Twice a year, Meridian Capital publishes its Healthcare...

Twice a year, Meridian Capital publishes its Healthcare M&A Snapshot, which focuses on key

trends in middle market healthcare M&A. In addition to covering general healthcare industry

trends, the Summer 2016 Snapshot provides a more in-depth analysis of the medical device and

healthcare analytics segments.

As we progress through 2016, the economy continues to drive an attractive landscape for

healthcare companies. Momentum from a record-breaking 2015 is expected to endure the

otherwise hesitant penumbra cast by an particularly unconventional election year. Favorable

market conditions have driven an upswing in M&A activity with both private equity and

strategic buyers paying record multiples for middle market acquisitions. Buyers are seeking

quality targets with adaptable technologies and/or capabilities, specific geographic/market

reach, and strong synergistic opportunities. Given the persistence of favorable valuations in

M&A markets, we believe 2016 is an opportune time for shareholders to review growth,

financing and/or ownership transition objectives.

www.meridianllc.com | 1809 Seventh Avenue Suite 1330, Seattle, WA 98101 | T: 206.622.4000 | F: 206.623.8221

Patrick RinglandManaging [email protected]

Bruce PymManaging [email protected]

www.meridianllc.com 2

Snapshot Summary

The healthcare M&A market continues to be an attractive

arena for industry participants as they think about the future

of their businesses and consider growth or consolidation

opportunities. Two subsectors have been highlighted in this

snapshot, illustrating case studies of recent transactions and

discussion around how these sectors are dealing with an

evolving healthcare landscape.

Medical Devices

Consolidation toward larger, bigger participants has driven

a flurry of M&A activity.

Current political sensitivities are playing a large role in how

medical device companies are regulated and taxed.

Healthcare Analytics

Companies have turned to M&A to develop foundational

capabilities for analyzing healthcare data.

Healthcare analytics is poised to unlock innovation,

research, and the use of artificial intelligence.

Looking Toward 2017

Executives and key industry participants continue to express

appetite for M&A in 2016. In an annual survey performed by

KPMG, 91% of respondents said they expect to participate in

at least one acquisition this year and 53% said they expect to

do more than four. The majority of respondents expect

pharmaceuticals, biotechnology, and healthcare providers to

be some of the most active sectors citing adherence to the

Affordable Care Act as a main motivator.

Legislation and policy disquietude will receive a particularly

inflated level of attention through the end of 2016 as the U.S.

prepares for changes to the Presidential administration. In

recent months, many of the ‘mega merger’ announcements of

2015 have experienced backlash by the federal government. In

July, the DOJ filed lawsuits trying to block Anthem’s $54 billion

acquisition of Cigna as well as Aetna’s plan to purchase

Humana for $37 billon on anti-trust concerns. Earlier in the

year, Pfizer walked away from their $150 billion merger with

Allergan due to current administration officials proposing

changes to foreign tax advantages. Despite this regulatory

complexity and political uncertainty, the first part of 2016 has

yielded attractive dynamics for healthcare M&A. Notable

transactions include Shire’s acquisition of Baxalta, Abbott’s bid

for both St. Jude Medical and Alere, and Stryker’s purchase of

Sage Products. Recent developments in regards to healthcare

payments have also triggered transactions such as

McKesson’s acquisition of value-based payment vendor,

HealthQX. It is expected that this payment-focused activity will

continue as we move toward year end and enter 2017.

269 379

307 307

446

92

218

138 205

266

310

764696

127

448

309

$0

$200

$400

$600

$800

$1,00020142015

Healthcare M&A Snapshot: Current Industry Pulse

Sources: Pitchbook, CapitalIQ, KPMG, Meridian Research

Average M&A Deal Size by Quarter ($M)Total Healthcare Transactions – YOY Comparison

$510

$221

$701

$442

$1,500

$930$820

$410$500

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1

2014 2015 2016


Medical Device M&A and Industry Trends

Consolidation, scale, and market share have been three

common sound bites within recent activity in the medical

device industry. Announcements such as Abbot’s acquisition of

St. Jude Medical and Stryker’s purchase of Sage Products, are

representations of the sector’s accession to customer pricing

pressures and the idea that fewer, larger constituents are

better equipped to navigate the changing industry. Favorable

relationships with increasingly large hospital groups are

becoming more and more competitive as cost considerations

play a lead role in the value-based pricing model. Hospitals are

looking for ways to lean out supply chains by reducing

vendors, in turn, causing device makers to fight to maintain

negotiating power by way of size and scale. These dynamics

help fuel a ripe environment for M&A activity and the

emergence of strategic partnerships.

