Over-Quantity Incentives are Being Implemented – Providers are shifting to value-based, from FFS payments

– Employers are lowering costs by offering services to improve engagement, choices and care

Patient Engagement Is Rising and Yielding Results – Consumers want to access tools, websites rankings for quality /

satisfaction / patients reviews of doctors and hospitals in addition to personal health tracking devices

– According to a recent Towers Watson Report, 96% of employers expect to increase their focus on employee well-being and engagement as a means of reducing healthcare costs

4,000

3,000 >

2,000

1,000

> 0 2012 2013 2014 2015 2016 2017 2018

Device & Service Total Patients

Wearable Device Market Forecast ($ in millions) • Digital health funding reached $4.3 billion in 2015. The continued strong

investment activity is largely being driven by the increased focus on the consumerization of healthcare as well as health care reform and the related business model shifts within the industry > Digital health accounted for 7% of all venture funding over the twelve months

ended Q3 2015

> Top subsectors comprised 51% of all funding in 2015: – Healthcare Consumer Engagement, Wearables & Biosensing, Personal

Health Tools & Tracking, Payer Administration, Telemedicine Care Coordination

In 2015, 278 financing transactions, and approximately 180 M&A transactions, were completed. The average deal size increased to $15.6 million, a 11% increase over last year’s $14.0 million

2012 – 2018 CAGR: ~46.9%

•

2012 2013 2014 2015 2016 2017 2018

20 Source: Rock Health, StartUp Health, Capital IQ, Towers Watson, and Wall Street research.

Mill

ions

of U

SD

Thou

sand

s of

Pat

ient

s

$12.6

$2.5 $1.3

 $12

$10.9

$8.9

$7.1

$5.2

Consumer & Digital Health Market Overview

Notable M&A Transactions ($ in millions)

Largest Financings in 2015 ($ in millions)

Announced T arget Acquiror Purchase Price T arget D escript ion

02/24/16

Shape Up, Inc. & Global

Cor por ate Challenge

Vir gin Pulse

NA Pr ovide solutions designed to optimize employee engagement, health and

per for mance Apr. 2015 $300.0

Jun. 2015 $200.0 12/3/2015

Silver link Communications

W elltok, Inc. NA Deliver s consumer health engagement pr ogr ams to educate and suppor t

healthcar e consumer s

Aug. 2015 $130.0 11/04/15 1DocW ay,

Inc. Genoa, a QoL Healthcar e

Company

NA Telemedicine company offer ing br owser -based telepyschiatr y

Jul. 2015 $115.0

07/01/15

Inter active Health

FFL Par tner s

NA Lar gest U.S based company offer ing integr ated wor kplace wellness solutions Oct. 2015 $112.5

Dec. 2015 $105.0 06/06/15

Altegr a Emdeon

$910 National pr ovider of technology and inter vention platfor ms for impr oved

management for value-based healthcar e

Aug. 2015 $100.0

Sector Valuation Snapshot ($ in millions, except per share data)

May 2015 $92.0

Mar. 2015 $70.0 Closing Price Ent erprise V alue /

as of

3/23/16

as % of 52-

W eek H igh

Ent erprise

V alue

Revenues EBIT D A Aug. 2015 $70.0 Com panies CY 16E CY 17E CY 16E CY 17E

Fitbit Inc.

W ebMD Health Cor p.

HealthEquity, Inc.

Teladoc, Inc.

Ever yday Health, Inc.

Castlight Health, Inc.

$14.55

58.22

24.36

10.34

5.19

3.00

28.2%

98.1%

69.7%

29.7%

37.2%

29.2%

$2,760.0

2,361.8

1,377.0

296.0

251.5

169.6

1.1x

3.4

8.0

2.5

1.0

1.7

0.9x

3.1

6.5

1.7

0.9

1.3

6.6x

10.6

24.0

NM

5.6

NM

5.0x

9.4

18.7

NM

4.3

NM

Nov. 2015 $70.0

Jun. 2015 $62.8

Jul. 2015 $55.4

21 Source: Company filings, Capital IQ, Wall Street research.

M ean 48.7% - 2.9x 2.4x 11.7x 9.3x

M edian 33.4% - 2.1 1.5 8.6 7.2

05/19/15 Pr edilytics, Inc. W elltok, Inc. NA Pr ovides analytic solutions based on consumer health status and r eceptivity

to engagement

06/24/15 Sage Technologies Ar cadia Solutions $28 Pr ovides technology based ser vices allowing physician gr oups to enter into

r isk-based contr acts with health plans

08/24/15 RSA Medical, LLC X er ox Cor por ation NA Pr ovides health assessments and r isk management for member s inter acting

with health and life insur ance companies

11/11/15 Misfit, Inc Fossil Gr oup, Inc $236 Invents and manufactur es connected wear able pr oducts, including activity

tr acker s

02/18/16 Tr uven Holding Cor p. IBM W atson Health $3,556 Pr ovides cloud-based analytic solutions and ser vices

Health & Wellness Overview Viewpoint: Very favorable given focus on preventive medicine, ACA essential health benefits, rising healthcare costs and changes in consumer/employer behavior and accountability

Industry Drivers and Trends(1) Self-Reported Obesity Among US Adult – 2013(2)

• Demographic and health trends favor growth of health & wellness sector > Nearly 35% of adults and 17% of children are

overweight/obese

> Approximately 86% of all health care related costs stem from chronic health conditions

Indirect costs associated with poor health estimated to be “several times higher” than direct medical costs

WA

MT ME ND MN

VT OR NH MA RI CT NJ D E M D DC

ID SD WI NY

MI WY

IA PA NE NV OH IN UT IL

CO WV VA KS CA MO KY

NC TN

OK AZ AR SC NM

AL GA MS TX LA AK

FL

• HI

PR GUAM

> > >

Absenteeism Disability Reduced work output Employer Avg. Spending on Employee Incentives(3)

• Increase in consumer health awareness has presented compelling market opportunity in health & wellness sector

Employers accelerating adoption of health & wellness programs to improve employee health and benefit bottom line

> Average spending on employee health incentives: $594 in 2014, up from $430 in 2010

> ~93% of employers expect to maintain health incentive programs, including ~57% expecting to further expand programs

$594

•

2010 2011 2013 2014

(1) CDC & Joint National Business Group on Health/Fidelity Investments Health Improvement Survey. (2) CDC. (3) Joint National Business Group on Health/Fidelity Investments Health Improvement Survey. 22

$521

$430 $460

15%–<20%

20%–<25%

25%–<30%

30%–<35%

≥35%

Health & Wellness Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enter pr ise Value / Andreesen Horowitz / Kaiser

Permanente Ventures / U.S. Venture Partners / The Vertical Group

Enter pr ise

Value

LT M Revenue

LT M EBIT DA Announced T ar

get Acquir or

07/01/15 Interactive Health

FFL

NA NA NA Cambia Health Solutions / Draper Fisher Juvertson

10/28/14 Alere Health Inc Optum $600.0 ~1.7x ~10.0x Century Capital

01/21/10 Health Fitness

Trustmark Mutual Holding Company

$91.8 1.2x 12.9x Escalate Capital Partners /

Frontier Capital 09/21/09 Free & Clear

Alere (Inverness Medical Innovations)

$100.0 2.1x 12.0x

Founders Fund / New Enterprise Associates 03/17/08 I-trax Inc W algreens

Co $278.0 1.9x NM

11/27/07 ProFitness Health Solutions

I-trax Inc $7.5 0.6x 8.3x FFL

Harbert Venture Partners/ Noro-Moseley Partners /

Summit Partners

10/24/07 Alere Medical Inc Inverness Medical Innovations

$302.0 NM 15.1x

06/05/07 APS Healthcare

GTCR Golder Rauner

$285.0 1.3x 12.2x

Lemhi Ventures 01/18/07 Comprehensive Care Corp

Hythiam Inc $12.3 0.6x NM

05/31/06 Focused Health Solutions Inc

Linden LLC $89.0 2.0x NA Norwest Venture Partners

04/11/06 Summex Corp W ebMD Health Corp $30.0 NM NA Oak Investment Partners

Sector Valuation Snapshot ($ in millions, except per share data)

Parthenon Capital Partners

River Cities Capital Closing Pr ice Enter prise Value /

as of as % of 52-

3/23/16 W eek H igh

Enter prise

Value

Revenues EBIT DA Pr ice / Ear nings 2017E

P/E/G Solis Capital Partners /

Innovate Partners Companies CY 16E CY 16E CY 16E CY 17E Healthways Inc. $9.81 46.4% $588.9 0.8x 6.9x NM 23.0x 1.3x

Summit Partners / Noro- Moseley Partners

Vestar Capital Partners

Wellington Capital Management

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 23

05/10/06 Cardium Health Services Corp CenCorp Health Solutions (Centene) $13.0 NM NA

10/11/06 AXIA Health Management LLC Healthways Inc $450.0 NM 14.0x

04/03/07 Alere Medical Inc TA Associates $175.0 NM 10.4x

09/04/07 Berkeley HeartLab Inc Celera Group $195.0 2.3x NA

11/26/07 ParadigmHealth Inc Inverness Medical Innovations $230.0 NM NA

01/28/08 Matria Healthcare Inc Inverness Medical Innovations $1,180.0 NM 15.5x

06/18/08 MEDecision Health Care Service Corporation $116.0 NM NM

11/22/10 Concentra Inc Humana Inc $790.0 1.0x 8.5x

01/11/12 APS Healthcare Universal American $227.5 0.8x 7.3x

03/26/15 Concentra Inc Select Medical Holdings, $1,055.0 ~1.1x NA W elsh, Carson, Anderson & Stowe

Health Care Distribution Overview Viewpoint: Direct consumer targeting and increased use of data to increase supply chain efficiencies continue to represent two of the positive opportunities in Health Care Distribution

Estimated U.S. Rx Drug Spending ($ in billions) Industry Drivers and Trends • Peak in patent expirations to impact generic economics $435 $409 $385 $364 $343 $328 >

>

~75% of U.S. prescription drug volume, but only 25%-27% of costs

~$78 billion of drugs to go off-patent in 2012 – 2016 with ~$17 billion in 2017 - 2021 $305 $271

• Specialty represents the next growth avenue beyond generics >

>

>

Fastest-growing component of drug spend, rising ~20-25% per year

Expected to reach ~44% of total drug spend by 2017, vs. 32% in 2014

By 2020, 9 of top 10 selling drugs will be specialty vs. 3 of 10 in 2010

2013 2014 2015 2016 2017 2018 2019 2020

Estimated Specialty Drug Spending ($ in billions)

• Aging seniors to drive increasing utilization 5-year CAGR: 14.1%

>

>

31% of Rx spend, 14% of population but growing 3.3% (5x rate of non seniors)

~92% of seniors have a chronic condition, ~77% have 2+, ~45% have 3+ $291

$272 $252 $233 $215

• Targeted pharma/ med distribution models offer considerable growth potential (e.g. catheters, incontinence, nuclear pharmacy)

Focus on increasing compliance and persistence across all sectors, typically via increased consumer engagement / value-add services

Consolidation across all sectors expected to continue

2016 2017 2018 2019 2020 •

Major Brand Drugs Going Off-Patent ($ in billions)

~$78 billion going off patent 2012- 2016

•

Regulatory/Reimbursement Environment $28.3

• Passage of Accountable Care Act bodes well by ensuring increased coverage/ utilization

Payers are aggressively seeking to rein-in costs of specialty drugs • $2.0 $1.7 > Looking to increasingly engage/touch the consumer

2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: IMS Health, Express Scripts Drug Trend Report 2015, and EvaluatePharma World Preview 2020. 24

 ~$17 billion going off patent 2017-

$14.8 $14.1 $12.6 2021

$7.4 $4.6 $4.1 $4.4

Health Care Distribution Market Activity

Notable M&A Transactions ($ in millions)

Date

Private Equity Investments ($ in millions)

Enterprise Value

EV/EBIT DA Announced T

arget Acquiror LT M ACON

2/1/2016 National Distribution & Contracting, Inc.

