Healthcare M&A update: Q2-2016

Major US indexes

The second quarter of 2016 (Q2-2016) observed mixed financial results for the broader US equity market, as the S&P and DJIA closed up 1.9 percent and 1.4 percent, respectively; while the NASDAQ closed down 0.6 percent for the quarter. The second quarter market results realized a large degree of volatility with market sentiment driven by both political and economic uncertainties related to the US political cycle and softening macro growth expectations. In the LTM period ending June 30; the S&P and DJIA closed up 1.7 percent and 1.8 percent respectively; while the NASDAQ closed down 2.9 percent.

Healthcare relative performance

As of June 30, 2016, each healthcare segment, with the exception of the Home Health and Hospice segment, exhibited declines on a trailing twelve month basis. These declines can be attributed to the following trends:

  • Shift in revenue mix from an increase in less profitable Medicaid patients
  • Increasingly complicated regulation resulting in additional risk and uncertainty regarding performance
  • Shift to value based care

The Home Health and Hospice segment exhibited stock gains of 4.34 percent exceeding the returns of 1.73 percent that were realized by the S&P 500 Index for the observed period.

Healthcare relative market performance


Indexed market performance by sector

Source: S&P Capital IQ and Baker Tilly Capital research, June 2016
LTM as of 06/30/2016
NM = Not Meaningful

Healthcare guideline companies >

Source: S&P Capital IQ and Baker Tilly Capital research, June 2016

Historical median trading multiples >

Source: S&P Capital IQ and Baker Tilly Capital research, June 2016

M&A activity

There were 297 reported M&A transactions that closed during Q2-2016 down from 351 transactions during the first quarter of 2016 (Q1-2016). Reported transactions in Q2-2016 decreased 13.4 percent compared to 343 deals for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $69.5 billion during Q2-2016. This is an increase from the total deal value of $40.1 billion in Q1-2016. More than fifty percent of the increase was driven by the $35.2 billion acquisition of Baxalta by Shire plc (LSE:SHP), which closed on June 3, 2016. Additionally, we would note that quarters with peak values were driven by large individual transactions that took place during each respective period, such as the first quarter of 2015.

Quarterly US M&A activity for closed transactions
Aggregate transaction value and number of deals

As detailed in Table 6 and Table 7, the Q2-2016 transactions with reported deal multiples1 had substantially higher median revenue and EBITDA multiples than the historic median multiples.

Quarterly US M&A TEV / revenue multiples


Quarterly US M&A TEV / EBITDA multiples

1Twenty-two revenue multiples and six EBITDA multiples reported
Source: S&P Capital IQ and Baker Tilly Capital research, June 2016

US middle-market healthcare M&A activity2

There were 289 reported middle-market transactions that closed during Q2-2016 down from 344 transactions during Q1-2016. Reported transactions in Q2-2016 decreased 12.7 percent compared to 331 deals for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $8.9 billion during Q2-2016. This is a decrease from the total deal value of $13.0 billion in Q1-2016.

Middle-market healthcare M&A activity for transactions closed
Aggregate transaction value and number of deals

As detailed in Table 9 and Table 10 the Q2-2016 transactions with reported deal multiples3 had revenue multiples in line with the historic median multiples while EBITDA multiples increased dramatically due the small number of reported multiples.

Middle-market quarterly
M&A TEV/revenue multiples


Middle-market quarterly
M&A TEV/EBITDA multiples

2Middle-market is defined as transaction values less than $1 billion.
3Sixteen revenue multiples and four EBITDA multiples reported
Source: S&P Capital IQ and Baker Tilly Capital research, June 2016

Notable Q-2 2016 closed healthcare deals >

View the full Healthcare M&A update


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