9
QUARTERLY UPDATE Q3 2019 HEALTHCARE SERVICES
QUARTERLY UPDATE Q3 2019
HEALTHCARE SERVICES
Page 2
INDUSTRY OVERVIEWM&A TRANSACTIONS & PERFORMANCE
20182016 2017 2019
DENTAL NEWS AND
DEVELOPMENTS
PHARMACY NEWS AND
DEVELOPMENTS
Source: Capital IQ. Data as of September 30, 2019.Above noted mid-market M&A activity includes disclosed transactions not exceeding a total transaction value of $500 million.
• Shoppers Drug Mart has initiated a pilot partnership with SmileDirectClub, Inc. to launch thebrand’s signature SmileShop experience within stores across Ontario.
• SmileDirectClub operates a teledentistry platform that provides member's with a customizedclear aligner therapy. The company works in tandem with licensed orthodontists and generaldentists to manage the end-to-end oral care process. It offers aligners, impression kits,whitening gels and retainers.
• Save-On-Foods has undertaken a strategic shuffle of its executive team to align the company’sfuture growth objectives with increased focus on its loyalty rewards, pharmacy and e-commercebusiness units.
• Pharmacy operations are becoming an increasingly important part of grocers’ businessstrategies. Supermarkets not only benefit from increased sales pharmacies can generate, butalso solidify shopper loyalty from the growing connection between food and medicine.
Canadian Transactions
45US Transactions
456US Transaction Value
$7.7 billion(+31.4% vs. Q2 2019)
Canadian Transaction Value
$697 million(+36.7% vs. Q2 2019)
7.9
9.5
8.1
6.4
9.5
5.7
7.1 7.
4 8.2
7.5
9.3
11.0
7.8
6.4
8.4
-
50
100
150
200
250
300
350
400
450
500
-
2.0
4.0
6.0
8.0
10.0
12.0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
Tran
sact
ion
Volu
me
(Num
ber o
f Dea
ls)
Tran
sact
ion
Valu
e ($
Bill
ions
)
MID-MARKET HEALTHCARE M&A ACTIVITY
Canadian Transaction Value US Transaction ValueCanadian Transaction Volume US Transaction Volume
Healthcare merger and acquisition (M&A) activity in the third quarter of 2019 exceeded $8.4 billion in disclosedtransaction value across 500 deals in Canada and the US. Although transaction values have declined, deal volume remainsstrong with the number of transactions far exceeding previous year benchmarks. Various healthcare industries areexperiencing continued consolidation efforts to gain or maintain market share in the currently competitive market.Location, brand, customer retention and strength of management in adapting their businesses to regulatory changes andthinning margins is playing an increasingly important role in valuation.
All figures are in CAD.
Page 3
SELECT RECENT M&A TRANSACTIONS
Announced Sep. 10, 2019
TEV $300 million
TEV/EBITDA Undisclosed
Location(Vendor)
Massachusetts
Source: Capital IQ and PitchbookTEV refers to total enterprise value.Unless otherwise denoted, all figures are in $CAD.
• Canadian mid-market private equity firm, Novacap,acquired a majority interest alongside Spectrum’sexisting management team.
• Spectrum Health Care is a provider of home health careservices in Ontario. It offers a range of health careservices including nursing, personal and home support,foot care and corporate wellness clinics.
• Spectrum was acquired in 2012 by Clearspring CapitalPartners. It is unknown if a remaining interest was kept.
Closed Jul. 15, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
Location(Vendor)
Toronto
acquires
• Frontier Dental Labs is a full service, multi-site dentallaboratory that provides high-end dental prosthetics,removable dental products and implants primarily forthe cosmetic dentistry industry.
• O2 Investment Partners is a Midwestern-based privateequity firm that seeks to invest in lower middle marketmanufacturing, niche distribution and select serviceand technology businesses.
• An undisclosed amount of development capital will beused to expand the company's product and servicecapabilities and grow its global customer base.
Closed Jul. 8, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
Location(Vendor)
Vancouver
provides capital to
from
• Baxter International provides a portfolio of critical care,nutrition, hospital and surgical products, withdistribution in over 100 countries.
• Cheetah Medical, a medical technology company,focuses on development and commercialization of non-invasive solutions for monitoring cardiac output andhemodynamic patients.
• The transaction consists of upfront cash considerationof $250 million, with potential for an additional $50million earnout based on clinical and commercialmilestones.
acquires
• TELUS Health Solutions provides pharmacymanagement, claims and benefits management,electronic health records, patient and consumer healthplatforms, and health analytics.
• Akira develops an application that provides on-demandaccess to Canadian doctors by secure text and video.The company’s app allows doctors to writeprescriptions, order tests and imaging, create referralsto specialists and enables patients to see clinical notes,lab test results and other information.
Closed Aug. 21, 2019
TEV Undisclosed
TEV/EBITDA Undisclosed
Location(Vendor)
Toronto
acquires
Page 4
MACROECONOMIC INDICATORS
-5,000
10,00015,00020,00025,00030,00035,00040,00045,000
$CAD
PER CAPITA DISPOSALBLE INCOME -CANADA
Historical Forecast
Source: IBIS World, F indicates forecast.
