BGL Hospitals & Health Systems Practice HEALTH FACILITIES HOSPITALS & HEALTH SYSTEMS For-Profit & Not-for-Profit Health Systems Academic Medical Centers Specialty Hospitals Rural Health Providers POST-ACUTE CARE Long-Term Care Hospitals Rehabilitation Providers Senior Living Home Health & Hospice OUTPATIENT SERVICES Ambulatory Surgery Centers Diagnostic Imaging Centers Urgent Care Centers Laboratory Other Ancillary Service Providers Primary Care & Specialty Medical Groups Cancer Treatment ALTERNATE SITE Scope of Buy-Side and Sell-Side y Strategic Options Assessments Affiliations and Joint Venture Formations Fairness Opinions Capital y Restructurings and Recapitalizations Fair Market Value Opinions Equity Placements and Syndications Regulatory Compliance y Select BGL Transactions the Ancillary Operations of Undisclosed Health System Buyer Urgent Care Associated Internal Medicine Group Inc. Southbay Oncology Hematology Partners a division of by by Medical Center Financial advisor and rendered a fairness opinion to the Board of Directors of Owensboro Health BGL Hospitals & Health Systems Contact Manfred R. Steiner Managing Director & Principal 312.658.4778 msteiner@bglco.com bglco.com globalma.com 1
Case Study - Urgent Care Party Descriptions Health System is a large, tax-exempt, multi-hospital Catholic health system Acquisitive in the acute care and outpatient sectors Located in a fast-growing market experiencing significant health system consolidation Urgent Care is a multi-location, physician-owned urgent care group Founded first clinic within the last 10 years and has successfully added multiple new locations Strong, experienced management team Offers more expansive services than most urgent care providers Structured as three separate companies to accommodate future expansion Situation Overview Health System sought to acquire Urgent Care for the following reasons: Impressed by Urgent Care s clinical quality and recent history of successful expansions Augment presence in Urgent Care s markets Low cost mechanism to expand outpatient footprint Acquisition would provide a source of additional patients for newly hired physicians Interested in working with Urgent Care s management on future expansions Urgent Care was interested in selling to the Health System for the following reasons: The integration would provide an alliance with a quality health system Access to capital would allow Urgent Care to expand through acquisitions or de novos at a faster pace Opportunity to apply their management expertise on a larger scale Pre-Transaction Structure Urgent Care was structured as three separate companies: Pre-Transaction Structure The Provider employed the physicians, treated patients, and collected reimbursement for providing patient services The provided staffing services, including nurses and front desk staff, and paid rent and other operating expenses for the Provider Provider The provided billing services to the Provider through a billing services agreement (Continued on next page) 2 bglco.com
