Coverage Report Market Intelligence for Business Owners Q3 2012 Capstone Partners Investment Banking Advisors BOSTON CHICAGO LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY
Coverage Report MERGER AND ACQUISITION ACTIVITY CAPSTONE PARTNERS LLC www.capstonellc.com HEALTHCARE STAFFING TEAM Eric Williams Managing Director (215) 854 4065 ewilliams@capstonellc.com Ted Polk Managing Director (312) 674 4531 tpolk@capstonellc.com Mark Surowiak Director (215) 854 4063 msurowiak@capstonellc.com Lisa Tolliver Director (312) 674 4532 ltolliver@capstonellc.com M&A activity in the staffing industry accelerating. Capstone s research indicates that 54 transactions were completed in the industry throughaugust of thisyear. Onapro forma basis, together with the host of transactions we see moving to closure during Q4, 2012 should mark the third consecutive year of solid M&A performance for the industry. Healthcare staffing has reflected these general trends, with M&A activity peaking in 2007, followed by a small decline in 2008 and a rather large drop in 2009. Activity rebounded substantially in 2010 and was healthy in 2011. Through August of 2012, 22 transactions were closed in healthcare staffing, indicating interest in the sector is picking up. In fact, according to a recent industry survey, healthcare staffing is now one of the top three types of staffing firms that acquirers are looking to buy. 160 140 120 100 80 60 40 20 0 138 125 Staffing Industry M&A Transactions 139 87 2005 2006 2007 2008 2009 2010 2011 YTD 2012 Sources: Capital IQ, Capstone Partners LLC research, Staffing Industry Analysts YTD 2012 data as of August 31, 2012 Within the healthcare sector, buyers are acquiring to expand their service offerings and reach into new geographic markets or fortify current ones. They are looking to expand coverage and capacity in preparation for an increase in healthcare staffing demand. Such buyers are taking advantage of favorable tax rates and low borrowing costs to make strategic acquisitions. Some of these buyers are pursuing an aggressive growth throughacquisition strategy, while others are selectively acquiring companies when an attractive target matches their well defined growth plans. 73 91 87 54 Most of the transactions in the sector have been highly strategic and completed by corporate buyers. However, with rapid growth expected, private equity groups are also attracted to the space. The fragmented nature of the industry is appealing to private equity groups intent on forming a potential market leader from the combination of several smaller firms. It is not surprising that private equity groups are interested in investing in this space, given its strong fundamentals and attractive consolidation and growth opportunities. Going forward, we expect additional M&A activity in healthcare staffing as both corporate and private equity buyers look to secure their positions in this attractive sector. 1
MARKET GROWTH & FUNDAMENTALS ATTRACT BUYERS Healthcare is one of the staffing verticals where growth is expected to accelerate As healthcare continues to outpace the staffing industry as a whole, the segment is expected to attract the attention of both industry and private equity buyers. After it was severely affected by the recession, the healthcare staffing market is once again growing and the long term outlook for the industry is positive and supported by strong market fundamentals. Industry revenues declined 28% in 2009 and another 7% in 2010 as millions of jobs were cut from US payrolls and unemployed workers lost their healthcare benefits, dragging down demand for healthcare services. At the same time, motivated by financial and job security fears, part time and contingent healthcare workers opted for permanent full time jobs, further squeezing healthcare staffing providers. Healthcare staffing began to recover in 2011, with revenues posting a 6% increase. Looking forward, healthcare is one of highest growing staffing verticals, with a 9% increase expected in 2012. Thereafter, the sector is projected to grow in excess of 6% compounded annually, reaching an estimated $11 billion in 2016. As healthcare continues to outpace the staffing industry as a whole, the segment is expected to attract the attention of both industry and private equity buyers. Revenues 12 10 8 9.8 10.2 10.6 11.0 11.4 8.2 7.6 8.0 8.7 11.0 $Billions 6 4 2 0 2004 2005 2006 2007 2008 2009 2010 2011 2012 2016 Source: Staffing Industry Analysts Strong fundamentals are boosting healthcare services demand and driving the growth of healthcare staffing. First and foremost is the aging US population; in the next 10 years about 15 million Americans will enter the 65+ population, the age group requiring the most healthcare. There could also be long term benefits for the sector as a result of healthcare reform, which was signed into law in 2010 and is