Court Square Capital Partners L.P.

NA NM

AEA Investors / TH Lee Partners 12/16/201

5 1-800 CONTACTS, Inc.

AEA Investors LP

NA NM

Audax / LLR Partners 8/24/2015 UDG Healthcare

Celesio AG / McKesson

$463.5 13.4x

8/20/2015 United States Medical Supply, Inc.

H.I.G. Capital, LLC

NA NM Beecken Petty O’Keefe

7/10/2015 US Diagnostics, Inc.

Alere Inc.

$60.0 NM Court Square Capital Partners

05/02/15 Animal Health International, Inc.

Patterson Companies, Inc.

$1,100.0

16.2x DW Healthcare Partners

02/26/15 BioRx, LLC

Diplomat Pharmacy, Inc.

350.0 15.2x Enhanced Equity

01/11/15 MW I Veterinary Supply, Inc.

AmerisourceBergen Corporation

2,522.5

18.5x Frazier Healthcare

12/03/14 Allied 100, LLC

Ridgemont Equity Partners

NA NM H.I.G. Capital

Sector Valuation Snapshot ($ in millions, except per share data)

Highland Capital Management

MTS Health Investors

Closing Pr ice Enter pr ise Value / New Mountain Capital as of

3/23/16

as % of 52- W eek H igh

M ar ket Value

Revenue EBIT DA Pr ice / Ear nings

Ridgemont Equity Partners Companies CY 16E CY 16E CY 16E CY 17E

McKesson Corporation Cardinal

Health, Inc. AmerisourceBergen Corporation Henry Schein, Inc.

Patterson Companies, Inc.

Owens & Minor Inc.

$155.03

81.28 87.27

168.57

45.90

39.61

63.9%

88.8% 75.6%

99.1%

89.0%

98.2%

$35,610.8

26,944.3 18,207.1

14,022.8

4,448.1

2,491.4

0.2x

0.2 0.1

1.4

1.0

0.3

8.2x

9.0 9.2

15.1

11.3

10.4

11.9x

14.6 14.7

25.5

17.4

19.2

11.0x

12.7 12.9

23.0

16.2

17.9

RountTable Healthcare Partners

The Riverside Company

Water Street

Wellspring Capital Management

25

M ean 85.8% - 0.5x 10.5x 17.2x 15.6x

M edian 88.9% - 0.3 9.8 16.1 14.5

12/15/14 Holt Dental Supply Patterson Companies (PDCO) NA NM

02/10/15 Envision Topco Holdings, LLC Rite Aid Corporation 2,011.5 13.0x

03/05/15 Genoa, a QoL Healthcare Company Advent International NA 15.0x

6/5/2015 The Harvard Drug Group, L.L.C. Cardinal Health, Inc. $1,115.0 NM

8/13/2015 HASCO Medical, Inc. W MK Inc. $48.8 9.3x

8/20/2015 HurryCane LLC Medical Depot, Inc. NA NM

12/15/2015 Kreisers, Inc. & Midwest Medical Supply Seneca Medical, Inc. NA NM

1/20/2016 InHome Medical Solutions LLC Anatomy Holdings, LLC NA NM

Prac ab

Health Care IT Overview Viewpoint: Favorable given multiple forces driving increased IT investment across all health care segments

Industry Drivers and Trends Perfect Storm Driving Increased IT Investment • HITECH payments exceeding $22bn , including $12bn in 2013, have

driven build of clinical IT infrastructure – likely in the 7th inning of this game

Next wave will be focused on Analytics to leverage HITECH infrastructure toward actionable results

Ultimate foundation for Population Health Management + True Evidence Based and Personalized Medicine

Payor IT spending focus on advanced Care Management and Value Based Reimbursement , some of which will be dependent on the above provider clinical infrastructure

“ACO Tools” represent convergence of the above and an area of considerable focus for providers and payors

Population Health Management / Risk Stratification

Care Coordination / Transitions of Care

While early, mHealth applications address the “Holy Grail” of consumer connectivity /oversight

Changing reimbursement away from fee for service creates need for “new”, sophisticated RCM capabilities to address increasing reimbursement complexity

ICD 10 to represent a meaningful provider / payor pain point and therefore a large IT / BPO opportunity

Increasing proliferation of standards (including ICD 10) likely to continue to attract historically non-health care focused IT companies to the sector

•

•

•

•

•

•

• ACOs Require New RCM & Clinical IT

Physician HER Adoption

90%

• 80%

70%

Employed tices

Outpatient L

60%

50% •

40%

Affiliated Practices

Home Health 30% Hospital

• 20%

7% 10%

Partner Hospital

0% Patients 2006 2007 2008 2009 2010 2011 2012 2013

Any EMR/EHR System Basic System Fully Functional System

26 Source: Cain Brothers’ research, CDC, HIMSS.

 78%

72%

57% 51%

48% 48% 42% 40%

35% 34% 29%

22% 25%

17% 15% 15% 11% 12% 10%

13% 3% 4% 5%

$175.0 3.1x

($ in millions)

Health Care IT Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enter pr ise Value /

Enter pr ise

Value

LT M Revenue

LT M EBIT DA ABRY Partners

Announced T ar get

Acquir or 02/23/16 02/18/16

Brightree Truven Health Analytics

ResMed (NYSE: RMD) IBM (NYSE: IBM)

$800.0 $2,600.0

NA 6.0x

13.5x 36.0x

Confidential

01/05/16 11/25/15

NaviNet Inc. CPSI (NasdaqGS: CPSI)

NantHealth Healthland Essex Woodlands $250.0 NA NA

10/30/15 09/21/15

08/06/15 08/04/15

HealthFusion Alegis Revenue Solutions Merge Health

CECity

Quality Systems (NASDAQGS: QSII) MEDNAX (NYSE: MD) IBM (NYSE: IBM) Premier (NasdaqGS: PINC)

$190.0 ~$350.0

$975.0 $400.0

~5.0x NA

4.3x NA

~15.0x ~10.0x

24.7x NA

Francisco Partners

Genstar

05/11/15 Acclaris Towers W atson (NASDAQ: TW )

$140.0 4.0x NA

04/13/15 04/13/15

Explorys Phytel

IBM (NYSE: IBM) IBM (NYSE: IBM)

~$500.0 ~$240.0

~8.0x ~10.0x

NA NA

JMI Equity 01/23/15 11/19/14

10/28/14 09/30/14 09/23/14 09/15/14

Strata Decision Technology Change Healthcare Corporation Alere Health

MedSynergies SPi Healthcare TriZetto Corporation

Roper Industries (NYSE: ROP) Emdeon Optum Optum Conifer Health Solutions Cognizant Solutions (NasdaqGS:CTSH)

~$140.0 $185.0

$600.0 ~$800.0 $235.0

$2,700.0

NA ~10.0x

NA NA NA NA

~18.0x NA

~12.0x 20.0x+ ~8.5x

~13.0x Norwest Equity Partners

Sector Valuation Snapshot Serent Capital ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /

as of 3/23/16

as % of 52- W eek H igh

Enter pr ise Value

Revenue EBIT DA Pr ice / Ear nings 2017E P/E/G Companies CY 16E CY 16E CY 16E CY 17E

The Blackstone Group Legacy H CIT

Cerner Corporation athenahealth, Inc. Allscripts Healthcare Solutions, Inc.

The Advisory Board Company Medidata Solutions, Inc. W ebMD Health Corp.

HMS Holdings Corp. Omnicell, Inc.

Quality Systems Inc. Computer Programs & Systems Inc. Healthstream Inc. Accretive Health, Inc.

$52.66 132.74 12.30

30.39 35.66 58.22

13.29 26.31 14.39

51.49 $20.44

$2.67

70.2% 79.1% 79.2%

50.7% 59.6% 98.1%

73.1% 65.1% 83.7%

89.0% 63.6%

44.9%

$17,997.3 5,327.4 2,848.8

1,744.8 1,991.2 2,255.2

1,168.6 860.5 771.3

655.5 $498.0

$183.1

3.6x 4.8 2.0

2.1 4.3 3.2

2.4 1.2 1.4

2.1 2.2x

0.7x

10.7x 22.9 10.3

9.2 18.6 10.1

9.9 7.9 8.3

NM 13.4x

7.0

22.4x 76.1 21.2

18.1 35.5 32.3

21.4 16.9 19.5

14.9 60.7x

NM

19.5x NM 18.0

16.0 28.7 28.5

18.2 14.2 16.5

13.4 48.9x

29.7

1.3x 3.1 1.3

1.1 1.7 2.6

1.2 1.0 1.6

1.0 3.2x

2.2x

Thoma Bravo

Thomas H. Lee Partners

Waud Capital

27 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.

M ean 71.4% - 2.5x 11.7x 30.8x 22.9x 1.8x M edian 71.7% - 2.1 10.1 21.4 18.2 1.5

02/18/15 Corepoint Health Audax Group ~$100.0 ~4.5x ~10.0x

05/06/15 Sentry Data Systems ABRY Partners $200.0 NA 9.5x

07/06/15 Altegra Emdeon $910.0 NA ~15.0x 06/30/15 Precyse Solutions Pamplona Capital Management NA NA NA

11/02/15 MedAssets Pamplona Capital Management $2,700.0 3.6x ~11.0x

01/28/16 Premier Health Exchange/Pay-Plus Solutions Stratose Inc. (Parthenon Capital) Confidential

Healthcare Consulting Industry Drivers Executive Summary

• Demand for consulting services, broadly defined, continues to be strong as a number of factors drive need for various services, either strategic, operational or IT-related

requiring significant organizational shifts to traditional care models

> Lack of internal IT expertise

•

•

•

M&A activity in the sector remains robust, with a number of significant deals getting done in the last 12-18 months

Both strategics and financial sponsors actively involved in many of the transactions for core-consulting assets

Traditional consulting firms also continue to look for add-on capabilities (sector focus, analytics, revenue cycle, IT implementation)

28

 

Reimbursement Changes

• Shift from Fee-for-Service, volume-based payment model to one dependent more on care and quality factors • Need for greater care coordination across the continuum, from ambulatory to acute to post acute settings, is

• Ability to share or independently manage risk through emerging reimbursement designs (ACO, bundled payments, share savings program) will be required to succeed into the future

 

Provider Cost Pressures

Care Transition Pressures

Technology Adoption

• Provider margins continue to be challenged > Changes to Medicare associated with PPACA, including rate reductions for developments such as hospital

acquired conditions and quick readmissions > Managed care industry consolidation > Technology investments required under HITECH > Increased payment risks associated with greater prevalence of high deductible plans

• Continued push to move patients out of high cost acute care hospitals into lower cost settings (e.g. skilled nursing, short-term rehab, home health, etc.)