Case Study - Urgent Care Transaction Mechanics After reviewing multiple potential transaction structures, Health System decided to complete a full equity purchase of the and acquire the assets of the Provider Transaction Mechanics Provider As the new provider of urgent care services, Health System implemented agreements with Urgent Care s management and physicians to help it run the clinics: Agreement Health System retained the existing contractual Agreement with the Professional Agreement The physicians remained independent and entered into a Professional Agreement with Health System to provide physician services for the urgent care clinics Assets Cash Considera on Health System Post-Transaction Structure 100% Equity Interest Management Agreement Health System established a Management Agreement with Urgent Care s management for their services in managing the four existing clinics Provider Independent Physicians Physician Independent Physicians Development Agreement Health System entered into a Development Agreement with Urgent Care s management for consulting services associated with evaluating and executing future expansion opportunities Management Development Urgent Care Management (Continued on next page) 3 bglco.com
Case Study - Urgent Care Transaction Result Both parties achieved their objectives: Urgent Care secured a capital partner with a strong clinical reputation, allowing it to continue its growth while retaining its focus on quality Health System aligned with an established urgent care group, enhancing its continuum of care The acquisition provides Health System with a well-run urgent care platform and the management expertise to expand its services to new markets where patient demand is not being met BGL s Role BGL provided advisory services to Health System throughout the process, including: Performed extensive due diligence of Urgent Care s operations, financials, and market landscape Analyzed the future growth prospects of the company, including de novo and acquisition opportunities Completed a fair market valuation of Urgent Care Created a multi-scenario investment IRR analysis sensitized for key assumptions Developed a buy vs. build analysis to quantify the merits of the acquisition Evaluated numerous transaction structures and affiliation models and analyzed their impact on value and returns Assisted with legal documentation, including producing and presenting initial term sheet to Urgent Care s shareholders Rendered a purchase price allocation and a regulatory compliant valuation of the purchase price, Management Agreement, and Agreement 4 bglco.com
Select Healthcare Providers Public Data As of 4/21/2015 ($ in millions) Enterprise Trailing Twelve Months EBITDA Revenue Growth Total Debt / Enterprise Value / Name Value Revenue EBITDA Margin 1 Year 3 Year EBITDA Revenue EBITDA FACILITIES Hospital Management Companies Community Health Systems, Inc. $ 23,390 $ 18,639 $ 2,737 14.7% 45.4% 16.1% 6.2x 1.3x 8.5x HCA Holdings, Inc. 62,901 36,918 7,385 20.0% 8.0% 7.5% 4.0x 1.7x 8.5x Lifepoint Hospitals Inc. 5,545 4,483 577 12.9% 21.9% 14.0% 3.8x 1.2x 9.6x Medical Facilities Corp. 503 312 97 31.2% 0.9% 12.9% 0.8x 1.6x 5.2x Tenet Healthcare Corp. 17,191 16,615 1,952 11.7% 49.7% 24.3% 6.0x 1.0x 8.8x Universal Health Inc. 15,525 8,065 1,475 18.3% 10.7% 6.1% 2.2x 1.9x 10.5x Median $ 16,358 $ 12,340 $ 1,714 16.5% 16.3% 13.5% 3.9x 1.4x 8.7x Average 20,842 14,172 2,371 18.1% 22.8% 13.5% 3.9x 1.5x 8.5x Rehabilitation HEALTHSOUTH Corp. $ 6,402 $ 2,374 $ 583 24.5% 5.7% 5.8% 3.7x 2.7x 11.0x Select Medical Holdings Corporation 3,590 3,020 353 11.7% 2.8% 3.1% 4.5x 1.2x 10.2x US Physical Therapy Inc. 652 295 53 17.9% 15.9% 9.7% 0.7x 2.2x 12.4x Median $ 3,590 $ 2,374 $ 353 17.9% 5.7% 5.8% 3.7x 2.2x 11.0x Average 3,548 1,897 329 18.0% 8.1% 6.2% 2.9x 2.0x 11.2x Long-Term Care Diversicare