PE Exits in the Middle Market

While many of the record mergers steal the spotlight, the

middle market is also experiencing increased levels of activity.

Strong public valuations and elevated trading multiples have

created a choice environment for private equity exits over the

past year.

Given the current strategic focus on scale and negotiating

leverage, corporate M&A appetites are strong. According to

PitchBook, corporate acquisition has made up more than 60%

of healthcare investment exits by PE funds over the past four

quarters. While many of the best portfolio companies have

been sold already, opportunity will continue to present itself

as strategic plans are solidified and executed.

Precarious Political Panorama

As is common in election years, a heightened sense of

uncertainty and thoughtful consideration permeates through

the economy, the capital markets, and among decision

makers. Regardless of the unique circumstances of the 2016

election, policy changes developed on both sides of the aisle

and will bring significant implications for medical device

industry participants. In recent months, House Republicans

have unveiled an alternative healthcare policy that includes a

repeal of the 2.3% medical device excise tax that went into

effect in 2013 as part of the Affordable Care Act. Following an

underperformance of the tax to raise the anticipated funds, it

was placed on a two-year suspension which is scheduled to

end next year. Promoters of the tax have cited its importance

in providing federal funding for existing programs while critics,

including the Chairman of the MDMA, have argued the

economic benefits observed during the suspension have

included an increase in innovation among existing products,

the creation of more skilled manufacturing jobs, and more

resources available for exploring additional therapies. A recent

survey conducted by the Medical Imaging and Technology

Alliance found that 69% of executives were more likely to hire

U.S-based employees and 77% said they were likely to invest

more in R&D as a result of the tax suspension. As the

Presidential race nears the finish line and a new term begins, it

will be important for business owners and investors in the

space to continue to monitor these pertinent policy decisions

and the subsequent repercussions they will have on the

industry.

Healthcare M&A Snapshot: Medical Device Industry Spotlight

Sources: Pitchbook, CapitalIQ,, WSJ, Meridian Research

17%

15%16%

19% 19%

10%

12%

14%

16%

18%

20%

Q1 Q2 Q3 Q4 Q1

2015 2016

Medical Device M&A - % of Total Healthcare Activity

PE Firm Exited Investment Buyer

American Capital

Madison Dearborn PartnersSage Products Stryker Corporation

Bain Capital Private Equity Physio-Control Stryker Corporation

Apple Tree Partners Tendyne Abbott Laboratories

Austin Ventures LDR Zimmer Biomet

The Carlyle Group AqueSys Allergan plc


Sources: Capital IQ

Medical Device: Public Valuations and Transaction Activity

Public Valuations

*Created from an index of 13 publicly-traded Medical Device companies

Select Recent Transaction Activity

Date Target Description Transaction Type Buyer

Transaction

Value ($M)

Jul -16 DFINE Inc.DFINE Inc. develops minimal ly invas ive therapeutic devices that

are used to treat spinal conditions .Merger/Acquis i tion

Merit Medica l Systems,

Inc. (NasdaqGS:MMSI)$97.5

Jun-16Magnol ia Medica l

Technologies , Inc.

Magnol ia Medica l Technologies , Inc. manufactures and markets

blood col lection medica l devices . Private Placement HealthQuest Capita l $19.8

Jun-16Heartware

International Inc.

