Healthcare Services Industry Update August 2013

Healthcare Services

Industry Update

Mergers & Acquisitions

Business Valuation

Strategic Consulting

Corporate Finance

2 August 20, 2013

Industry Snapshot: Healthcare

Source: Capital IQ 8/20/2013

Notable M&A Activity

Capital Markets

8/7/13. Levine Leichtman Capital Partners

acquired Champion Manufacturing from Invacare

Corp. (NYSE: IVC) in a $45 million deal.

Champion offers medical treatment products to the

healthcare market with expertise in healthcare

related furniture, furnishings and fixtures.

8/2/13. Emergent BioSolutions (NYSE: EBS) acquired Bracco Diagnostics’ Healthcare Protective Products Division in

a $26 million transaction. This division manufactures healthcare products that protect the human body from external threats,

including a skin protection product and a topical skin decontamination product.

8/2/13. Health Care Service Corp. acquired Blue Cross and Blue Shield of Montana from the Blue Cross and Blue

Shield Association in a $40.6 million transaction. BC/BS of Montana provides healthcare to Montanans, including

integrated healthcare management, case management, disease management and much more.

7/31/13. The Sputnik Group acquired PalliaTech in a $28.6 million transaction. PalliaTech operates in the healthcare

sector.

7/31/13. Signature Health Care acquired seven nonstrategic nursing centers from Kindred Healthcare for $47 million.

7/26/13. Trinity Biotech acquired Immco Diagnostics from Summit Partners in a $32.8 million transaction. Immco

develops, manufactures and distributes diagnostic kits and laboratory supplies for hospitals, clinical laboratories and research

institutions for rapid diagnostic tests.

7/15/13. Healthcare Services Group Inc. acquired Platinum Health Services, LLC. Platinum provides housekeeping and

linen services to healthcare facilities. It offers laundry/linen services for bed linens, towels, resident clothing, and other items

utilized at the facilities.

% Change - August 20, 2013 1 Week 4 Weeks

YTD

52 Weeks

Medical Devices

-3.40%

-3.23%

25.26%

30.52%

Healthcare InfoTechnology

-1.84%

1.61%

20.48%

32.79%

Healthcare Services

-1.79%

-4.67%

22.92%

28.47%

S&P 500

-2.47%

-2.37%

12.33%

16.25%

August 20, 2013

Healthcare Industry Snapshot

($ MM except EPS)

Healthcare Medical Devices Quarter Ending Consensus Revenue ($MM) Consensus EPS Actual Revenue ($MM)

Actual EPS Difference vs. Estimated Revenue Difference vs. Estimated EPS

6/30/13

$17,705.1

$1.39

$17,877.0

$1.32

0.97%

-4.7%

7/26/13

$4,384.9

$1.03

$4,460.0

$0.96

1.71%

-7.3%

6/30/13

$2,203.5

$1.01

$2,190.0

$0.80

-0.61%

-20.6%

6/29/13

$1,069.0

$0.18

$1,075.0

$0.16

0.57%

-13.8%

6/30/13

$1,142.9

$1.40

$1,138.9

$1.30

-0.35%

-7.7%

HCIT Consensus Revenue ($MM) Consensus EPS Actual Revenue ($MM)

Actual EPS Difference vs. Estimated Revenue Difference vs. Estimated EPS

6/30/13

$32,012.3

$2.30

$30,620.0

$1.12

-4.35%

-51.4%

6/30/13

$3,527.4

$0.41

$3,219.7

$0.25

-8.72%

-38.7%

6/30/13

$367.4

$0.14

$347.1

-$0.07

-5.54%

-148.0%

6/29/13

$709.5

$0.31

$665.5

$0.32

-6.21%

1.5%

August 20, 2013

Industry Snapshot: Healthcare

Healthcare Services ($ Millions except EPS)

Quarter Ending Consensus Revenue ($MM) Consensus EPS Actual Revenue ($MM)