• Increased focus on patient “leakage” not only to non-affiliated physician groups, but now to PAC providers outside of an acute care providers sphere of influence > Rapidly forming relationships to complete a full continuum of care – from the hospital through to the home

(and everything in between)

• Significant investment in HIT across the provider > Myriad of systems to choose from

> Much greater access to previously siloed data

Healthcare Consulting Select Industry Players

Industry Names / Comps

29

 Public Firms

 Strategy

 Operational / Financial

 IT-Focused

 

(Pamplona)

 

(Inovalon)

(RLH)

(Gryphon)

(McKinsey)

(Pamplona)

(Huron)

 

(GE)

(HealthEdge)

(Madison Dearborn)

(CHS)

(Truven)

 

(Ferrer Freeman)

(Chartis/RLH)

(KPMG)

(Tailwind)

(LLR)

(SVLS/HEP)

(Century)

Home Health Overview Viewpoint: Aging U.S. demographics and lowest-cost care setting are long-term tailwinds, but volume and reimbursement pressure create near to mid-term headwinds

• Total home health care expenditures in the U.S. is approximately $75 billion Medicare-Certified Home Health Agencies, 2000-2013 >

>

Medicare and Medicaid account for over 80%

Estimated spending by both programs expected to continue to grow well into the future 12,613 12,02612,225

10,961 • In 2013, Medicare spend $17.9 billion on home health serving ~3.5 million beneficiaries (86% age 65+)

8,955 9,404 8,314 > Home health currently utilized by 3.5 million Medicare beneficiaries (~6.0%

penetration rate) 7,525 7,061 7,057 7,352

• Significant number of lives already covered under governmental programs

> ~50 million people currently covered under Medicare, with 10,000 people becoming eligible every day due to aging demographics

~62 million people currently covered under Medicaid, with another 16 million expected by 2019 due to reform

Average Home Health

Utilization by Medicare Beneficiaries

~6.0%

>

• Highly-fragmented industry ripe for consolidation 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

> ~12,600 Medicare-certified home health agencies (~21% market share by the six publicly traded operators) Estimated Medicare Home Health Spending, 2014-

2($0in25 Estimated Home Health Market Share billions)

($ in $27 millions)

$22 $21 $20 $19 $18 $18 $18 $17 $17 Publicly traded operators ~24%

2014A 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Source: CMS Office of the Actuary, CMS Statistical Supplement, and CBO Medicare Baseline. 30

$24 $25 Rank Company O wner ship Est. Revenue Shar e

1 Kindred Healthcare NYSE (KND) 1,579 8.4%

2 Amedisys Nasdaq (AMED) 1,072 5.7%

3 LHC Group Nasdaq (LHCG) 630 3.3%

4 Almost Family Nasdaq (AFAM) 532 2.8%

5 AccentCare O ak Hill Capital Partners 500 2.6%

6 Encompass / CareSouth NYSE (HLS) 478 2.5%

7 Bayada Home Health Private 275 1.5%

8 HCR ManorCare (Heartland ) The Carlyle Group 215 1.1%

9 Nurse on Call NYSE (BKD) 200 1.1%

10 Great Lakes Caring W ellspring Capital 80 0.4%

T op 10 5,561 29.5%

11,654

10,040

7,804

$59.5 0.8x 10.6x

~$40.0 ~$0.9 NM

$37.0 1.0x 7.1x

$300.0 1.2x 6.2x

Home Health Market Activity Notable Recent M&A Transactions ($ in millions) Enter pr ise Value /

Revenue M ultiple

EBIT DA M ultiple Announced T ar

get Acquir or Enter pr ise Value

Long Term Solutions Almost Family $37.0 2.4x NA 1/5/2016

10/31/15 Heritage Home Healthcare Evangelical Lutheran Good Samaritan Society

CONFIDENTIAL

11/03/15 Infinity Homecare Amedisys $63.0 1.3x 9.8x

08/31/15 CareSouth Health System

Encompass Home Health

$170.0 1.6x ~17.0x

08/24/15 South Shore Home Health Services and Acaring Home Care

Addus HomeCare Corp. $18.5 0.4x NA

02/25/15 W illCare HealthCare Almost Family $50.5 0.7x 6.1x

01/12/15 Pediatric Unit of Loving Care Agency Epic Health Services Inc

$99.0 0.9x ~9.0x

12/08/14 PrimeCare Network Jordan Health Services Inc

NA NA NA

10/09/14 Gentiva Health Services

Kindred Healthcare $1,798.3 0.9x 9.6x

07/10/14 Residential Home Health

Graham Holdings Company ~$90.0 1.1x ~8.0x

04/28/14 Great Lakes Caring W ellspring Capital Management

~$180.0 ~1.4x ~8.5x

12/11/13 U.S. Medical Management (Visiting Physicians Association)

Centene Corp $293.3 1.3x 9.8x

11/04/13 Senior Home Care Kindred Healthcare Inc. $95.0 0.7x ~7.5x

10/09/13 Imperium Health Management

Almost Family (61.5% majority interest) $9.4 NA NA

09/17/13 Bluebird Care Franchises (U.K.)

Interim HealthCare (Caring Brands International) NA NA NA

07/24/13 American Eldercare Humana Inc $150.0 2.0x NA

Sector Valuation Snapshot ($ in millions, except per share data) Companies

Closing Pr ice Enter pr ise Value / as of

3/23/16

as % of 52- Enter pr ise

Revenue EBIT D A Pr ice / Ear nings

2017E

P/E/G W eek H igh Value LT M CY 16E CY 17E LT M CY 16E CY 17E CY16E CY 17E Amedisys Inc.

LHC Group, Inc.

Almost Family Inc.

Addus HomeCare Corporation

$37.98

37.43

39.08

24.05

80.1%

73.2%

78.6%

67.3%

$1,339.9

781.1

522.5

270.2

1.1x

1.0

1.0

0.8

1.0x

0.9

0.8

0.7

0.9x

0.8

0.8

0.6

12.5x

10.7

11.9

10.6

10.7x

9.7

10.4

9.2

9.0x

9.1

9.6

8.1

21.8x

19.0

16.0

18.8

17.8x

17.6

14.8

15.8

1.2x

1.2

1.0

1.1

31 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.

Mean 74.8% - 1.0x 0.8x 0.8x 11.4x 10.0x 9.0x 18.9x 16.5x 1.1x

Median 75.9% - 1.0 0.9 0.8 11.3 10.0 9.1 18.9 16.7 1.1

07/17/13 Indiana Home Care Network (d/b/a Innovative Home Health) Almost Family $12.5 0.9x 5.0x 06/23/13 Visiting Nurse Association of Boston and Affiliates (VNA of Boston) VNA Care Network & Hospice (Atrius Health) CONFIDENTIAL 02/07/13 Addus HomeCare Medicare operations (19 HHAs and 2 hospice) LHC Group Inc $20.0 0.5x NA

M ean M edian

1.0x 7.7x 0.9x 7.8x

09/03/13 Alegis Care Cigna Inc ~$50.0 ~1.7x ~8.3x

09/19/13 Harden Healthcare Gentiva Health Services Inc $408.8 0.9x 7.6x

10/03/13 Healthcare Innovations Private Services (HCIPS) Jordan Health Services Inc ~$45.0 ~1.0x ~4.5x

11/05/13 SunCrest Healthcare Almost Family Inc $75.5 0.5x NM

02/03/14 BioScrip's Home Health Services Segment (Deaconess HomeCare) LHC Group CONFIDENTIAL

07/15/14 Life Care Home Health LHC Group $10.0 0.4x NA

09/12/14 All Metro Health Care Services Nautic Partners ~$75.0 0.7x ~5.0x

11/23/14 Encompass Home Health HealthSouth $750.0 2.0x 10.0x

December 2014 Caregivers America All Metro Health Care Services $47.5 0.9x 5.3x

01/15/15 Home Health business of Revera Inc Extendicare Inc (ParaMed Home Health Care) $83.0 0.4x 6.5x

03/23/15 Pediatric Services of America (PSA) Healthcare J.H. W hitney ~$205.0 0.9x ~10.0x

08/25/15 Help at Home W ellspring Capital Management ~$300.0 0.7x 5.5x - 6.0x

10/28/15 Nurses Registry and Home Health Corp LHC Group $5.7 0.9x NA

12/09/15 Active Day / Senior Care Audax Group $200.0 NA >10.0x

11/04/15 Home Care by Black Stone Almost Family $40.0 0.8x 10.0x

02/11/16 Associated Home Care Amedisys $28.0 0.7x ~6.2x 02/10/16 All Metro One Equity Partners CONFIDENTIAL 02/05/16 Jordan Health Services Blue W olf Capital ~$365.0 ~1.3x ~8.0x

Home Health Market Private Equity Investments

Activity

Private Equity Investments

Angelo, Gordon & Company Linsalata Capital Partners

Audax Group Oak Hill Capital Partners

Blue Wolf Capital Onex Partners

Boyne Capital One Equity Partners

The Carlyle Group Patriarch Partners

Evolve Capital Peachtree Equity Partners

Formation Capital Petra Capital Partners

Frazier Healthcare Pouschine Cook Capital Management

Fulcrum Equity Partners Psilos Group

Generation Growth Capital Transition Capital Partners

Graham Holdings Valor Equity Capital

J.H. Whitney Webster Capital

Levine Leichtman Capital Partners Wellspring Capital Management

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (Star denotes company is currently in market) 32

Home Infusion Overview Viewpoint: Highly fragmented industry with favorable demographics positively viewed by both payers and regulators; M&A activity has remained strong with both strategics and private equity showing a high level of interest in the space

Industry Drivers and Trends Estimated Infusion Spending ($ in billions)

• Highly fragmented market, primarily mom-and-pop operators $13.8

• Over 1,000 U.S. home infusion providers with an estimated 3,000 to 4,000 branch locations

> Industry consolidation driven by a few large strategics (e.g. Coram, Option Care, PharMerica, United) and private equity

• Significant consolidation occurred in last 12-24 months as PE-backed businesses / platform assets matured resulting in somewhat of a lull currently

• Increasing prevalence of chronic conditions

> 65+ population: ~90% have at least one chronic condition, ~70% have two or more and ~45% have three or more

2011 2016P • Significant pipeline of new infused and injectable drugs

> 2,200+ specialty drugs in development (~1/3 are infusible)

• Lowest cost setting -- increasing need for cost-containment and reducing hospital re-admission rates Payer Mix

> Significant reduction in patient-acquired infections in the home

• Payers increasingly looking for a select number of preferred providers while cracking down on out-of-network care

Medicare 15%

> Clinically effective and more cost efficient for payers

Commercial 70% Regulatory/Reimbursement Environment 10%

• Well positioned to benefit from health care reform

> New care models focusing on quality care in the lowest cost setting Private Pay

5% • Medicare Home Infusion Site of Care Act of 2015

> (H.R. 605 / S. 275) seeks to expand coverage for Medicare beneficiaries, improve quality and ensure lower cost treatments in the home

33

 

$9.0

$12.0

Home Infusion Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enterprise Value /

Beecken Petty O’Keefe & Company

Enterprise

Value Revenue Multiple

EBIT D A Multiple

Announced T arget Acquiror

BBH Private Equity

09/08/15 Option 1 Healthcare Solutions

Epic Health Services

$46 - $52 NA 7.0x - 8.0x

Excellere Partners 02/26/15 BioRx Diplomat

Pharmacy $315.0 1.4x 13.7x

H.I.G. Capital 10/02/14 Advanced Care

AxelaCare Health Solutions

NA NA NA

02/04/14 ARC Infusion

AxelaCare Health Solutions

NA NA NA KRG Capital Partners

06/17/13 CarePoint Partners

BioScrip

$223.0 1.5x 11.0x

Madison Dearborn Partners 01/31/13 Equinox

Healthcare AxelaCare Health Solutions

$17.5 0.9x 13.5x

MidMark Capital 12/13/12 HomeChoice Partners

BioScrip

$72.9 1.0x 9.1x

07/31/12 InfuScience

BioScrip Inc

$39.9 1.0x NA NewSpring Health Capital

02/06/12 Crescent Healthcare

W algreen

~$75.0 0.5x NM

Norwest Equity Partners 04/26/10 Equinox

Healthcare Serent Capital

~$35.0 NA 7.0x

Riordan Lewis & Haden / Skyline Global Partners

Mean Median

Sector Valuation Snapshot ($ in millions, except per share data)

Closing Pr ice

Enter pr ise Value / as of

3/23/16 as % of 52- Enter pr ise W eek H igh Value

Revenue EBIT D A

Pr ice / Ear nings

2017E P/E/G LT M CY 16E CY 17E LT M CY 16E CY 17E CY16E CY 17E Companies

BioScrip, Inc.

$2.20 40.6% $632.6 0.6x 0.7x 0.7x 14.5x 12.5x 10.1x NM NM 9.3x

34 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.