The healthcare industry is affected by a number of key macroeconomic industry growth drivers. Below, we highlight totalpublic and private health expenditure, per capita disposable income, national unemployment rates and the agingpopulation in Canada. According to economic trend projections, the forecast is positive for each indicator over the nextfive years, supporting the view of continuing industry stability and growth.
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Thou
sand
s of P
eopl
e
POPULATION AGED OVER 65 -CANADA
Historical Forecast
-
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Thou
sand
s of P
eopl
e
POPULATION AGED OVER 65 -CANADA
Historical Forecast
-
25
50
75
100
125
150
175
200
$CAD
Bill
ions
TOTAL HEALTH EXPENDITURE -CANADA
Historical Forecast
0%
1%
2%
3%
4%
5%
6%
7%
8%
Perc
enta
ge
NATIONAL UNEMPLOYMENT RATE
Canada U.S.
Page 5
PUBLIC COMPARABLE ANALYSISGROWTH, MARGINS & MULTIPLES
12.3x
11.3x
7.7x
8.5x
14.6x
0.0x 5.0x 10.0x 15.0x
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
4%
40%
2%
16%
22%
0% 10% 20% 30% 40% 50%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
5.9%
2.8%
3.9%
3.2%
3.2%
0.0% 2.0% 4.0% 6.0% 8.0%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment& Supplies
14.0x
10.5x
8.3x
9.3x
17.5x
0.0x 5.0x 10.0x 15.0x 20.0x
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
2%
39%
2%
16%
17%
0% 10% 20% 30% 40% 50%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
13%
0%
6%
1%
1%
0% 2% 4% 6% 8% 10% 12% 14%
Retail Pharmacy
Pharmaceuticals
Pharmaceutical Distributors
Healthcare Service Providers
Healthcare/Dental Equipment &Supplies
Source: Capital IQ. Data as of September 30, 2019.Above noted healthcare peer groups are market capitalization weighted indexes, including the constituents listed on page 7.LTM refers to last twelve months. NTM refers to next twelve months. Figures above are based on median peer group metrics.
LTM REVENUE GROWTH NTM REVENUE GROWTH
LTM EBITDA MARGIN
LTM EV/EBITDA NTM EV/EBITDA
NTM EBITDA MARGIN
4%
15%
12.0x
3.8%
17%
10.9x
Page 6
PUBLIC COMPARABLE ANALYSISPERFORMANCE ANALYSIS
Source: Capital IQ. Data as of September 30, 2019.Above noted healthcare peer groups are market capitalization weighted indexes, including the constituents listed on page 7.LTM refers to last twelve months.
HEALTHCARE PEER GROUP SHARE PRICE PERFORMANCE – Q3
HISTORICAL LTM EV/EBITDA – Q3
SHARE PRICE PERFORMANCE – LTM*
14.4%
-8.5%
0.2%
-4.6%
0.1%
-15%
-10%
-5%
0%
5%
10%
15%
20%
-22.4%
-6.3%
-15.2%-8.7%
1.0%
-40%
-30%
-20%
-10%
0%
10%
20%
11.3x11.8x
8.4x8.5x
16.7x
5.0x
10.0x
15.0x
20.0x
Retail Pharmacy Pharmaceuticals Pharmaceutical Distributors
Healthcare Service Providers Healthcare/Dental Equipment & Supplies
Page 7
PUBLIC COMPARABLE ANALYSISTRADING MULTIPLES & OPERATING STATISTICS
Source: Capital IQ. Data as of September 30, 2019.LTM refers to last twelve months. NTM refers to next twelve months.
We have selected a group of publicly traded healthcare entities for this high-level analysis. These public companies helpact as a proxy for the industry and provide strong industry context.