Actual EPS Difference vs. Estimated Revenue Difference vs. Estimated EPS

6/30/13

$1,524.7

$0.37

$1,554.9

$0.06

2.0%

15.5%

6/30/13

$357.3

$0.06

$308.0

$0.04

-13.8%

62.4%

6/30/13

$222.5

$0.18

$218.9

$0.08

-1.6%

46.6%

6/30/13

$224.7

$0.68

$218.2

-$0.56

-2.9%

-82.6%

August 20, 2013

Capital Markets: Last 52 Weeks’ Index Performances

-10.00% 0.00% 10.00% 20.00% 30.00% 40.00% 50.00%

Medical Devices: JNJ, MDT, SYK, SN., 1 more (Market Cap) - Index Value S&P 500 (^SPX) - Index Value

Healthcare InfoTechnology: MCK, CCT, MDRX, 1 more (Market Cap) - Index Value Healthcare Services: KND, FVE, SKH, ENSG (Market Cap) - Index Value

August 20, 2013

Capital Markets: Stock Performance

Data as of Market Close Tuesday, August 20, 2013

Index Medical Devices

HCIT Healthcare Services -23.9% -11.5% 0.2% -4.8% -4.6% -4.3% -3.9% -2.9% -2.4% -0.5% -0.4% 1.9% 3.7% 8.2% (30%) (25%) (20%) (15%) (10%) (5%) 0% 5% 10% 15% 20% Skilled Healthcare Five Star Quality Care Zimmer Holdings Medtronic Cerner Corp. Allscripts Healthcare Stryker Johnson & Johnson S&P 500 Kindred Healthcare Ensign Group Smith & Nephew McKesson Corp. Catamaran Corp.

Last 4 Weeks

-3.6% 16.9% 17.2% 25.7% 26.2% 28.4% 28.5% 29.8% 32.4% 33.9% 35.4% 36.3% 38.4% 41.4% (20%) 0% 20% 40% 60% 80% 100% Skilled Healthcare S&P 500 Smith & Nephew Stryker Catamaran Corp. Medtronic Zimmer Holdings Ensign Group Johnson & Johnson Cerner Corp. Kindred Healthcare Five Star Quality Care Allscripts Healthcare McKesson Corp.

August 20, 2013

Company

8/20/13

Close

% 52 Week

High

4 Weeks’

Change

52

Weeks’

Change

Recent News

$89.73

95.0%

-2.91%

32.38%

J&J completed its acquisition of Aragon Pharmaceuticals, a privately-held pharmaceutical discovery and development company focused on drugs to treat hormonally-driven cancers. Development of compounds from Aragon’s androgen receptor antagonist program will be managed by Janssen R&D, LLC.

$52.83

94.4%

-4.78%

28.42%

Medtronic closed its acquisition of Cardiocom, a privately-held developer and provider of integrated telehealth and patient services for the management of chronic diseases. The all-cash transaction was valued at $200 million.

$68.25

95.4%

-3.94%

25.69%

Stryker declared a $0.265 quarterly dividend payable 10/31/13 to S/Hs of record 9/30/13. For FY 13, it expects 4% to 5.5% revenue growth vs. FY 12’s $8.7 billion and from $4.20 to $4.26 in adjusted EPS.

$12.29

97.3%

-0.19%

18.07%

Smith & Nephew declared an FH 13 interim dividend of $10.46 P/S or $52.06 per American Depository Receipt, vs. $9.96 in 2012. The dividend will be paid 10/29/13 to S/H of record 10/11/13

$79.85

93.9%

-5.50%

28.54%

A US District Court judge ordered Zimmer to pay Stryker Corp. $228 million for infringing Stryker’s surgical irrigation patents and in doing so tripled a damages award by a jury that found Zimmer’s conduct was willful. Zimmer plans to appeal.

$1,652.35

96.6%

-2.37%

16.92%

The S&P 500 and other major US stock indices continued to set new market highs through August 2013.