1.3x 10.8x 1.4x 10.9x

01/25/10 Critical Homecare Solutions Holdings BioScrip $349.8 1.4x 9.0x

12/03/10 AxelaCare Health Solutions Excellere Partners ~$80.0 NA ~9.0x

06/12/12 Pentec Health Norwest Equity Partners $140.0 2.3x 7.0x

10/11/12 Home Solutions KRG Capital Partners $123.0 1.4x 10.8x

12/13/12 Amerita Pharmerica $84.0 NA 10.5x

04/15/13 AxelaCare Health Solutions Harvest Partners $234.0 NA ~12.0x

11/27/13 Coram Infusion CVSCaremark ~$2,100.0 ~1.6x ~13.0x

07/01/14 Alteus Health Pharmerica Corp NA NA NA

01/20/15 W algreens Infusion Services (majority stake) Madison Dearborn Partners ~$1,115.0 ~1.3x ~12.5x

07/22/15 ContinuumRx NewSpring Health Capital NA NA NA

11/17/15 AxelaCare OptumRx ~$650.0 ~1.4x ~13.5x

Hospice Overview Viewpoint: Favorable aging U.S. demographics and cost-efficient relative to curative care outweigh looming reimbursement pressure and negative headline risk

•

•

•

Medicare spent $15.1 billion on hospice care in 2012

In 2014, 1.6 to 1.7 million patients received services from hospice

Increasing acceptance and utilization of hospice benefit

Estimated Medicare Hospice Spending ($ in billions)

$21.6 $20.3 > Remains an underserved market (45% in 2011 vs. 23% in 2000) $19.1

• Compelling aging U.S. demographics, especially age 85+ $17.0 $16.2 $15.4 $15.1 > 84% of beneficiaries are over 65 years old, 67% are over 75 years old and almost 41% are over 85 years old $13.8 $13.0 $12.1

• Highly-fragmented industry ripe for consolidation >

>

Over 3,900 Medicare-certified hospice programs in 2013

Publicly traded operators control only ~14% market share

• Continued shift in patient diagnoses mix away from cancer > Cancer as primary diagnosis was 37% in 2013 vs. 75% in 1992

•

•

Bi-partisan support as lowest cost care setting

Revenue diversification play is attracting new entrants 2009A 2010A 2011A 2012A 2013 2014 2015 2016 2017 2018 2019

Estimated Hospice Market Share ($ in millions)

Patient Care Days by Payer

Private Insurance

4%

2 Kindred Healthcare NYSE (KND) 657 4.3% Three publicly traded operators ~13%

4 HCR ManorCare (Heartland) The Carlyle Group 400 2.6% Medicare

90% Medicaid 4%

Charity Care 0%

Self Pay

6 Amedisys Nasdaq (AMED) 261 1.7%

8 Compassionate Care Hospice

Private 220 1.5%

10 Suncoast Hospice (NFP)

Private 145 1.0% 0% Other

1%

Source: 2013 CMS Statistical Supplement, 2015 NHPCO Facts and Figures and 2009 CBO Medicare Baseline. 35

T op 10 4,167 27.5%

9 Seasons Hospice & Palliative Care Private 200 1.3%

7 Hospice of the Valley (NFP) Private 220 1.5%

5 Hospice Compassus Formation Capital / Audax 450 3.0%

3 Curo Health Services THLee Partners 500 3.3%

Rank Company Owner ship Est. Revenue Shar e 1 Chemed (VITAS) NYSE (CHE) 1,115 7.4%

$18.0

$120.0 1.5x 14.5x

Hospice Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enter pr ise Value / Behrman Capital

Enter pr ise Value

Revenue M ultiple

EBIT DA M ultiple Announced T ar

get Acquir or

Blue Wolf Capital

01/19/16 New Century Hospice Curo Health Services CON FIDEN T IAL

09/03/15 Halcyon Hospice LHC Group Inc $58.5 1.4x 10.6x The Carlyle Group 12/03/14 Guardian Angel Hospice The Ensign Group Inc NA NA NA

Clearview Capital 10/09/14 Gentiva Health

Services Kindred Healthcare $1,798.3 0.9x 9.6x

Fillmore Capital Partners 04/28/14 Great Lakes Caring W ellspring Capital Management

~$180.0 ~1.4x ~8.5x

07/10/13 LifeChoice Hospice Trident USA Health Services $92.0 0.8x 6.0x Formation Capital / Audax Group 02/04/13 Horizon Hospice Scripps Health $16.6 NA NA

Frazier Healthcare 12/03/12 SolAmor Hospice

LifeChoice Hospice $85.0 1.4x 6.2x

07/24/12 Hearts for Hospice Abode Healthcare $12.0 NA NA Fulcrum Equity Partners

New Capital Partners

* The Riverside Company

Sector Valuation Snapshot ($ in millions, except per share data)

The Straus Group

Summit Partners Closing Pr ice

Enter pr ise Value / as of as % of 52- Enter pr

ise

3/23/16 W eek H igh Value

Revenue EBIT D A

Pr ice / Ear nings

2016E P/E/G Companies LT M CY 16E CY 17E LT M CY 16E CY 17E CY 15E CY 16E

Thomas H. Lee Partners Chemed Corp.

Amedisys Inc.

LHC Group, Inc.

$129.28 37.98

37.43

81.4% 80.1%

73.2%

$2,317.7 1,339.9

781.1

1.5x 1.1

1.0

1.5x 1.0

0.9

1.4x 0.9

0.8

9.8x 12.5

10.7

9.8x 10.7

9.7

9.3x 9.0

9.1

17.9x 21.8

19.0

16.9x 17.8

17.6

1.7x 1.2

1.2 Wellspring Capital Management

* Indicates company currently in market

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 36

Mean 78.2% - 1.2x 1.1x 1.1x 11.0x 10.1x 9.1x 19.6x 17.5x 1.3x Median 80.1% - 1.1 1.0 0.9 10.7 9.8 9.1 19.0 17.6 1.2

05/31/12 Hospice Family Care Inc Curo Health Services $40.0 1.6x 8.0x

M ean M edian

1.3x 9.0x 1.4x 8.5x

08/13/12 Community Home Care and Hospice Curo Health Services ~$80.0 0.8x ~8.0x

12/14/12 Hospice Advantage Sentinel Capital Partners $130.0 1.3x 8.0x

03/12/13 Heart to Heart Hospice (minority investment) Summit Partners NA NA NA

Oct 2013 St. Croix Hospice Clearview Capital NA NA NA

05/12/14 SouthernCare Inc Curo Health Services ~$230.0 ~1.4x ~10.0x

11/11/14 Hospice Compassus Formation Capital / Audax Group / Safanad >$300.0 ~1.7x ~10.0x

02/10/15 Life Choice Hospice Hospice Compassus NA NA NA

10/08/15 Hospice Advantage Hospice Compassus NA NA 11x - 12x

Hospital-Based Outsourcing Overview Viewpoint: Hospitals will increasingly outsource specialty services and departments to gain efficiencies and reduce operating costs

Industry Drivers and Trends Growth in Hospital Outsourcing

• Hospital outsourcing specialties include: 88%

Expertise of Vendor 66% 55% >

>

>

>

>

Emergency department - estimated $18 billion market

Anesthesiology - $19 billion

Hospitalist - $18 billion

Radiology - $11 billion

Surgery services - $2 billion

Cost Savings

2012

2008

2006

Requested by Physicians

Add New Service Line • Growth driven by: > Scale and operating efficiencies, improved access to personnel

and more comprehensive infrastructure offered by outsourcing companies

Revenue Enhancement

0% 20% 40% 60% 80% 100%

– Specialty departments can present operational challenges such as complex billing and administration, difficulties recruiting and retaining qualified staff

Outsourcers are providing, and some hospitals seeking multiple service lines from a single provider

Projected PCP Shortage

>

Team Health 9%

N Group 12%

– Supplementing margins across service lines

– Cross-selling opportunities and expansion into complementary markets

Health care labor market challenges

Expanded coverage with health care reform to drive incremental volume growth

~5,000 Community Hospitals

~3,250 (60%) Outsource ED

Functions

Envision 12% >

>

Local Group 48%

Regional Group

19%

Source: Wall Street Research and Society of Hospital Medicine 37

47% 25%

23%

25% 20%

17%

21% 12% 11%

18% 12%

10%

Managed Care Overview Viewpoint: Attractive sector with strong membership growth in government programs. ACA is creating new opportunities in segments including insurance exchanges and consumer oriented healthcare

Industry Drivers and Trends Projected Health Care Enrollment (in millions) 384.5 381.5 378.7 375.3 • Given that Health Care Reform ultimately became Insurance

Reform, the managed care sector is being impacted as much if not more than any other sector of health care

371.7 368.0 363.5 359.4 355.2 351.3 349.7

> Increased consolidation activity as scale will matter and many MCOs will choose to diversify

Unprecedented provider and payer collaboration activity >

• Coverage of the uninsured with the Medicaid expansion could expand coverage to 17 million additional people, with the federal government picking up the vast majority of the cost

2013 2014E 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E 2023E

• Despite increased reimbursement pressures and relatively flat benchmark rates, the Medicare Advantage sector is expected to continue growing

Medicare Employer-Sponsored Insurance

Medicaid / CHIP Other Insurance

Uninsured

National Health Expenditures, 2016E > Aging baby boomers are increasingly likely to select Medicare Advantage and membership is projected to reach 21 million by 2023

11.2% • Dual eligible opportunity is eagerly anticipated with approximately 9 million dual eligible Medicaid and Medicare beneficiaries in the U.S.

14.7% Out-of-Pocket

Private Health Insurance Medicare >

>

5.5 million low income seniors

3.5 million people with disabilities, under age 65 17.6% $3,229 bn

35.3% Medicaid • In 2014, 8 million people enrolled in the public health insurance

marketplace Other Third Party Payor 21.2%

> 2.2 million were young adults aged 18 to 34

• About 12.7 million people selected plans through Health Insurance Marketplaces during Open Enrollment for 2016

coverage Source: Centers for Medicare and Medicaid Services, Wall Street Research and Marwood Research Reports 38

23.0 22.9 22.8 22.9 44.9 35.9 27.7 23.2 23.2

170.1 171.6 172.9 173.8 169.4 169.5 171.9 171.0 170.1

63.9 72.0 76.0 80.9 82.1 83.1 83.7 84.3 84.9

51.0 52.7 54.4 56.0 57.7 59.4 61.1 62.9 64.7

22.9  32.4

25.2 28.3 30.4 32.4 32.4 32.4 32.4

174.2

85.5

66.5

23.0  

20.5 21.2 32.5  

174.6

 86.0

 68.4

$66 5.2x

~$1,200 11.4x

$194 8.2x

Managed Care Market Activity Notable M&A Transactions ($ in millions)

Private Equity Investments T ransact

ion V alue

EBIT D A M ult iple

Announced T arget Acquiror Partners Group, Starr Investment Holdings

12/08/14

Car e1st Health Plan

Blue Shield of Califor nia

CON FIDEN TIAL aPiori Capital Partners,

Blackstone, Credit Suisse and Goldman Sachs Capital Partners

06/05/14

Centene Cor por ation

~$125 NA

09/30/13

NA NA Healthfir st Health Plan of New Jer sey (cer tain assets)

W ellCar e Health Plans

07/29/13

Molina Healthcar e of South Car olina

$65 NA

$150 NA 07/24/13

Amer ican Elder car e

Humana Camber Capital

Management, Deerfield Capital Management, Foresite Capital Management, Lee Equity Partners, Partners Healthcare Solutions, WCAS

07/09/12

$4,830 16.1x Amer igr oup

W ellPoint

07/02/15

$38,927 14.4x Humana

Aetna

11/05/12

$850 8.8x Metr opolitan Health Networ ks

Humana

11/22/11 $1,750 9.3 x X LHealth

UnitedHealth Gr oup

07/23/15

~$53,160 13.5x Cigna Anthem Bain Capital, Diamond Castle Holdings 02/02/1

4 NA NA GlobalHealth,

Inc. Kinder hook Industr ies

Essex Woodlands 01/07/13

NA NA GEMCar e Health Plan

Blue Shield of Califor nia

Crescent Capital Group, Genstar Capital

08/20/12

Coventr y Health Car e

Aetna $7,224 7.8x

Sector Valuation Snapshot Closing Pr ice Enter pr ise

Value / Broad Street Principal Investments, Pamplona Capital Management

($ in millions, except per share data) Companies

as of 3/23/16

as % of 52- W eek H igh

M ar ket Value

Enter pr ise

Value

Revenues EBIT DA Pr ice / Ear nings

2017 P/E/G CY 16E CY 16E CY 16E CY 17E

M anaged Car e - Commer cial UnitedHealth Group, Inc. Anthem, Inc.

