Healthcare M&A update: Q3-2016

Major U.S. indexes

The third quarter of 2016 (Q3-2016) showed positive performance for the broader U.S. equity market, as the S&P, DJIA and NASDAQ closed up 3.3 percent, 2.1 percent and 9.7 percent, respectively, for the quarter. In the LTM period ending Sept. 30, the S&P, DJIA and NASDAQ closed up 12.9 percent, 12.4 percent and 15.0 percent, respectively.

Healthcare relative performance

As of Sept. 30, 2016, three out of the five healthcare segments exhibited declines on a trailing twelve month basis. These declines can be attributed to the following trends:

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

Of the five healthcare segments, the managed healthcare / insurance segment achieved the best performance.  This segment exhibited stock gains of 4.6 percent while the S&P 500 index realized a 12.9 percent return for the observed period.

Table 1: Healthcare relative market performance

Table 2: Indexed market performance by sector

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

 

LTM as of Sept. 30, 2016
EV = Enterprise value

 

Table 3: Healthcare guideline companies >

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

Table 4: Historical median trading multiples >

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

M&A activity

There were 288 reported M&A transactions that closed during Q3-2016 down from 297 transactions during Q2-2016. Reported transactions in Q3-2016 decreased 28.9 percent compared to 405 deals for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $76.2 billion during Q3-2016. This is an increase from the total deal value of $69.5 billion in Q2-2016. Additionally, we would note that quarters with peak values were driven by large individual transaction that took place during each respective period, such as Q1-2015.

Table 5: Quarterly U.S. healthcare M&A activity for transactions closed
Aggregate transaction value and number of deals

As detailed in Table 6 and Table 7 the Q3-2016 transactions with reported deal multiples1 had higher median revenue and EBITDA multiples than the historic median multiples.

Table 6: Quarterly M&A TEV / revenue multiples

Table 7: Quarterly M&A TEV / EBITDA multiples

Source: S&P Capital IQ and Baker Tilly Capital research, September 2016
1 32 revenue multiples and seven EBITDA multiples reported

U.S. middle-market healthcare M&A activity

There were 279 reported middle-market2 transactions that closed during Q3-2016 down from 289 transactions during Q2-2016. Reported transactions in Q3-2016 decreased 28.8 percent compared to 392 deals for the same period in 2015.

The aggregate deal value of the M&A transactions with reported values was $11.3 billion during Q3-2016. This is an increase from the total deal value of $8.9 billion in Q2-2016.

Table 8: 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 Q3-2016 transactions with reported deal multiples3 had revenue multiples above the historic median multiples while EBITDA multiples remain elevated due the small number of reported multiples.

Table 9: Middle-market quarterly
M&A TEV / revenue multiples

Table 10: Middle-market quarterly
M&A TEV / EBITDA multiples

Source: S&P Capital IQ and Baker Tilly Capital research, September 2016
2 Middle-market is defined as transaction values less than $1 billion
3 25 revenue multiples and five EBITDA multiples reported

PPT – slides 6-8 (if you include this)

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

Notable Q-2 2016 closed healthcare deals >

View the full Healthcare M&A update


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