HeartWare International , Inc. des igns , develops , manufactures ,

and markets miniaturized implantable heart pumps.Merger/Acquis i tion Medtronic, Inc. $1,254.6

Jun-16LDR Holding

Corporation

LDR Holding Corporation is a global medica l device manufacturer

focused on surgica l technologies for spine treatment.Merger/Acquis i tion

Zimmer Biomet Holdings ,

Inc. (NYSE:ZBH)$1,146.6

Jun-16 EarLens CorporationEarLens Corporation develops medica l devices including hearing

a ids . Private Placement

New Enterprise

Associates ; Vertex Venture $69.0

May-16 TransMedics , Inc.TransMedics , Inc. develops and provides portable warm blood

perfus ion systems that a l lows for l iving organ transplant.Private Placement

Kleiner Perkins Caufield &

Byers ; Flagship Ventures ; $63.7

May-16 Symmetry Surgica l Inc.Symmetry Surgica l Inc. manufactures and dis tributes surgica l

devices worldwide. Merger/Acquis i tion

RoundTable Healthcare

Management, LLC$153.4

Apr-16 St. Jude Medica l Inc.St. Jude Medica l , Inc. develops and dis tributes cardiovascular

medica l devices for cardiovascular therapy areas worldwide.Merger/Acquis i tion

Abbott Laboratories

(NYSE:ABT)$30,174.8

Apr-16 Hansen Medica l , Inc.Hansen Medica l , Inc. develops , manufactures , and sel l s medica l

robotics .Merger/Acquis i tion

Auris Surgica l Robotics ,

Inc.$113.9

Apr-16 Adavium Medica l , Inc.Adavium Medica l , Inc. develops and manufactures medica l

device and diagnostics products international ly.Private Placement

Venrock; Aberdare

Ventures ; Arboretum $21.0

Feb-16Phys io-Control

International , Inc.

Phys io-Control International , Inc. manufactures defibri l lators ,

monitors , and pacemakers . Merger/Acquis i tion

Stryker Corporation

(NYSE:SYK)$1,344.0

Feb-16 Sage Products LLCSage Products LLC manufactures and sel l s disposable health and

personal care products .Merger/Acquis i tion

Stryker Corporation

(NYSE:SYK)$2,775.0

Oct-15Blue Belt

Technologies , Inc.

Blue Belt Technologies , Inc. develops and commercia l i zes

robotics -ass is ted technologies for use in orthopedic surgery.Merger/Acquis i tion

Smith & Nephew plc

(LSE:SN.)$275.0

Oct-15 Trividia Health, Inc.Trividia Health, Inc. develops , manufactures , and markets

advanced performance products for people with diabetes .Merger/Acquis i tion Sinocare Inc. (SZSE:300298) $272.5

Sep-15 Lazarus Effect, Inc.Lazarus Effect, Inc. manufactures vascular medica l devices and

intravascular products .Merger/Acquis i tion Medtronic plc (NYSE:MDT) $100.0

Sep-15 AqueSys , Inc.AqueSys , Inc. focuses on innovating and commercia l i zing

implantable devices that improves the treatment of glaucoma. Merger/Acquis i tion Al lergan plc (NYSE:AGN) $298.9

Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

EV/Rev 2.7x 2.8x 2.4x 2.4x 2.4x 2.6x 3.2x 3.2x 3.3x 3.5x 4.1x 4.2x 3.9x 4.0x 3.8x 4.1x

EV/EBITDA 9.1x 9.2x 8.3x 8.4x 8.2x 9.2x 12.2x 12.5x 12.7x 13.5x 15.0x 15.4x 14.4x 14.5x 14.4x 15.3x

0.0x

0.5x

1.0x

1.5x

2.0x

2.5x

3.0x

3.5x

4.0x

4.5x

0.0x

2.0x

4.0x

6.0x

8.0x

10.0x

12.0x

14.0x

16.0x

18.0x


Healthcare Analytics M&A and Industry Trends

The Affordable Care Act and the evolution of the healthcare

ecosystem in recent years has created a large opportunity for

technological advances in how industry participants collect,

analyze, and utilize healthcare data. In response to pricing

model changes, providers and payers alike are needing to

understand where cost saving opportunities, inefficiencies,

and trends are developing in order to maximize value, adhere

to regulations, and compete efficiently. M&A within the

healthcare analytics sector has ignited over the past twelve

months with notable acquisitions including IBM Watson’s

acquisition of Truven Health Analytics and McKesson’s

purchase of HealthQX. As future industry expectations become

more clear, M&A activity is expected to remain robust.