Aetna Inc. Cigna Corp. Health Net, Inc. Triple-S Management Corporation M anaged Car e - M edicaid

$129.79 139.50 111.75 137.87 67.19 24.50

99.6% 80.4% 83.1% 80.8% 87.6% 90.0%

$124,712.6 36,722.0 39,337.9 35,574.3

5,244.0 617.6

$158,448.6 53,887.4 47,230.2 40,821.3

5,928.8 653.7

0.9x 0.7 0.8 1.0 0.3 0.2

10.6x 9.1 9.2 8.9 8.5 9.1

16.9x 12.8 14.3 15.2 17.9 15.3

14.9x 11.7 13.0 14.1 16.2 12.9

1.2x 1.1 1.2 1.3 0.9 2.1

Kinderhook Industries

Centerbridge Partners, Nautic Partners

Oxford Capital, River Cities Capital, Semaphore Capital, Spring Street, Stonehenge

Centene Corp. Molina Healthcare, Inc. M anaged Car e - M edicar e

$62.70 62.92

75.5% 76.4%

$7,661.6 3,540.6

$9,051.6 5,149.6

0.4x 0.3

8.8x 8.2

17.4x 16.6

15.7x 14.1

0.7x 0.6

Humana Inc. W ellCare Health Plans, Inc. Universal American Corp

$183.59 92.07 6.83

83.5% 93.2% 61.2%

$27,248.4 4,062.4

551.4

$31,669.4 5,274.5

551.4

0.6x 0.4 0.3

10.9x 9.1

15.6

20.7x 20.5 NM

18.8x 17.7 24.4

1.4x 0.8 NA

TA Associates

Water Street Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 39

10/08/12 Amil Par ticipacoes SA UnitedHealth Gr oup ~$4,859 NM

11/25/13 Inter Global Gr oup Aetna Inc. (NYSE:AET) NA NA

07/02/15 Health Net Centene $5,725 11.7x

10/24/11 HealthSpr ing CIGNA $3,828 7.6x Com m ercial / D

iversified

09/06/12 Easy Choice Health Plans W ellCar e Health Plans NA NA

09/05/13 W indsor Health Gr oup Inc (Munich Re) W ellCar e Health Plans ~$275 NA

10/25/11 HealthPlus (Luther an Medical Center ) Amer igr oup CON FIDEN TIAL

M edicare

05/15/13 Hudson Health Plan MVP Health Car e CON FIDEN TIAL

Community Health Solutions of Amer ica (Cer tain Assets of South

Car olina Solutions Business)

M edicaid 12/22/14 Simply Healthcar e Anthem ~$800 NA

Community Health Solutions - Louisiana Depar tment of Health and

Hospitals ("LHCC") Contr act

Medical Technology & Supplies Overview Viewpoint: Industry is regaining its footing after the impacts of the financial crisis and ACA. Industry looking at further consolidation over medium-term as it grapples with pricing pressure, need for scale and improved cost- effectiveness

Industry Drivers & Trends MedTech Global Revenues (USD in billions) 5.9 $400.0

$350.0

$300.0

$250.0

$200.0

$150.0

$100.0

$50.0

$0.0

• The Medical Technology & Supplies industry is undergoing dramatic change as a result of the passage of Healthcare Reform in 2010 (aka, Patient Protection and Affordable Care Act (PPACA), or “ObamaCare”)

The MedTech industry’s financial contribution toward reform consists of the “MedTech Tax” > Objective of the tax is to raise $20B over 10 years, beginning on

Jan 1, 2013, through a 2.3% sales tax imposed on all medical devices

> On December 15, 2015, the Consolidated Appropriations Act was signed in to law, which provided medtech companies a two-year moratorium on the medtech tax. The moratorium began on Jan 1, 2016 and runs through 2017

Due to Healthcare Reform and the shifting of risk from payors to providers, medtech companies are bearing more responsibility and are now required to demonstrate the value or cost-effectiveness of their technology as well as improved clinical outcomes

A number of other trends are emerging within the Medtech industry including:

%

•

2012 2013 2014 2015 2016

Diversified Pure-play MedTech

MedTech’s Largest Markets Global Orthopedics Market, $40.2B

• Global Stent Market, $3.9B

Dental $3.3 8%

CMF $1.2 3% Extremitie

s $1.8 4%

• Other $0.3 8%

Hips $5.5 14% Medtronic

$1.1 28%

> Industry consolidation and need for scale, leverage and product breadth Expansion in to services and “solutions” Development of new business models Globalization, particularly BRIC economics CFO/Purchasing managers becoming more influential in purchasing decisions vs. physicians

Knees $6.8 17%

Abbott $1.3 34%

> >

> >

Trauma $5.5 14%

Boston Scientific

$1.2 30%

Spine $9.5 23%

Biologics $1.6 4% Source: Cain Brothers’ research, Wall Street research. 40

5.5 5.5 % 2.8 % %

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Medical Technology & Supplies Market Activity Notable M&A Transactions ($ in millions)

Private Equity Investments Announced T arget Acquiror Ent erprise V

alue LT M M ult iples

Revenue EBIT D A Madison Dearborn Partners

02/16/16 Physio-Cont rol Int ernat ional, Inc.

St ryker Corporat ion 1,280.0 2.5 18.4

02/01/16 Aler e Inc.

Abbott Labor ator ies

7,980.3 3.2 14.6

Golden Gate Capital 01/08/16 Affymetr ix,

Inc. Ther mo Fisher Scientific, Inc.

1,141.8 3.2 24.7

11/16/15 Sur giQuest, Inc.

CONMED Cor por ation 265.0 6.0 NM

Carlyle 10/29/15 Blue Belt Holdings,

Inc. Smith & Nephew plc 275.0 14.5 NA

09/03/15 AqueSys

Aller gan

300.0 NA NA

Altaris 08/25/15 Twelve, Inc. Medtr onic 458.0 NM NA

07/01/15 Pat t erson M edical Supply

M adison D earborn Part ners

715.0 1.5 10.6

06/18/15 Lumenis Ltd X IO Gr oup

454.7 1.6 15.5 KKR

06/10/15 Bayer AG, Diabetes Car e Business

Panasonic Healthcar e Holdings Co, Ltd.

1,156.9 NA NA

Sequoia, Deerfield, and Rock Springs

03/02/15 Amer ican Medical Systems Holdings, Men's Health Business

Boston Scientific Cor por ation

1,650.0 4.1 NA

Note: Bolded rows represent sponsor related transactions.

Sector Valuation Snapshot RA Capital, Longitude Capital, and H.I.G.

BioVentures ($ in millions, except per share data) Closing Pr ice Enter pr ise Value /

as of

3/1/16

as % of 52-

W eek H igh

M ar ket

Value

Enter pr ise

Value

Revenues EBIT DA Pr ice / Ear nings 2016E

LT M CY 16E CY 17E LT M CY 16E CY 17E CY 16E CY 17E PEG

Lar ge Cap / Diver sified Johnson & Johnson

Medtronic plc

Abbott Laboratories

Stryker Corporation

Becton, Dickinson and Company

Koninklijke Philips N.V Boston

Scientific Corporation Baxter

International Inc. Zimmer

Biomet Holdings, Inc. St.

Jude Medical Inc.

$107.22

74.18

39.33

100.92

150.12

26.27

17.22

39.98

97.39

54.13

100.0%

93.3%

76.0%

95.8%

95.3%

86.5%

90.3%

54.9%

80.3%

67.0%

$295,858

104,309

58,669

37,641

31,798

24,093

23,219

21,904

19,364

15,352

$277,343

122,857

61,545

37,588

43,001

28,431

28,577

21,063

29,297

21,067

4.0x

4.3

3.0

3.8

3.8

1.1

3.9

2.1

4.9

3.8

3.9x

4.2

3.0

3.5

3.4

1.1

3.6

2.1

3.9

3.5

3.7x

4.0

2.8

3.3

3.3

1.0

3.4

2.1

3.8

3.4

12.5x

14.3

13.8

14.1

15.0

11.6

15.5

14.1

12.5

13.1

11.3x

12.6

12.1

13.2

11.8

7.8

12.3

12.2

9.8

12.6

10.5x

11.2

11.4

12.2

10.9

7.2

11.5

10.9

9.1

11.7

16.4x

15.6

18.2

17.9

17.4

15.0

16.4

26.9

12.4

13.6

15.5x

14.1

16.2

16.3

15.5

13.0

14.5

22.7

11.2

12.4

3.0x

2.1

1.8

2.3

1.5

0.5

1.5

2.5

1.2

1.4

InterWest Partners, Kleiner Perkins, and Novartis

Venture Funds

Warburg Pincus, Vertical Group, and Fidelity

41 Source: Company filings, Capital IQ, Wall Street research, and Cain Brothers’ estimates.

M ean 83.9% - - 3.5x 3.2x 3.1x 13.7x 11.6x 10.7x 17.0x 15.2x 1.8x

M edian 88.4% - - 3.8 3.5 3.3 14.0 12.1 11.0 16.4 15.0 1.6

03/02/15 Cer tain Assets of Cor dis (J&J) Car dinal Health, Inc. 1,944.0 2.5 NA

03/05/15 Ikar ia, Inc. Mallinckr odt plc 2,300.0 NA NA

06/17/15 W elch Allyn, Inc, Hill-Rom Holdings, Inc. 2,078.1 1.1 13.9

06/28/15 TEI Biosciences and TEI Medical Inc Integr a LifeSciences Cor por ation 312.0 4.9 NA

07/22/15 Thor atec St. Jude Medical 3,507.9 7.4 30.8

08/27/15 Lake Region Medical Gr eatbatch 1,730.0 NA NA

09/15/15 Sir ona Dental Systems Dentsply 5,178.4 4.5 18.5

10/29/15 Aesynt Incor por ated Omnicell, Inc. 275.0 1.5 13.8

01/05/16 Ellipse Technologies, Inc. NuVasive, Inc. 462.8 11.5 NM

02/01/16 Sage Product s, LLC St ryker Corporat ion 2,775.0 6.5 NA

02/02/16 Creganna M edical Lt d. T E Connect ivit y Lt d. 895.0 3.6 NA

02/22/16 Br ightr ee LLC Resmed Cor p. $800.0 7.1x 18.6x

Payer IT & Services Overview Viewpoint: Investor interest in the insurance services sector remains strong given increasing demand for more effective medical management and greater administrative efficiency and payment integrity

Industry Drivers and Trends Sources of Healthcare System Waste • Outsourcing has surfaced as a successful business model that mitigates

the burden of administration, procurement, accounting, logistics and other tasks, and develops cost-effective business processes The healthcare payer services (outsourcing) market is expected to reach $21.1 Billion by 2020 from $11.8 Billion in 2015, at a CAGR of 12.2% during the forecast period

The pace of M&A activity involving insurance services and cost containment companies has accelerated significantly in the past several years The fragmented nature of the industry creates consolidation opportunities

Administrativ Inefficiencies $100 to $150

billion

Fraud and Abuse - $125 to

Lack of Care Coordination -

$25 to $50 billion

Preventable Conditions and Avoidable Care

- $25 to $50 billion

•

• Unwarranted Use - $250 to $325 billion

Provider Inefficiency and Errors – $75 to $100

billion •

> The industry has a few large players ($1+ billion), a handful of mid-size companies ($200 - $300 million), and hundreds of small companies

• Key industry drivers include: > > > >

Rising insurance enrolments Federal healthcare mandates in the U.S. Increasing healthcare frauds In-house shortage of skilled personnel

$21 Billion Healthcare Payer Services Market(1)

$21.1 • Other key industry issues include:

> The industry has been built on a foundation of long-standing relationships, and the pace of change has historically been modest Growth in the utilization of opioids and physician-dispensed pharmaceuticals is having a significant adverse effect on costs Impact of provider choice on costs and outcomes Potential fall-out from ACA – i.e., cost shifting, reduced access

>

> >

• PE investors are attracted to state-based regulation (a strong barrier to entry) and the absence of “stroke of the pen” reimbursement risk

2012 2016E

42 (1) Source: Everest Group Research “Healthcare Payer BPO – State of Market with PEAK Matrix Assessment”, NCCI 2014, NASI and industry research. Data is from S&P’s internal industry data for WC per U.S.-based P/C insurers’ statutory annual statements and Wall Street Research.