August 20, 2013

Company

8/20/13

Close

% 52 Week

High

4 Weeks’

Change

52

Weeks’

Change

Recent News

$122.52

97.0%

3.73%

41.40%

McKesson ratified the appointment of Deloitte & Touche, LLP, as its independent registered public accounting firm for the fiscal year ending 3/31/14.

$54.89

94.1%

9.15%

33.05%

Catamaran projects FY 13 of $14.2 billion to $14.6 billion with $650 million to $660 million EBIDTA and fully-diluted GAAP EPS in the range of $1.18 to $1.23.

$15.07

91.7%

-4.32%

38.38%

Allscripts Wand 2.0 for Enterprise EHR is now generally available. In busy physician practices, with clinicians and physicians moving quickly from patient to patient, the Wand iPad application couples the latest in tablet technology with the latest in user-experience innovation for a revolutionary

approach to how physicians practice medicine.

$47.63

93.7%

-4.59%

33.92%

Cerner projects $2.95 billion to $3.05 billion in FY 13 revenues and adjusted diluted EPS before share-based compensation expense of $1.40 to $1.42.

$1,652.35

96.6%

-2.37%

16.92%

The S&P 500 and other major US stock indices continued to set new market highs through August 2013.

August 20, 2013

Company

8/20/13

Close

% 52 Week

High

4 Weeks’

Change

52

Weeks’

Change

Recent News

$15.17

91.2%

-0.52%

35.45%

Kindred reaffirmed FY 13 guidance including $5.8 billion in consolidated revenues, $797 million to $813 million in operating income and $1.10 to $1.30 per diluted share income from continuing operations.

$5.29

77.0%

-11.54%

36.34%

Five Star’s 4QTR 12 revenues increased 14.4% to $359.1 million vs. 4QTR 11’s $314 million while EBITDA increased to $12.0 million vs. $8.4 million for the prior year. It also extended a $35 million credit facility to 2016.

$5.05

63.0%

-23.95%

-3.63%

Skilled Healthcare lowered its FY 13 guidance, projecting $860 million to $870 million in consolidated revenue, $78 million to $82 million in EBITDA, and adjusted net income per diluted common share of $0.39 to $0.45.

$38.68

97.6%

-0.44%

29.84%

Ensign reaffirmed FY 13 projected revenues of $915 million to _{$931 million and adjusted EPS of $2.72 to $2.81.}

$1,652.35

96.6%

-2.37%

16.92%

The S&P 500 and other major US stock indices continued to set new market highs through August 2013.

August 20, 2013

Medical Devices Index

3x LTM EBITDA

$67,170.0

$16,779.0

$6,204.0

$3,540.0

$5,003.4

Plus Cash

$0.0

$860.0

$1,913.0

$125.0

$657.0

Less LT Debt

$0.0

($9,759.0)

($2,738.0)

($209.0)

($1,702.8)

Dry Powder

$67,170.0

$7,880.0

$5,379.0

$3,456.0

$3,957.6

Dry Powder Calculations

($ MM)

Healthcare Services Index

3x LTM EBITDA

$1,261.4

$137.6

$272.2

$265.0

Plus Cash

$42.7

$15.2

$5.1

$42.5

Less LT Debt

($1,671.3)

($37.3)

($438.2)

($201.3)

Dry Powder

($367.2)

$115.5

($160.8)

$106.2

HCIT Index

3x LTM EBITDA

$8,709.0

$1,518.6

$317.3

$2,236.7

Plus Cash

$2,456.0

$311.4

$92.2

$281.5

Less LT Debt

($4,521.0)

($1,019.9)

($481.8)

($135.5)

Dry Powder

$6,644.0

$810.1

($72.3)

$2,382.7

August 20, 2013

About The McLean Group

Mergers & Acquisitions

The McLean Group uses its considerable experience and

expertise in the aerospace, defense and government

services industry to guide its clients through each stage of

the mergers & acquisitions (M&A) process and ultimately

identify the most probable and suitable candidates to

complete transactions under the most favorable terms.

Strategic Consulting

The McLean Group's Strategic Consulting business

provides transaction, financial and interim management

services to companies ranging from start-up entities to

publicly-held corporations across an assortment of

industries.