Healthcare Inc. $ 143 $ 344 $ 20 5.9% 32.3% 11.9% 2.4x 0.4x 7.1x Kindred Healthcare Inc. 4,655 5,028 343 6.8% 5.3% 6.1% 8.4x 0.9x 13.6x National Healthcare Corp. 922 829 105 12.6% 10.9% 4.1% 0.4x 1.1x 8.8x The Ensign Group, Inc. 1,180 1,027 99 9.7% 13.6% 10.7% 0.7x 1.1x 11.9x Median $ 1,051 $ 928 $ 102 8.2% 12.2% 8.4% 1.6x 1.0x 10.3x Average 1,725 1,807 142 8.7% 15.5% 8.2% 3.0x 0.9x 10.3x Ambulatory Surgery Centers AmSurg Corp. $ 5,972 $ 1,622 $ 478 29.5% 53.4% 28.1% 4.7x 3.7x 12.5x Surgical Care Affiliates, Inc. 2,544 833 221 26.6% 10.3% 6.7% 3.1x 3.1x 11.5x Average $ 4,258 $ 1,227 $ 350 28.0% 31.8% 17.4% 3.9x 3.4x 12.0x Dialysis DaVita HealthCare Partners Inc. $ 26,159 $ 11,748 $ 2,400 20.4% 8.7% 23.8% 3.5x 2.2x 10.9x Fresenius Medical Care AG & Co. KGAA 35,197 16,134 2,928 18.2% 8.3% 8.0% 3.3x 2.2x 12.0x Average $ 30,678 $ 13,941 $ 2,664 19.3% 8.5% 15.9% 3.4x 2.2x 11.5x Facilities - Summary Median $ 5,545 $ 3,020 $ 478 17.9% 10.7% 9.7% 3.5x 1.6x 10.5x Average 12,498 7,546 1,283 17.2% 17.9% 11.7% 3.4x 1.7x 10.2x Source: S&P Capital IQ. 5 bglco.com
Select Healthcare Providers Public Data As of 4/21/2015 ($ in millions) Enterprise Trailing Twelve Months EBITDA Revenue Growth Total Debt / Enterprise Value / Name Value Revenue EBITDA Margin 1 Year 3 Year EBITDA Revenue EBITDA SPECIALIZED HEALTH SERVICES Home Health Addus HomeCare Corporation $ 296 $ 313 $ 23 7.3% 17.7% 10.8% 0.2x 0.9x 12.9x Almost Family Inc. 467 496 28 5.6% 38.9% 14.4% 1.7x 0.9x 16.8x Amedisys Inc. 986 1,188 66 5.6% (3.7%) (5.5%) 1.8x 0.8x 14.9x BioScrip, Inc. 779 984 (44) (4.5%) 27.9% 21.1% 0.0x 0.8x -17.6x Chemed Corp. 2,220 1,456 197 13.5% 3.0% 2.4% 0.7x 1.5x 11.3x LHC Group, Inc. 689 718 60 8.3% 11.4% 4.9% 1.0x 1.0x 11.5x Median $ 689 $ 984 $ 60 6.5% 14.5% 7.9% 0.9x 0.9x 12.2x Average 777 1,018 69 6.0% 15.9% 8.0% 0.9x 1.0x 8.3x Physician Professional IPC Healthcare, Inc. $ 970 $ 694 $ 73 10.5% 13.9% 14.9% 1.1x 1.4x 13.4x Envision Healthcare Holdings, Inc. 8,990 4,398 551 12.5% 18.0% 12.3% 0.0x 2.0x 16.3x MEDNAX, Inc. 7,513 2,439 559 22.9% 13.2% 15.4% 1.0x 3.1x 13.4x Team Health Holdings, Inc. 5,328 2,820 292 10.3% 18.3% 17.3% 2.8x 1.9x 18.3x Median $ 6,421 $ 2,629 $ 421 11.5% 15.9% 15.1% 1.1x 2.0x 14.9x Average 5,700 2,588 369 14.1% 15.8% 15.0% 1.2x 2.1x 15.3x Specialized Health - Summary Median $ 970 $ 1,188 $ 73 9.3% 15.8% 13.3% 1.0x 1.2x 13.4x Average 2,567 1,589 178 9.2% 15.9% 10.8% 1.0x 1.4x 11.1x DIAGNOSTICS Imaging Alliance Healthcare, Inc. $ 789 $ 436 $ 122 27.9% (2.8%) (4.0%) 4.2x 1.8x 6.5x RadNet, Inc. 1,003 640 115 17.9% 2.1% 7.0% 5.2x 1.6x 8.7x Average $ 896 $ 538 $ 118 22.9% (0.3%) 1.5% 4.7x 1.7x 7.6x Clinical Laboratories Bio-Reference Laboratories Inc. $ 1,001 $ 860 $ 115 13.4% 16.9% 14.3% 0.5x 1.2x 8.7x Laboratory Corp. of America Holdings 15,113 6,012 1,168 19.4% 3.5% 2.7% 2.6x 2.5x 12.9x Psychemedics Corp. 94 29 5 18.8% 8.7% 6.6% 1.1x 3.2x 17.2x Quest Diagnostics Inc. 14,583 7,435 1,409 19.0% 4.0% 0.2% 2.7x 2.0x 10.4x Sonic Healthcare Limited 7,983 3,297 585 17.7% 9.3% 7.7% 3.0x 2.4x 13.7x Median $ 7,983 $ 3,297 $ 585 18.8% 8.7% 6.6% 2.6x 2.4x 12.9x Average 7,755 3,527 656 17.7% 8.5% 6.3% 2.0x 2.3x 12.6x Diagnostics - Summary Median $ 1,003 $ 860 $ 122 18.8% 4.0% 6.6% 2.7x 2.0x 10.4x Average 5,795 2,673 503 19.2% 6.0% 4.9% 2.8x 2.1x 11.1x Source: S&P Capital IQ. BGL Hospitals & Health Systems Contact Manfred R. Steiner Managing Director & Principal 312.658.4778 msteiner@bglco.com bglco.com globalma.com 6