 

$11.8

Payer IT & Services Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments

Buyer T ar get

Date T ar get Descr iption Sub-Sector ABRY Partners Helps providers achieve care quality and cost reduction

with sophisticated analytical software that generates actionable

information and clinical insights from patient records

eviCore QPID Health 2/26/16 Payer IT

ACON Investments FTV Capital StoneEagle

Services 2/17/16 processes virtual and plastic cards, checks and ACH

payments via end-to-­‐end issuing and processing capabilities Provides cost containment services and software to the private healthcare payor and P&C industries

Healthcare Payments

New Mountain Capital Trover Solutions 12/10/15 Apax Partners

and related services for the liability insurance market Engages in designing, distributing, and administering healthcare insurance plans in more than 200 countries

ABRY Partners International Medical Group 11/3/15 Payer Admin Broad Street Capital Patriot National, Inc Global HR Research,

LLC 8/21/15 Payer IT

Hellman & Friedman / Blackstone

Provides technology enabled business and consulting solutions to the healthcare industry

Emdeon Altegra Health, Inc. 8/12/15 Payer IT

Chronic Care, Inc. 8/3/15

Comprehensive Industrial Disability Management, Inc.

Offers a strategy to manage client’s workers’ compensation objectives

W orkers' Comp

KKR GENEX Services, LLC

7/31/15

New Mountain Capital Sector Valuation Snapshot

($ in millions, except per share data) Closing Pr ice Enter pr ise

Value / As of 03/01/16

As % of 52- W eek H igh

M ar ket Value

LT M Revenues

LT M EBIT DA

Pr ice / Ear nings

2016E P/E/G Onex Corporation Companies CY 15E CY 16E

Payer Admin Accenture plc Cognizant Technology Solutions Corporation Verisk Analytics, Inc. Xerox Corporation Genpact Limited Guidewire Software, Inc. Exlservice Holdings, Inc. Ebix Inc. ExamW orks Group, Inc. HMS Holdings Corp. CorVel Corporation Patriot National, Inc.

$103.45 58.21 74.34

9.93 26.58 50.52 47.66 41.22 29.58 13.64 41.78

3.92

94.2% 83.4% 90.7% 72.9% 99.0% 78.0% 97.0% 99.9% 66.7% 73.3% 89.0% 20.3%

$64,957.7 35,456.9 12,844.6 10,058.1 5,596.3 3,708.1 1,579.5 1,361.7 1,284.1 1,145.8

825.8 110.3

2.0x 2.6x 7.7x 0.9x 2.4x 7.9x 2.3x 5.7x 2.2x 2.5x 1.6x 1.1x

12.0x 12.9x 16.8x 9.1x 14.3x NM 14.4x 15.4x 15.3x 13.3x 12.5x 6.3x

21.3x 19.2x 24.7x 10.4x 21.7x NM 23.9x 18.9x NM 25.0x NA 4.7x

19.2x 17.1x 22.7x 9.0x 18.8x NM 20.4x 17.5x 53.1x 21.9x NA 4.0x

1.9x 1.1x 1.7x 0.9x 1.5x 3.7x 1.4x 1.8x 2.7x 1.1x NA

0.3x

Parthenon Capital

Stone Point

Summit Partners

43 Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates..

M ean 80.4% - 3.2x 12.9x 18.9x 20.4x 1.6x M edian 86.2% - 2.3x 13.3x 21.3x 19.0x 1.5x

Injured W orkers Pharmacy, Owns and operates a workers’ compensation home delivery W orkers' LLC pharmacy Comp

Develops and provides technology solutions for talent acquisition, assessment, and screening

Provides file reviews, diagnostic, return-to-work programs ExamW orks Group Argent Rehabilitation Services 11/23/15 Payer Admin

Offers a turn-key platform that distributes, administers and Healthcare

Payments

Post-Acute Care Overview Viewpoint: Payment reform to drive consolidation among post-acute providers and integration with hospitals

Medicare Spending ($ in Billions) Industry Drivers and Trends

• Post-acute care providers have become an important part of the delivery system for patients discharged from acute care hospitals

$185 $202

• Post-acute providers include:

> Long-term acute care hospitals (“LTACHs”)

> Inpatient rehabilitation facilities (“IRFs”)

> Skilled nursing facilities (“SNFs”), and

> Home health agencies (“HHAs”) 2003 2007 Acute Expenditures

2012 PAC Expenditures

Regulatory / Reimbursement Environment Post-Acute Care Pathways • CMS is sponsoring demonstration programs to reform the payment

system from sight-specific, volume driven to sight-neutral, value- 23% are Readmitted to Hospital

17% 35% of Hospital Discharges are

Admitted to Pos-t Acute for

AdditionalCare (“Post-Acute Admissions”)

based reimbursement > > >

Hospital readmission penalties Accountable care organizations Bundled payments for episodes of care

12% 2% 58%

10% 22%

76%

• MedPAC also recommending 41%

27% > > >

Common patient assessment for post-acute care New quality measures Expanded readmissions penalties

36%

37% 18%

48% ofPost-Acute Admissions go Home after Receiving Po-st

Acute Care

10%

9% • In March 2015, the House passed permanent “Doc Fix” > Senate to vote in April

> Expected $15 billion Medicare payment cut to post-acute providers, significantly less than feared

15%

29% are Transferred to a Secondary Pos-tAcute Venue

for Additional Care

Sources: CMS, MedPAC, and RTI International. 44

Outpatient Rehab

Home Health

SNF

IRF

LTCH

Hospital

$153  $49 $59  

29%

71%

$33 22%

78%

 

$143

 

$136

 

$120

 

____________________

Post-Acute Care Market Activity Notable M&A Transactions ($ in millions)

Private Equity Investments A dj. EV/

EBIT D A R A djusted EV (1) A nnounced T ar get A cquir or

09/16/15 Trilogy Health Services LLC

Griffin-American Healthcare REIT III $1,125.0 12.5x

08/18/14 Skilled Healthcare Group(2)

Genesis HealthCare Corporation 5,746.9 8.4

11/19/13 25 communities (Holiday Retirement)(3) N ational Health Investors

491.0 NA

11/07/13 CareTrust REIT (spin-off of real estate business)

Ensign Group NA NA

10/22/13 56 communities (Ark Holding) Omega Healthcare Investments

525.0 8.9

12/10/12 Plum Healthcare Group LLC Bay Bridge Capital Partners

NA NA

08/23/12 Sunrise Senior Living Inc

Health Care REIT Inc 2,615.7 14.3

Sector Valuation Snapshot ($ in millions, except per share

Closing Pr ice

Adjust ed Ent er pr

ise Value

Adjust ed Ent er pr ise Value / data)

as of as % of 52-

Cash EPS 2016E P/E/G Companies

Post -Acut e Car e - N ur sing Car e

3/1/16 W eek H igh CY 15E CY 16E CY 15E CY 16E CY 15E CY 16E

Kindr ed Healt hcar e Inc. Genesis Healt hcar e, Inc. The Ensign Gr oup, Inc.

Nat ional Healt hCar e Cor por at ion

Diver sicar e Healt hcar e Ser

vices Inc. AdCar e Healt h Syst

ems, Inc.

$10.60 1.76

20.75

64.08

8.00

2.20

43.0% 21.8%

76.7%

92.3%

46.6%

49.4%

$10,022.3 270.3

2,114.4

1,295.9

333.6

276.8

1.4x 0.0

1.6

N A

N A

NA

1.3x 0.0

1.4

N A

N A

NA

9.8x 0.4

9.6

N A

N A

NA

9.0x 0.3

8.1

N A

N A

NA

3.3x 1.9

5.9

N A

N A

NA

2.9x 1.7

5.2

N A

N A

NA

0.4x 0.2x

0.3x

NA

NA

NA

Post -Acut e Car e - Senior Living Br ookdale Senior Living Inc. Five St ar Qualit y Car e Inc. Capit al Senior Living Cor p.

$14.75 2.52

17.32

37.0% 49.7%

62.4%

$12,029.1 1,793.1

1,760.5

2.4x NA

4.2

2.3x NA

3.7

10.5x NA

13.1

9.3x NA

10.9

5.0 NA

9.5

5.2 NA

8.6

0.4x NA

0.6x

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. (1) Adjusted Enterprise Value is equal to equity plus net debt and capitalized rents (8 x rent/lease payment). (2) Skilled Healthcare - Genesis merger multiples reference combined entity’s Adjusted Enterprise Value implied by share price at 8/25 close; AEV/EBITDAR multiple is not synergized. (3) Holiday Retirement sold the communities’ real estate but maintained control of the operations; real estate transactions based on Net Operating Income. (4) Transaction multiple unadjusted for rent expense.

45

Mean 49.7% - 3.3x 3.0x 11.8x 10.1x 7.3x 6.9x 0.5x Median 49.7% - 3.3 3.0 11.8 10.1 7.3 6.9 0.5

Mean 55.0% - 1.0x 0.9x 6.6x 5.8x 3.7x 3.3x 0.3x Median 48.0% - 1.4 1.3 9.6 8.1 3.3 2.9 0.3

06/20/12 Sun Healthcare Group Inc Genesis HealthCare Corporation 1,457.4 6.9

10/16/12 142 Senior Housing Communities (Blackstone) HCP Inc and Emeritus Corp 1,792.0 NA

02/26/13 Assisted Living Concepts Inc TPG Capital 575.0 10.4

10/25/13 26 communities (Holiday Retirement)(3) Ventas 790.0 NA

11/18/13 52 communities (Holiday Retirement)(3) N ewcastle Investment Corp 1,010.0 NA

02/21/14 Emeritus Corp Brookdale Senior Living 5,486.2 10.3x

11/07/14 Extendicare (USoperations only) Formation Capital 870.0 8.8

 

TPG Capital

 

Formation Capital

 Fortress Investment Group

 

The Carlyle Group

 Centre Partners Management

 Fillmore Capital Partners

 Bay Bridge Capital Partners

 

Lydian Capital Advisors

 

McCarthy Capital

U.S. Medical Labs & Diagnostic Testing Overview Viewpoint: The lab industry is being presented with a significant opportunity to enhance its value proposition as the healthcare system shifts toward outcomes- and risk-based reimbursement

Industry Drivers & Trends Number of Lab Tests per Year by Age Category •

•

~$75 billion total U.S. market

Shifting demographics

> Aging population drives increased testing as seniors use 5x the number of lab tests vs those < 65

– Those aged 65+ drive ~10 - 13 lab tests per year

Reduction of uninsured patients due to ACA

Improved technology fueling the development of new tests and therapies

Preventive screening / early care, population health

Growth of personalized medicine / companion diagnostics offers labs an opportunity to enhance their value proposition

Channel competition

> Move toward integrated delivery networks / acquisition of physician practices by hospital systems is resulting in greater market share capture by hospital labs in recent years

> But a growing focus on efficiency and anticipated reimbursement pressures are leading many providers to rethink their lab strategy

15

10

5

0 Under 18

yrs 18 - 44 45 - 54 55 - 64 65 - 74 75 yrs + •

• 1997 2008

•

• 2013 Est. U.S. Health Care Spend $2.9 Trillion

$3,000

• $2,500

2-3% of spend influences 70- 80% of physician decisions $2,000

10% of spend, moving toward personalized medicine as companion diagnostics improve efficacy and safety

$1,500 Regulatory/Reimbursement Environment • Increasing regulatory and budget pressures fueling reduced

reimbursement and uncertainty

• Medicare payment rates set to contract as Congress calls for $2.B of lab reimbursement savings between 2017–2024