Capital Formation

The McLean Group arranges private equity, venture capital,

senior debt and subordinated debt to support clients’

expansions, M&A, refinancings, recapitalizations, leveraged

buyouts and other shareholder liquidity objectives.

Business Valuation & Litigation Support

As a core competency and complement to its M&A

business, The McLean Group provides business valuation

services, including intangible asset and financial security

valuations for a variety of transactions, financial reporting

and tax purposes. In addition, The McLean Group has the

experience and credentials necessary to support litigation

proceedings, including quantifying economic damages and

valuing a minority interest in a business.

McLean Securities, a wholly-owned affiliate of The McLean Group, is a registered broker/dealer with the Financial Industry Regulatory Authority (FINRA) and a Member, Securities Investor Protection Corporation (SIPC).

Founded in 1997, The McLean Group is a national, middle market investment bank with deep expertise in a variety of industry

verticals. Headquartered in McLean, VA, The McLean Group is among the largest independent middle market investment

banks in the region. Our core advisory services include:

August 20, 2013

August 20, 2013

August 20, 2013

Select Recent Healthcare Transactions (US & Canada)

Closed Target/Issuer Buyers/Investors Prim ary Industry [Target/Issuer]

Im plied Enterprise Value ($ MM) Im plied EV/Revenues (x) Im plied EV/EBITDA (x) % Sought

8/7/13 Champion Manufacturing (Invacare Corp. (NYSE:IVC))

Levine Leichtman Capital Partners Healthcare Equipment $45.00 2.04 8.18 100.0%

8/6/13 Assisted Living Property in Round Rock, TX

One Liberty Properties (NYSE:OLP) Healthcare Facilities $22.80 - - 100.0%

8/2/13 Bracco Diagnostics, Healthcare Protective Products Division

Emergent BioSolutions (NYSE:EBS) Pharmaceuticals $26.00 - - 100.0%

8/2/13 Blue Cross and Blue Shield Of Montana (Blue Cross and Blue Shield Association)

Health Care Service Corp. Life and Health Insurance $40.60 - - 100.0%

7/31/13 PalliaTech The Sputnik Group - $28.57 - - 35.0%

7/31/13 Kindred Healthcare, Seven Non Strategic Nursing Centers (NYSE:KND)

Signature Health Care Healthcare Facilities $47.00 0.681 5.88 100.0%

7/31/13 John J. Foley Skilled Nursing Facility - Healthcare Facilities $23.00 - - 100.0% 7/30/13 Life Uniform Company (Sun Capital

Partners)

Scrubs & Beyond Apparel Retail $22.63 - - 100.0%

7/26/13 Immco Diagnostics (Summit Partners)

Trinity Biotech plc (NasdaqGS:TRIB) Healthcare Equipment $32.75 2.62 - 100.0%

7/26/13 Six Operating Properties Located in Ohio, Virginia and North Carolina

MPG Healthcare - $78.70 - - 100.0%

7/23/13 Foundation Surgery Affiliates, LLC and Foundation Surgical Hospital Affiliates, LLC (Foundation Healthcare Affiliates, LLC)

Graymark Healthcare (OTCPK:GRMH)

August 20, 2013

The McLean Group

7900 Westpark Drive, Suite A320

McLean, VA 22102

Main: 703.827.0200

Fax: 703.827.0175

Healthcare Team

Team Members

Dennis Roberts

Chairman & Managing Principal

droberts@mcleanllc.com

Charles Andrews

Managing Director

candrews@mcleanllc.com

Stephen Findlay

Managing Director

sfindlay@mcleanllc.com

Michael LaMancuso

Director

mlamancuso@mcleanllc.com

Shari Overstreet

Managing Director

soverstreeet@mcleanllc.com

George Petrulis

Managing Director

gpetrulis@mcleanllc.com

Stephen Zielinski

Managing Director

szielinski@mcleanllc.com

Jack Zollinger

Managing Director

jzollinger@mcleanllc.com