Establishing the New Foundation

Currently, most of the investment and acquisition activity is

focused around building a foundational level of analytical

abilities to monitor and improve operational effectiveness,

patient experience, and to navigate the transition toward

population health. In a survey performed by Gartner of 27

leading academic medical centers, specialty hospitals, and

medical institutions, 63% of respondents cited the motivation

of current investment was to establish this base functionality.

McKesson’s acquisition of HealthQX in July serves as a cardinal

example of this movement to meet the shift toward bundled

payments. In speaking about the transaction, McKesson VP

Carolyn Wukitch said, “The growth of bundled payment is

something payers and providers can’t ignore. These new

value-based payment analytics, reconciliation, and automation

capabilities complement our value-based reimbursement suite

because they give our customers the capabilities to prepare

for bundled payment.”

In addition to the growing strategic interest in analytics,

private equity participants are also competing for assets in

bidding processes that are pushing valuations to elevated

multiples. As highlighted in Thoma Bravo’s majority acquisition

of MedeAnalytics in late 2015, many private equity investors

are setting their sights to a middle ground somewhere

between the large, developed focus areas of strategics and the

smaller, unproven niches of the venture capital space.

The Future of Healthcare Analytics

Once the foundation is established and companies have

engrained the use of retroactive data analytics into existing

operations, the next phase will be the use of analytics in

advancing innovation, research, and discovery. While it is still

in its infancy, this movement is being aggressively led by IBM’s

Watson program. With four major acquisitions in the past year

alone, Watson Health has had an insatiable appetite for data.

The $2.6 billion acquisition of Truven Health Analytics in

February added more than 200 million “lives” to its data pool,

bringing total patient records under the Watson Health

umbrella to roughly 300 million. The collection of these data

points combined with added capabilities from the $1 billion

acquisition of medical imaging company, Merge Healthcare,

and the purchase of health management software company

Phytel, positions Watson to be the global leader in health data,

analytics, and insights. Watson’s already renowned artificial

intelligence software provides a established platform in the

healthcare space to become a dynamic, highly specialized

digital assistant to physicians and healthcare administrators in

improving the quality of care and compressing costs. As this

type of technology matures and develops, increasing IT

budgets and resource allocations are expected to fuel M&A

activity across all sizes of providers.

Healthcare M&A Snapshot: Healthcare Analytics Spotlight

Sources: Pitchbook, CapitalIQ,, Bain Capital, Healthcare IT News, Meridian Research

$4 billion +


Sources: Capital IQ

Healthcare Analytics: Public Valuations and Transaction Activity

Public Valuations

*Created from an index of 9 publicly-traded Healthcare IT companies

Select Recent Transaction Activity

Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16

EV/Rev 4.7x 5.6x 6.2x 4.8x 5.0x 4.9x 5.2x 5.1x 4.5x 4.5x 3.6x 3.8x

EV/EBITDA 24.5x 30.3x 37.7x 29.8x 31.5x 30.6x 28.9x 28.9x 24.9x 24.7x 19.7x 20.3x

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

Date Target Description Transaction Type Buyer

Transaction

Value ($M)

Jul -16 Valence Health, Inc.Valence Health, Inc. i s a healthcare IT and services fi rm

that provides va lue-based care solutions .Merger/Acquis i tion Evolent Health, Inc. $203.1

Jul -16 Imprivata, Inc.Imprivata, Inc. provides information technology securi ty and

identi ty solutions to the healthcare industry.Merger/Acquis i tion Thoma Bravo, LLC $512.2

Jul -16 HealthQx, LLCHealthQx, LLC provides data analytics and decis ion support

software for health plans , employers , and ACOs.Merger/Acquis i tion

McKesson Health

SolutionsN/A

May-16 Evidation Health, Inc.Evidation Health, Inc. develops digi ta l tools and

technologies for the healthcare industry. Private Placement B Capita l Group $15.5