• Scale/efficiency will be increasingly important over time as reimbursement models evolve and pricing pressures persist

$1,000

$500

$- Source: CMS, Wall Street Research, Haverford Healthcare Advisors, Avalon Healthcare Solutions, LabCorp company reports & SEC filings. 46

 

Other

 

2- 80

1 0 p e c o im

Administration

Lab Testing Nursing Home / Home

Health Prescription

Drugs  

Physician Services

 

Hopital Care

U.S. Medical Labs & Diagnostic Testing Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enter pr ise Value /

Enter pr ise

Value

LT M Revenue

LT M EBIT DA Ampersand Capital

Announced T ar get

Acquir or

02/01/16 Alere Abbott $8,615.2 3.5x 15.2x

Bain Capital

12/23/15 MetroStat Clinical Laboratory / Diagnostic Services

Schryver Medical Sales and Marketing

NA NA NA

12/10/15 Barnabas Health System

Quest Diagnostics

NA NA NA Behrman Capital

10/29/15 Consultants in Laboratory Medicine

Aurora Diagnostics

$6.6 NA NA

BelHealth 10/21/15 Clarient NeoGenomic

s $275.0 NA NA

Consonance Capital

09/04/15 Health Diagnostics Laboratory

True Health Diagnostics

$37.1 NA NA

08/18/15 Helix JV - Illumina, W arburg Pincus, Sutter Hill

$100.0 NA NA EEF

07/21/15 B.O.N. Clinical Laboratories

Schryver Medical Sales and Marketing

NA NA NA

Frazier Healthcare 06/30/15 MemorialCare Health (lab outreach

services) Quest Diagnostics

NA NA NA

KRG Capital Summit Partners

06/04/15 Bio-Reference Laboratories

OPKO Health $1,493.6 1.7x 12.9x

01/12/15 Foundation Health

Roche $1,596.8 26.2x NM Levine Leichtman

Median

Mean High

Low

Metalmark Capital

NEA

Sector Valuation Snapshot ($ in millions, except per share data)

Closing Price

Primus Capital

Ent erprise Value

Riverside Partners

as of as % of 52-

Market Value

Revenue EBI T DA

Price / Earnings Companies 3/23/16 W eek H igh CY 16E CY 16E CY 16E CY 17E

D iagnost ic Laborat ories Sequoia Capital ,

Claremont Creek, Mayo, four Rivers

Labor at or y Cor p. of Amer ica Holdings Q uest Diagnost ics Inc. Sonic Healt hcar e Limit ed Myr iad Genet ics, Inc. Genomic Healt h Inc. Enzo Biochem Inc. Psychemedics Cor p. CombiMat r ix Cor por at ion

$113.92 70.15

13.66 36.39 22.80 4.45

13.17

4.10

86.8% 78.8%

76.5% 78.7% 63.7% 87.4% 73.9%

13.3%

$11,675.0 10,061.5

5,647.6 2,713.9

759.3 205.1 71.4

12.0

2.0x 1.8

2.3 3.4 2.3 1.7 NA

0.8

10.1x 9.0

12.8 12.1 NM NM NA

NA

14.4x 14.7

18.6 22.3 NM 27.8 NA

NM

13.1x 13.8

16.2 21.5 NM NM NA

NM

TA Associates

TPG

Waud Capital Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates.. 47

Mean 69.9% - 2.1x 11.0x 19.6x 16.1x Median 77.6% - 2.0 11.1 18.6 15.0

2.6 x 12.9 x 8.2 x 13.0 x

26.2 x 15.2 x 1.3 x 10.8 x

01/07/15 Aurora Greensboro Clinical Lab Dominion Diagnostics NA NA NA

05/07/15 Experchem Laboratories Eurofins Scientific NA NA NA

06/16/15 Physicians Reference Laboratory Laboratory Corp. of America Holdings NA NA NA

07/16/15 U.S. Diagnostics Alere $60.0 NA NA

08/10/15 Response Genetics Inc. Cancer Genetics Inc. $14.0 1.3x 10.8x

09/02/15 Medivo PW N / EDG Partners NA NA NA

10/01/15 StrataDx StrataDx Management Team NA NA NA

10/23/15 Safe Foods International Holdings LabCorp NA NA NA

11/10/15 Clinical Laboratory Partners Quest Diagnostics NA NA NA

12/10/15 Pathology Inc LabCorp NA NA NA

01/08/16 Bako Integrated Physician Solutions Consonance Capital Partners NA NA NA

 

rs)

 n)

hoppers art, 2%

, 22%

h,

U.S. Pharmacy Overview Viewpoint: While patent expirations and increasing generic penetration have held Rx spending in check over the last few years, specialty drugs are the fastest growing component of Rx spending and represent the next growth frontier / significant cost containment opportunity in the pharma supply chain

Industry Drivers and Trends Estimated U.S. Rx Drug Spending ($ in billions)

• Peak in patent expirations to impact generic economics > ~75% of U.S. prescription drug volume, but only 25%-27% of costs > ~$78 billion of drugs to go off-patent 2012 – 2016 with ~$17 billion 2017

- 2021

Specialty represents the next growth avenue beyond generics

$435 $409 $385 $364 $343 $328 $305 $271

• > > >

Fastest-growing component of drug spend, rising ~15-20% per year Expected to reach ~50% of total drug spend by 2018, vs. ~30% in 2014

2013A 2014P 2015P 2016P 2017P 2018P 2019P 2020P

Retail Pharmacy and PBM Market Shares By 2020, 9 of top 10 selling drugs will be specialty vs. 3 of 10 in 2010

• Aging seniors to drive increasing utilization 11% MedImpac

t > 31% of Rx spend, 14% of pop. but growing 3.3% (5x rate of non seni o 3% > ~92% of seniors have a chronic condition, ~77% have 2+, ~45% have

3+

Focus on increasing patient compliance, typically via increased consumer engagement / value-add services Consolidation across all sectors expected to continue > e.g. CVS Health/Omnicare, Diplomat Pharmacy/BioRx,

• 21%

OptumR 20%

• Specialty Drug Market Top Therapies

OptumRx/Catamaran, Rite Aid/Envision Pharmaceutical Services Regulatory/Reimbursement Environment • Passage of Accountable Care Act bodes well by ensuring increased

coverage/ utilization

Payers are aggressively seeking to rein-in costs of specialty drugs > Looking to increasingly engage/touch the consumer

Traditional $263

Specialty $108

•

Source: Wall Street Research, CMS, IMS Health, Express Scripts. 48

Oncology $31.2

Rheumatic Diseases 16.1

Hermatology 15.1

Vaccines 10.8

Multiple Sclerosis 9.7

HIV 9.7

Opthamology 3.2

Respiratory 2.2

Hepatitis C 1.1

Others 8.6 T otal $107.5

 Rx Sales (~$225 billio

AAP, 2% Loblaw/S Good Neighbor Drug M Pharmacy, 3%

Health Mart, 4%

Kroger, 4%

Cardinal Health, W algreens

8%

W almart, 8% CVS

Healt

Rite Aid, 8%

 

MedI 3

Envision 3%

Prime Therapeutics

6% Humana Pharmacy

Solutions 7%

OptumR

 PBM Market Share

Other

Express Scripts 25%

CVS Caremark

25% x

The image cannot be

The image cannot be

The image

The

The ima

The image

T

The image cannot be

The imag

The

U.S. Pharmacy Market Activity

Notable M&A Transactions ($ in millions)

Private Equity Investments Enterprise

Value EV/Revenue EV/EBI T D A

ABRY Partners D ate T arget A cquiror LT M LT M

ACON / Triton Pacific 01/15/16 Helios Unit edHealt hcare Group (Opt

umRx) NA NA NA

Advent International 10/27/15 Rit e

Aid Walgreens Boot s Alliance

$17,048.0 0.6x 13.1x

Altamont Capital Partners 08/19/15 Apot hecary by

Design BelHealt h Invest ment Part ners

NA NA NA

Beecken Petty O’Keefe 06/24/15 Envision Pharmaceut ical Services

Rit e Aid

$2,011.5 0.4x 13.0x

BelHealth Investment Partners

06/15/15 Target Pharmacy and Clinic Business

CVSHealt h $1,887.0 0.4x NA

05/20/15 Aureus Healt h Services

Meijer $205.0 0.5x 16.4x Bindley Capital Partners / Cardinal Equity Partners

03/25/15 Reeves-Sain Drug St ore (d/b/a Ent rust Rx)

Fred's $56.8 NA NA Centerbridge Partners

03/09/15 Genoa / QoL Healt hcare

Advent Int ernat ional

~ $1,000.0 1.7x 15.5x

Chrysalis Ventures 02/26/15 BioRx Diplomat

Pharmacy $315.0 1.4x 13.7x

Cibolo Capital Partners 10/08/14 Salveo Specialt y

Pharmacy Cat amaran

$260.0 0.6x 13.2x

Consonance Capital ExcelleRx Inc (Hospice Pharmacia) and PBM Holding Company

(PBM Plus)

08/18/14 Enclara Healt h

NA NA NA

Flexpoint Ford 07/23/14 Injured Workers Pharamcy (IWP) ACON Invest ment s & Trit on

Pacific $205.0 1.6x 9.2x

Gauge Capital 06/27/14 MedPro Rx Diplomat

Pharmacy $75.5 0.9x 9.6x

Generation Partners 04/25/14 Enclara Healt

h Consonance Capit al Part ners

NA NA NA Health Enterprise Partners / Sequoia Capital Sector Valuation Snapshot

($ in millions, except per share data) Closing Pr ice

Mosaic Health Solutions

Primus Capital as of 3/23/16

as % of 52- W eek H igh

M ar ket Value

Enter pr ise Value

Revenue EBIT DA Pr ice / Ear nings Companies CY 16E CY 17E CY 16E CY 17E CY 16E CY 17E

Riverside Company CVS Health Corporation

W algreens Boots Alliance, Inc. Express Scripts Holding

Company Diplomat Pharmacy,

Inc. PharMerica Corporation

$100.74 82.34

67.33

26.61 20.31

88.8% 85.2%

71.6%

51.9% 55.4%

$111,608.6 89,264.6

45,225.2

1,739.6 623.6

$136,571.6 101,383.6

57,639.3

1,832.5 1,027.8

0.8x 0.8

0.6

0.4 0.5

0.7x 0.8

0.5

0.3 0.5

10.3x 11.1

7.9

15.3 7.6

9.6x 9.9

7.7

12.6 6.9

17.3x 17.8

11.0

30.4 9.9

15.3x 15.9

10.0

24.8 8.9

RLH Equity Partners

Silver Point Capital

SilverStream Capital

Source: Company filings, Capital IQ, Wall Street research and Cain Brothers’ estimates. 49

M ean 70.6% - - 0.6x 0.6x 10.4x 9.3x 17.3x 15.0x M edian 71.6% - - 0.6 0.5 10.3 9.6 17.3 15.3

05/20/14 Genoa Healt hcare QoL meds NA NA 10.0x - 11.0x

07/14/14 N avarro Discount Pharmacy CVSCaremark NA NA NA

07/31/14 MedTrack Services Envision Pharmaceut ical Services, Inc. NA NA NA

09/26/14 Millennium Pharmacy Syst ems Cat amaran NA NA NA

02/26/15 Healt hcare Solut ions Cat amaran $405.0 0.9x 11.6x

03/02/15 Pharmacare Fulfillment Cent er (d/b/a Care Plus Group) Cent ric Healt h $37.4 1.3x 7.3x

03/18/15 4D Pharmacy Management Syst ems, Inc. Magellan Healt h, Inc. $55.0 0.1x NA

03/30/15 Cat amaran Unit edHealt hcare Group (Opt umRx) ~ $12,800.0 0.5x 13.3x

05/21/15 Omnicare CVSHealt h ~ $12,700.0 2.0x 17.4x

06/19/15 Burman's Specialt y Pharmacy Diplomat Pharmacy $82.8 0.2x 3.9x

08/10/15 BioScrip's Cash Card PBM Business ProCare Rx $25.6 0.4x 4.0x

10/06/15 PharMEDium AmerisourceBergen ~$2,575.0 5.5x 23.4x

01/05/16 Cit izens Rx Mosaic Healt h Solut ions NA NA NA

02/11/16 Solut ionsRx Wellpart ner NA NA NA

©2016 Foley & Lardner LLP • Attorney Advertising • Prior results do not guarantee a similar outcome • Models used are not clients but may be representative of clients • 321 N. Clark Street, Suite 2800, Chicago, IL 60654 • 312.832.4500

April  5,  2016  

ACC  Quik  Hit        Roger  Strode  Foley-­‐Chicago,  IL  

Agenda  

•  Due  Diligence    •  AnOtrust  Pressure  •  Physician  TransacOon  Update  

Hot  Diligence  Issues  

•  Corporate  PracOce  of  Medicine  –  New  York  state  seVlement  with  Aspen  Dental  Management  –  Many  states  have  some  form  of  CPOM  concept  and  fee-­‐spliYng  prohibiOons    

–  “Friendly  PC”  structures  are  commonly  used  in  the  acquisiOon  of  medical/dental/professional  health  care  pracOces  by  for—profit  managers/consolidators  of  those  businesses  (e.g.,  P/E  backed  firms)  

–  Significant  risks  can  arise  when  a  non-­‐professional  vendor  is  engaged  to  manage  or  consult  a  licensed  professional  or  an  enOty  comprised  of  licensed  professionals.    