expected to takefulleffect in2014. The new Affordable Care Act requires healthcare insurance for all Americans, which is expected to result in an increase in healthcare demand and staffing. Supported by these fundamentals, predictions call for 5.6 million new healthcare related jobs by 2020, a 29% increase over 10 years. With this large increase in healthcare jobs, pundits are predicting an acute shortage of healthcare workers, an added opportunity for healthcare staffing firms. The industry is not without its issues. While healthcare reform could result in demand increases, it also poses potential challenges for temporary staffing firms. The US government continues to put downward pressure on escalating healthcare costs, which has made its way to staffing. Nevertheless, because of the overall demand increases and the widespread reliance on temporary and contingent staffing, this sector represents an attractive, long term growth opportunity for buyers. 2
KEY VALUE DRIVERS To the extent that the selling company has these characteristics, these value drivers can generally result in more suitors for the target company, as well as higher offers. Capstone has identified several attributes of healthcare staffing companies that tend to be sought after by potential acquirers. These market value enhancers include attractive growth, value added solutions, healthy gross profit and EBITDA margins, a comprehensive or unique set of services, a strong local or regional market position and a diversified, loyal base of clients. To the extent that the selling company has these characteristics, these value drivers can generally result in more suitors for the target company, as well as higher offers. A discussion of some of the industry s key value drivers follows. Adoption of Industry Changes: Staffing firms that stay ahead of the curve on industry trends and changes tend to be attractive to buyers. One example is the integration with VMS firms & MSPs. These models are increasingly being used by staffing buyers to help push down costs. Although healthcare slower to incorporate these models than other sectors of staffing, they are likely to become more prevalent. In fact, some of the biggest players in the industry have already embraced the concept; this was perhaps best underscored with the 2010 acquisition of managed services provider Medfinders by industry giant AMN Healthcare Services. Value Added Services: Offering value added solutions can help to differentiate a healthcare staffing firm while better serving its customers, who increasingly want one point of contact for a variety of services. Such services include strategic workforce planning, managing hospitals internal staffing pools, and other HR consulting services. An integrated salesforce can be used to sell the various offerings for optimal cross selling efficiency. Underserved or Growing Niche: Certain segments of healthcare staffing are in high demand, as are specific skills within the segments. For instance, some of the fastest growing healthcare occupations are lower level positions such as home health aides, physical therapy assistants, occupational therapy assistants and physical therapist aides. In addition, the various user markets such as hospitals, emergency rooms, private practices, home health and ambulatory surgical centers are growing at differing rates. Specialization in specific segments, jobs or skill sets can also boost a staffing firm s sales and fulfillment efficiencies. To the extent that staffing companies are operating in strong and growing segments and markets, their value is enhanced. Talent Acquisition: Effective recruiting techniques and processes that consistently result in quality talent and excellent fill ratios are key, and often involve investments in social media and other tools. Healthcare staffing companies are also being asked to assist in healthcare worker credentialing and other support services. Healthy Margins: This point is especially critical with the prevalence of increased margin pressure in the industry, caused by flat rates while at the same time buyers are requesting more services in terms of testing, screening and training. Staffing firms with a track record of growth and healthy operating margins are attractive, and are likely to see strong interest and robust offers from prospective buyers. 3