Apr-16 CareCloud CorporationCareCloud Corporation provides cloud-based healthcare IT

solutions for phys icians in the healthcare industry.Private Placement

Adams Street Partners ,

LLC; Norwest Venture $22.0

Apr-16 Lumiata Inc.Lumiata Inc. provides medica l science-based graph

analytics solutions to produce accurate ins ights .Private Placement

Intel Capita l ; Khos la

Ventures ; Sandbox $10.0

Mar-16 Netsmart Technologies Inc.Netsmart Technologies Inc. provides software and

technology solutions . Merger/Acquis i tion

GI Partners , LLC;

Al l scripts Healthcare $950.0

Feb-16 Truven Holding Corp.Truven Holding Corp. provides analytic solutions and

services for the healthcare industry.Merger/Acquis i tion IBM Watson Health $3,581.0

Jan-16 Tal ix, Inc.Ta l ix, Inc. provides SaaS-based patient data analytics

solutions that turn complex health data into ins ights . Private Placement

GE Equity; VantagePoint

Capita l Partners ; Reed $14.0

Dec-15 Wel lDoc, Inc.Wel lDoc, Inc. i s a healthcare behaviora l science and

technology company that develops technology solutions .Private Placement

Johnson & Johnson

Innovation - JJDC, Inc.; $31.6

Dec-15 Aver Inc.Aver Inc., a health information technology company,

provides software for creating and managing bundles .Private Placement

Cardinal Health, Inc.

(NYSE:CAH); NCT $13.6

Nov-15 MedAssets , Inc.MedAssets , Inc., a performance improvement company,

provides technology-enabled products and services .Merger/Acquis i tion

Pamplona Capita l

Management LLP, $2,775.2

Sep-15 MedeAnalytics , Inc.MedeAnalytics , Inc. develops cloud-based healthcare

analytics solutions .Merger/Acquis i tion Thoma Bravo, LLC N/A

Aug-15 Merge HealthcareMerge Healthcare Incorporated develops software

solutions that faci l i tate the sharing of images .Merger/Acquis i tion

International Bus iness

Machines Corporation $1,022.7

May-15 PhytelPhytel provides integrated population health management

software.Merger/Acquis i tion


Machines CorporationN/A

Apr-15 ExplorysExplorys i s a healthcare intel l igence cloud company,

orginal ly a part of the Cleveland Cl inic.Merger/Acquis i tion


Machines CorporationN/A


Select Recent Healthcare Experience – Meridian Capital

Meridian Capital Overview

Buy-side Process• Targeted Buy-Side• Add-on Acquisitions• Merger of Equals• Vertical & Horizontal

Acquisitions

Sales Process• Strategic Sale• Minority Sale• Subsidiary Divestitures• Succession Planning

Recapitalization• Management Buy-Outs• New Growth Capital• Liquidity Events• Financial or Strategic

Partner

Strategic Advisory• Strategic Issues & Projects• Ownership Transition Plans• Corporate Finance

Alternatives• Exit Strategy Assessment

Healthcare ServicesHealthcare ITMedical Devices &

Products

Diagnostics &

ResearchBiopharmaceuticals

Producer of ceramics used in biomedical applications

-Acquired By-

Injection moldings for medical products

-Acquired by-

Independent research institute housing one of the nation’s

leading cancer research programs

-Board Advisory-

Leading manufacturer of bio-active glass for the healthcare industry

-Acquired By-

One of the nation’s largest retirement and assisted living

companies

-Capital Raise-

Medical equipment business

-Acquired By-

Rik Medical

Hospital and medical center, part of the University of

Washington

-Board Advisory-

Designer and manufacturer of innovative wheelchair products

-Financial Advisory-

Meridian Healthcare Industry Coverage and Services

Provider of orthopedic implants and ancillaries

-Acquired By-

Provider of products and services for life science research

-Acquired By-

Developer of infection control and wound healing products

-Acquired By-

German manufacturer of high-precision products for the

medical industry

-Acquired By-

Sound Rite

Plastics, Ltd.


Patrick RinglandManaging [email protected]

Bruce PymManaging [email protected]

Twice a year, Meridian Capital publishes its Healthcare...

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