–  New  York  State  AG  alleged  that  ADMI  did  not  simply  provide  business  support  and  administraOve  services  but  subjected  its  managed  dental  pracOces  to  extensive  “undue  control”    

Hot  Diligence  Issues  

•  Corporate  PracOce  of  Medicine  – AG  determined  that  

•  PracOces  were  individually  owned  in  name  only,  and  ADMI  was  acOng  effecOvely  as  a  de  facto  owner      

•  Management  fee  captured  a  percentage  of  the  pracOces’  revenue,    •  ADMI  exercised  control  over  bank  accounts,  adverOsing  and  markeOng  pracOces,  decisions  involving  paOent  care  and  treatment  plans,  and  clinical  staff  employment  maVers  

–  Significant  fine  paid  and  restricOons  agreed  to  by  ADMI  

Hot  Diligence  Issues  

•  Corporate  PracOce  of  Medicine  – Who  is  really  in  control  of  the  pracOce,  not  just  in  control  of  clinical  decision  making?  

– How  are  management  fees  determined?  Are  they  consistent  with  FMV?  

– Can  the  manager  unilaterally  discipline/fire  licensed  professionals?  

– What  do  the  non-­‐competes  look  like?  – What  impact  does  a  loosening  of  control/restricOons  and  renegoOaOon  of  management  fees  have  on  purchase  price?  

Hot  Diligence  Issues  

•  AnO-­‐Referral  Issues  – ViolaOons  of  Physician  AnO-­‐Referral  laws  (Stark)  remain  a  significant  concern  

– OIG  Fraud  Alert  (June  2015)  •  Emphasized  the  need  for  FMV  payments  to  MDs  for  bona  fide  services  

•  ProblemaOc  arrangements  include  (i)  those  above  FMV,  (ii)  compensaOon  that  takes  into  account  v/v  of  referrals,  (iii)  MDs  failing  to  provide  contracted  services  and  (iv)  affiliated  health  care  enOty  paying  for  physician  office  staff  

•  Shot  across  the  bow  to  physicians  who  someOmes  believe  they  won’t  be  targeted  for  abusive  situaOons  

Hot  Diligence  Issues  

•  AnO-­‐Referral  Issues  –   Physician  compensaOon,  parOcularly  stacking  of  compensaOon  that  leads  to  high  aggregate  compensaOon  amounts  

–  Focus  on  FMV,  including  the  selecOon  of  benchmarks  and  the  quality  of  reports  

–  Focus  on  the  accuracy,  reliability  and  completeness  of  informaOon  provided  to  advisors  

–  QuesOoning  of  commercial  reasonableness  of  compensaOon  arrangements  when  reasons  for  the  arrangement  are  not  well  documented    

Hot  Diligence  Issues  

•  AnO-­‐Referral  Issues  –   Hospital  losses  or  failure  to  make  a  profit  construed  as  evidence  of  non-­‐fair  market  value,  non-­‐commercially  reasonable  compensaOon  

–  Tracking  of  hospital  referrals  and  contribuOon  margins  construed  as  evidence  of  illegal  behavior  

   

•  AnO-­‐Referral  Issues  – North  Broward  SeVlement  

•  $69MM  seVlement  for  FCA  and  Stark  law  violaOons  (including  a  5  year  CIA)  

•  FCA  brought  by  a  physician  who  chose  not  to  accept  employment  but  alleged  that  NB  employed  doctors  were  being  over-­‐compensated  (giving  NB  a  compeOOve  advantage)  

•  NB  maintained  “contribuOon  margin”  reports  referencing  ancillary  revenue  generated  by  the  9  physicians  at  issue  

•  Physician  pracOces  operated  at  a  loss,  thus  raising  the  quesOon  of  “commercial  reasonableness”    

•  Certain  MDs  paid  in  excess  of  MGMA  90th  percenOle  •  CompensaOon  models  were  a  mix  of  guarantees  and  producOon  based  

 

 

Hot  Diligence  Issues    

   

•  AnO-­‐Referral  Issues  – AdvenOst  SeVlement  

•  $115MM  to  seVle  Stark  law  and  Medicare  coding  claims  •  AllegaOons  same  as  Broward  and  related  to  85  physicians,  many  of  whom  made  at  least  a  $1MM  annually,  and  a  few  up  to  $3MM  (most  well  above  MGMA  90th  percenOle)  

•  Doctors  also  received  percentages  of  ancillaries  •  AllegaOons  that  it  was  humanly  impossible  for  most  of  the  doctors  to  work  hard  enough  to  earn  their  salaries  on  a  producOon  model  

•  AdvenOst  lost  scads  of  money  on  these  pracOces  •  In  pracOce,  physicians  deviated  from  contracts  •  Evidence  of  a  great  number  of  other  non-­‐cash  perqs  were  made  available  to  the  physicians,  including  free  leases  of  BMWs  

 

 

Hot  Diligence  Issues    

   

•  AnO-­‐Referral  Issues  –  Employment  Safe  Harbor  (AKS)  is  not  bullet  proof  and  doesn’t  give  you  cover  under  the  Stark  Law  

–  If  you  have  high  compensaOon  relaOve  to  MGMA  percenOles,  have  good  documentaOon  to  support  the  compensaOon  

– Watch  use  of  internal  reports,  related  to  physician  use/referral  to  ancillaries—regulators  will  use  it  to  “connect  the  dots”  

–  If  you  lose  money  on  physician  pracOces,  have  raOonale  and  a  story  

– Don’t  pay  for  physician  use  of  BMWs  

 

 

Hot  Diligence  Issues  

   

•  AnO-­‐Referral  Issues  – AdvenOst  SeVlement  

•  $115MM  to  seVle  Stark  law  and  Medicare  coding  claims  •  AllegaOons  same  as  Broward  and  related  to  85  physicians,  many  of  whom  made  at  least  a  $1MM  annually,  and  a  few  up  to  $3MM  (most  well  above  MGMA  90th  percenOle)  

•  Doctors  also  received  percentages  of  ancillaries  •  AllegaOons  that  it  was  humanly  impossible  for  most  of  the  doctors  to  work  hard  enough  to  earn  their  salaries  on  a  producOon  model  

•  AdvenOst  lost  scads  of  money  on  these  pracOces  •  In  pracOce,  physicians  deviated  from  contracts  •  Evidence  of  a  great  number  of  other  non-­‐cash  perqs  were  made  available  to  the  physicians,  including  free  leases  of  BMWs  

 

 

Hot  Diligence  Issues    

Hot  Diligence  Issues  

•  FinalizaOon  of  60-­‐Day  Overpayment  Rule  –  Statute  set  the  60-­‐day  rule  staOng  that  the  overpayment  must  be  reported  and  returned  by  the  later  of:  

•  the  date  which  is  60  days  aser  the  date  on  which  the  overpayment  was  iden3fied,  or  

•  the  date  any  corresponding  cost  report  is  due,  if  applicable  – By  statute,  overpayments  retained  a<er  the  deadline  for  repor3ng  and  returning  an  overpayment  become  an  “obliga3on”  under  the  Federal  False  Claims  Act,  subject  to  treble  damages  and  per  claim  penal3es  

   

•  FinalizaOon  of  60-­‐Day  Overpayment  Rule  – Does  the  target  have  an  overpayment  policy?  – What  are  the  target’s  document  retenOon  policies?  – Evaluate  processes  for  conducOng  internal  invesOgaOons  – Evaluate  overpayment  training  

Hot  Diligence  Issues  

   

•  Other  Areas  of  Concern  – Pressure  on  mulOples  and  purchase  price  

•  Hospitals  being  pressed  to  meet  purchase  price  mulOples  offered  by  private  equity  and  other  for-­‐profit  enOOes  

•  Physicians  refer  to  hospitals  post  closing  – Physician  billing  and  coding  

•  Improper  use  of  modifiers  •  Improper  billing  of  physician  extenders  (“incident  to  billing)  •  Billing  when  charOng  is  incomplete  

Hot  Diligence  Issues  

   

•  The  FTC  and  DOJ  have  become  significant  partners  in  health  care  transacOons  in  recent  years  

•  Emboldened  by  “wins”  enforcement  acOvity  has  been  aggressive  

•  Agency  aVenOon  has  applied  to  both  (HSR)  reportable  and  non-­‐reportable  transacOons  

•  Advocate-­‐North  Shore  Merger  (Chicago-­‐Metro)  •  St.  Luke’s  (Boise)  

 

 

Health  Care  AnOtrust  Update  

   

•  Due  diligence  conOnues  to  be  criOcal  to  most  deals  geYng  done—We  are  seeing  a  heavy  emphasis  on  diligence  maVers  – Osen  due  to  the  fact  that  buyers  are  taking  assignment  of  provider  numbers  

–  In  certain  situaOons,  agreements  to  self  disclose  prior  to  closing,  or  immediately  aser  closing,  are  common  

•  ValuaOons  appear  robust—Not  unusual  to  see  9-­‐12x  (someOmes  greater)  mulOples  on  TTM  EBITDA  for  platorm  companies  in  the  private  equity  space  –  There  is    a  lot  of  pressure  on  hospital  systems  to  try  and  meet  these  mulOples  due  to  compeOOon  from  for-­‐profit  buyers  

 

 

Deal  Term  Updates  

   

•  Escrows  of  10%-­‐15%  of  transacOon  value  not  uncommon  

•  Seeing  some  reducOon  of  escrows  when  R&W  insurance  is  used  – Beware  of  carve  outs  for  certain  issues,  such  as  “health  care  compliance”  reps  and  warranOes  

– Sellers  should  be  prepared  for  a  second  round  of  diligence  from  counsel      

 

 

Deal  Term  Updates  

   

•  Survival  Periods  (R&W)  –  General:  12-­‐18  months  –  Fundamental:    Unlimited  –  Taxes/Benefits:  SOL  +  60-­‐90  days  –  Health  Care:  SOL  =  60-­‐90  days  or  3-­‐5  years  (depending  upon  negoOaOons)  

•  Caps  –  Can  be  lowered  through  use  of  R&W  insurance  (as  low  as  5%  of  transacOon  value  in  some  cases)  

–  No  cap,  generally,  on  breaches  of  covenants  or  breaches  of  fundamental  R&W  

–  Higher  caps,  generally,  on  breaches  of  health  care  R&W  •  Baskets  

 

 

Deal  Term  Updates  

   

 Roger  Strode  

Foley  &  Lardner,  LLP  312-­‐832-­‐4565  (D)  414-­‐202-­‐8717  (M)  rstrode@foley.com  

 

 

QUESTIONS?