SELECTED HEALTHCARE STAFFING M&A TRANSACTIONS Date Target Acquirer Target Business Description Aug 12 Jul 12 Jul 12 Jun 12 Jun 12 Jun 12 Jun 12 May 12 Delphi Healthcare Partners, Inc. Medical Connections, Inc. First Choice Staffing Solutions Invita Healthcare Staffing Corporation Medical Solutions Sun Healthcare Group Inc. Cambridge Staffing, Inc. The Exigence Group Team Health Provides contract physician staffing and management services Holdings, Inc. (NYSE:TMH) to hospitals and physician groups. Trustaff, Inc. Accountable Healthcare Holdings Corp. Accountable Healthcare Holdings Corp. Tenex Capital Mngmt.; McCarthy Capital Fund V Genesis HealthCare LLC QPS Employment Group, Inc. Team Health Holdings Inc. May 12 The Javers Group, Inc. Univest Insurance Inc. May 12 Apr 12 Mar 12 Mar 12 TRIOS Search Partners, Inc. Mount Auburn Inc. Kforce Clinical Research Inc. Medical Staffing Network HomeCare Division Bench International Search, Inc. Home Health International Inc. inventiv Health, Inc. Epic Health Services, Inc. Mar 12 Iron Gate Workforce, LLC Workforce Insight, Inc. Mar 12 Feb 12 Feb 12 Jan 12 Jan 12 Medical Practice Management, LLC Panhandle Correctional Care, Inc. Paradigm Mngmt. Services LLC Midpoint Healthcare Services, Inc. Optilink Healthcare Management ClinicAnywhere Conmed Healthcare Management, Inc. Lightyear Capital LLC Accredited Health Services, Inc. Kronos Inc. Jan 12 PHS Staffing, Inc. Advantage On Call, LLC Jan 12 APS Healthcare Inc. Universal American Corp. Dec 11 Oct 11 Oct 11 Alchemy Search Partners, Inc. Oasis Outsourcing, Inc. Allied Healthcare International Inc. SOAProjects, Inc. Undisclosed; acq d stake from Nautic Partners Saga Group Ltd. Oct 11 Staffmark Holdings, Inc. Recruit Co., Ltd. Oct 11 Oct 11 MEA Management, LLC Solvis Medical Group Team Health Holdings, Inc. (NYSE:TMH) Smart Tek Solutions Inc. (OTCPK:STTN) Provides medical recruitment and staffing of allied health professionals and nurses. Provides contract, per diem, or full time staffing services in various clinical specialties. Provides per diem, travel contract and placement of healthcare professionals in clinical modalities. Enterprise Value (mm) EV / LTM Revenue EBITDA $0.8 Provides healthcare staffing services. Provides temporary therapy staffing services among other services. Recruits contractors in the areas of medical, engineering, sales, marketing, accounting, finance and IT. Provider of healthcare management and staffing services for emergency departments, hospitals and urgent care centers. Provides HR management and benefits outsourcing services to financial services, healthcare, technology and manufacturing. Offers executive search and human resources consulting in the biotechnology, pharmaceutical and healthcare industries. $275.5 0.1x 3.4x $5.0 Provides skilled nursing and therapeutic services. Provides outsourcing and contract staffing, as well as permanent placement services. Provides healthcare services to acute and non acute healthcare organizations. Operates as a healthcare workforce management technology services company. Offers medical administration, consulting and staffing services to physicians and other healthcare providers. Provides medical professionals and staffing services to healthcare facilities. Provides healthcare services for catastrophic and complex cases. $50.0 0.5x Provides home health services and staffing nurses. Provides healthcare staffing services to its workforce suite of companies. A medical staffing agency, engages in placing per diem nurses and allied health professionals. Provides specialty health services to Medicaid agencies, governments, health plans, employers and labor groups. Provides direct hire and interim search services, including to the biotechnology and healthcare sectors. A professional employer organization, provides workforce solutions to medical and dental businesses. Provides healthcare staffing services to the healthcare and social care industry. Provides various staffing services to companies in several industries, including healthcare. Offers physician and allied health professional staffing services to its hospital partners. $277.5 $140.4 0.5x 7.7x $295.0 0.3x 8.2x Provides medical staffing and physical therapy services. $0.5 0.2x LTM = last twelve months; EV = enterprise value Source: Capstone Partners LLC research, Capital IQ, company public filings and press releases 4
CAPSTONE PARTNERS: HEALTH & MEDICAL TRANSACTIONS STAFFING OF SPEECH, PHYSICAL & OCCUPATIONAL THERAPISTS STAFFING OF PEDIATRIC NURSES pursuing a corporate sale and currently in market pursuing a corporate sale and currently in market CURRENT M&A CLIENT (Confidential) CURRENT M&A CLIENT (Confidential) has divested assets to has secured financing from has divested assets to has secured financing from PRIVATE INVESTOR GROUP has acquired CERTIFIED IT & ITRICITY FREEDOM DATA acquisition advisory a portfolio company of has divested assets to If you are considering the M&A or liquidity markets in the near future and would like to better understand your market proposition and relative valuation, please feel free to reach out to one of Capstone s healthcare staffing investment bankers. 5