CompanyMarket
CapitalizationEnterprise
Value RevenueRevenue Growth EBITDA
EBITDA Margin
Revenue Growth
EBITDA Margin
NTM EV/EBITDA
LTM EV/EBITDA
LTM EV/REV
Retail PharmacyCVS Health Corporation $108,584 $219,410 $295,693 20.9% $19,399 6.6% 12.4% 6.9% 9.5x 11.2x 0.7xDiplomat Pharmacy, Inc. $491 $1,287 $6,905 4.8% $109 1.6% (8.5%) 1.8% 10.9x 11.7x 0.2xRite Aid Corporation $495 $9,727 $28,685 0.1% $548 1.9% (0.6%) 2.5% 13.6x 16.4x 0.3xCentric Health Corporation $26 $123 $124 27.4% $3 2.2% 15.5% 5.5% 15.7x 45.2x 1.0xMedian $493 $5,507 $17,795 12.8% $328 2.1% 5.9% 4.0% 12.3x 14.0x 0.5xMean $27,399 $57,637 $82,851 13.3% $5,015 3.1% 4.7% 4.2% 12.4x 21.1x 0.6x
PharmaceuticalsJohnson & Johnson $452,032 $472,091 $108,166 0.4% $36,983 34.2% 2.3% 35.9% 12.0x 12.7x 4.4xPfizer Inc. $263,087 $309,884 $70,186 0.8% $29,297 41.7% (7.3%) 42.4% 11.3x 10.5x 4.4xMerck & Co., Inc. $285,330 $312,582 $58,035 7.5% $22,474 38.7% 6.3% 41.4% 12.1x 13.7x 5.3xMylan N.V. $13,508 $31,037 $14,766 (3.7%) $4,554 30.8% 5.0% 30.1% 6.5x 6.7x 2.1xBausch Health Companies Inc. $10,190 $41,393 $11,020 (0.9%) $4,374 39.7% 2.8% 40.4% 8.8x 9.4x 3.7xMedian $263,087 $309,884 $58,035 0.4% $22,474 38.7% 2.8% 40.4% 11.3x 10.5x 4.4xMean $204,830 $233,397 $52,435 0.8% $19,536 37.0% 1.8% 38.0% 10.2x 10.6x 4.0x
Pharmaceutical DistributorsWalgreens Boots Alliance, Inc. $66,130 $89,176 $184,302 6.3% $10,017 5.4% (1.4%) 6.1% 7.9x 9.1x 0.5xMcKesson Corporation $33,452 $46,141 $284,427 3.6% $5,408 1.9% 3.2% 1.9% 8.2x 8.4x 0.2xCardinal Health, Inc. $18,267 $25,559 $190,369 6.4% $3,673 1.9% 4.6% 1.8% 7.2x 6.9x 0.1xAmerisourceBergen Corporation $22,706 $24,856 $231,853 8.2% $2,985 1.3% 4.7% 1.3% 7.6x 8.2x 0.1xMedian $28,079 $35,850 $211,111 6.4% $4,540 1.9% 3.9% 1.8% 7.7x 8.3x 0.1xMean $35,139 $46,433 $222,738 6.1% $5,521 2.6% 2.8% 2.8% 7.7x 8.2x 0.2x
Healthcare Service ProvidersHCA Healthcare, Inc. $54,358 $104,110 $63,891 8.0% $12,346 19.3% 7.1% 19.0% 7.9x 8.3x 1.6xUniversal Health Services, Inc. $17,425 $23,375 $14,471 4.8% $2,260 15.6% 4.6% 16.5% 9.3x 10.2x 1.6xTenet Healthcare Corporation $3,029 $26,835 $23,824 (3.0%) $3,804 16.0% 1.7% 14.9% 7.3x 7.0x 1.1xCommunity Health Systems, Inc. $543 $19,850 $17,768 (2.8%) $1,771 10.0% (4.7%) 12.8% 9.0x 11.1x 1.1xMedian $10,227 $25,105 $20,796 1.0% $3,032 15.8% 3.2% 15.7% 8.5x 9.3x 1.4xMean $18,839 $43,542 $29,988 1.8% $5,045 15.2% 2.2% 15.8% 8.4x 9.1x 1.4x
Healthcare/Dental Equipment & SuppliesBecton, Dickinson and Company $90,402 $116,417 $22,378 16.0% $6,559 29.3% 4.8% 31.0% 15.8x 17.5x 5.1xBaxter International Inc. $59,120 $62,940 $14,493 0.7% $3,456 23.8% 5.5% 25.4% 16.3x 18.0x 4.3xDENTSPLY SIRONA Inc. $15,822 $17,686 $5,159 (3.8%) $860 16.7% 3.2% 22.4% 14.6x 20.3x 3.4xHenry Schein, Inc. $12,463 $15,499 $17,555 21.2% $1,520 8.7% (24.0%) 9.0% 12.7x 10.1x 0.9xPatterson Companies, Inc. $2,226 $3,195 $7,345 1.3% $355 4.8% 0.6% 4.5% 9.5x 9.0x 0.4xMedian $15,822 $17,686 $14,493 1.3% $1,520 16.7% 3.2% 22.4% 14.6x 17.5x 3.4xMean $36,007 $43,147 $13,386 7.1% $2,550 16.7% (2.0%) 18.5% 13.8x 15.0x 2.8x
(Figures in CAD millions, except percentages and ratios)
LTM Operating Figures NTM Consensus Estimates Valuation
Page 8
MNPCF – LEADERSHIP TEAM
DUE DILIGENCE LEADERSHIP
TRANSACTION LEADERSHIP
Aleem BandaliManaging Director
Dale AntonsenManaging Director
John CaggianielloManaging Director
[email protected] 416.513.4177
Brett FranklinPresident
Mike ReynoldsManaging Director
Johnny EarlManaging Director
[email protected] 604.637.1514
Dan PorterManaging Director
Stephen ShawManaging Director
Kevin TremblayManaging Director
Mark RegehrManaging Director
Craig MaloneyManaging Director
Patrick KhouzamManaging Director
Jason BurgessManaging Director
Erik St-HilaireManaging Director
Page 9
MNPCF – RECENTLY CLOSED DEALS
NATIONAL