THE HEALTHCARE STAFFING INDUSTRY TEAM Eric Williams, Managing Director ewilliams@capstonellc.com (215) 854 4065 Eric serves as Managing Director and Head of the Eastern Region for Capstone, based out of Philadelphia. Prior to Capstone, Eric was responsible for managing the Eastern region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. Eric has 20 years of experience managing strategic sale assignments and leveraged recapitalizations for owners of privately held companies. He has successfully completed over 100 transactions in a wide range of industries including health care services, medical technology outsourcing, defense, pharmaceutical services, and education and training. He has also executed complex cross border transactions with foreign buyers based in London, Germany, Sweden, and Switzerland and has structured deals with leading private equity groups and strategic corporate buyers. Previously, Mr. Williams worked as a senior executive with Newport Securities Corporation. He graduated cum laude from the University of California and is a Series 7 and 63 Registered Securities Representative as well as a Series 24 Registered Securities Principal. Ted Polk, Managing Director tpolk@capstonellc.com (312) 674 4531 Ted is Managing Director and Head of the Central Region at Capstone, based out of Chicago. Prior to Capstone, Ted ran the corporate finance practice in the Central region for Morgan Stanley Smith Barney s Capital Strategies Group and its predecessor, Citi Capital Strategies. He has over 20 years of experience, having completed strategic sale and recapitalization transactions across a variety of industries. Ted is a frequent public speaker on the topic of business exits and recapitalizations of privately owned businesses. In 2008, Ted was recognized by The M&A Advisor for the Cross Border Middle Market Deal of the Year. In 2009, another of his transactions was recognized as the Middle Market M&A Financing Deal of the Year and in 2011 he was recognized for lead managing the Middle Market Deal of the Year. Previously, Mr. Polk worked at Valuemetrics, Inc. and in the Corporate Banking Group at The Bank of New York. Ted received his BSBA degree from Georgetown University and MBA from the University of Chicago. He is a Chartered Financial Analyst (CFA), a Series 7 and 63 Registered Securities Representative, and a Series 24 Registered Securities Principal. Mark Surowiak, Director msurowiak@capstonellc.com (215) 854 4063 Mark is a Director in the Philadelphia office, supporting the management of the Eastern Region. Previously, Mark served over 10 years as a senior investment banking professional in Morgan Stanley Smith Barney s Capital Strategies Group. Over his career, Mark has focused on developing deep credentials and expertise in the sale and recapitalization of privately held businesses. Mr. Surowiak's experience spans a broad range of industries, including the government and defense contracting, manufacturing, and outsourced business services sectors. Prior to investment banking, Mark enjoyed a career in the social services field. Mark is a graduate of Illinois State University with a BS in Business Administration. He is a Series 7 and 63 Registered Securities Representative. Lisa Tolliver, Director ltolliver@capstonellc.com (312) 674 4532 Lisa has 15 years of experience in the investment banking industry, primarily focused on advising private business owners in liquidity related transactions. Presently, Lisa is a Director in Capstone s Chicago office, supporting the management of the Central Region. Prior to Capstone, Ms. Tolliver worked in the Capital Strategies Group at Morgan Stanley Smith Barney, where she was involved in the evaluation, marketing and closing of numerous transactions across a wide range of industries. Specifically, Lisa has developed expertise within the technology, manufacturing, consumer products and outsourced business services industries. Lisa received her BA on academic scholarship from Illinois State University and is a Series 7 and 63 Registered Securities Representative. 6
ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a leading national investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including one in healthcare staffing. The firm also possesses merchant banking capabilities to actively co invest in transactions. Additional information about Capstone Partners can be found at www.capstonellc.com. LEADERSHIP TEAM BOSTON CHICAGO PHILADELPHIA John Ferrara Ted Polk Eric Williams President, Managing Partner Managing Director Managing Director (617) 619 3325 (312) 674 4531 (215) 854 4065 jferrara@capstonellc.com tpolk@capstonellc.com ewilliams@capstonellc.com Kevin Jolley LOS ANGELES SAN DIEGO Managing Director David Bench David Michaels (617) 619 3330 Managing Director Managing Director kjolley@capstonellc.com (949) 460 6431 (858) 926 5950 dbench@capstonellc.com dmichaels@capstonellc.com Capstone Partners Investment Banking Advisors www.capstonellc.com World Class Wall Street Expertise. Built for the Middle Market. 2012 Capstone Partners LLC. All rights reserved.