Nelson Mullins Riley & Scarborough LLP Healthcare M&A and Finance Summit September 25, 2008 Partners in the Business of Healthcare
Welcome and Introduction � Glenn Sturm, Partner Glenn Sturm, Partner � Nelson Mullins Riley & Scarborough, LLP Nelson Mullins Riley & Scarborough, LLP � Barry Alexander, Partner Barry Alexander, Partner � Nelson Mullins Riley & Scarborough, LLP Nelson Mullins Riley & Scarborough, LLP
Nelson Mullins Riley & Scarborough LLP Overview
FIRM OVERVIEW � Full Service Firm � Founded in 1897 � More than 400 lawyers in 2007 � Benefits from the continued growth of SE region � Ten offices (Atlanta, Boston, Washington, D.C. and throughout the Carolinas)
OUR APPROACH - Our Mission Statement To provide creative business To provide creative business solutions to complex problems solutions to complex problems and add value in the process. and add value in the process.
FIRM BENEFITS � Large firm pedigrees and experience � Small firm focus and attention � Top tier clients � Hundreds of transactions � Focus on private and public middle-market companies, sponsors and transactions
OUR APPROACH Large Firm Expertise Large Firm Expertise Focus on Business- -Oriented Solutions Oriented Solutions Focus on Business Active Partner Involvement and Supervision Active Partner Involvement and Supervision Leaner Staffing Leaner Staffing Lower Cost Infrastructure Lower Cost Infrastructure Superior, Cost- -Effective Execution Effective Execution Superior, Cost
FIRM RECOGNITION � 54 lawyers recognized in The Best Lawyers in America (2007) � Corporate M&A, health care and general litigation practices "among best in the region" - Chambers & Partners � "Go-to firm" for corporate governance - BellSouth � Products liability practice "among best in the nation" - Chambers & Partners � "Go-to firm" for litigation - Wyeth, Georgia- Pacific and Whirlpool
Agenda
Nelson Mullins Riley & Scarborough LLP Healthcare M&A and Finance Summit September 25, 2008 How to Finance a Healthcare Deal in a Challenging Market: Back to the Basics Partners in the Business of Healthcare
How to Finance a Healthcare Deal in a Challenging Market: Back to the Basics � Helen E. Quick, Moderator Helen E. Quick, Moderator � Nelson Mullins Riley & Scarborough, LLP Nelson Mullins Riley & Scarborough, LLP � Hector Hector Calzada Calzada � Deloitte Financial Advisory Service Deloitte Financial Advisory Service � John Valentine John Valentine � Hyde Park Capital Partners, LLC Hyde Park Capital Partners, LLC � David Yates David Yates � ORIX Healthcare Finance ORIX Healthcare Finance
Helen E. Quick, Partner Helen E. Quick, Partner Nelson Mullins Riley & Scarborough, LLP Nelson Mullins Riley & Scarborough, LLP Helen E. Quick Helen E. Quick is a partner in the firm's Washington, DC office and serves as is a partner in the firm's Washington, DC office and serves as � � a vice- -chair the firm's National Healthcare Practice Group. chair the firm's National Healthcare Practice Group. a vice Ms. Quick has served as an in- -house general counsel for two companies house general counsel for two companies Ms. Quick has served as an in � � where she managed the business development, human resource and l where she managed the business development, human resource and legal egal departments of each company. departments of each company. Ms. Quick has represented clients for almost 20 years in structuring, Ms. Quick has represented clients for almost 20 years in structu ring, � � negotiating and documenting private financing transactions, including asset uding asset- - negotiating and documenting private financing transactions, incl based, cash flow and real estate loans, purchase and sale transactions, joint actions, joint based, cash flow and real estate loans, purchase and sale trans ventures and mergers and acquisitions. ventures and mergers and acquisitions. Ms. Quick provides guidance to a variety of healthcare companies, including , including Ms. Quick provides guidance to a variety of healthcare companies � � hospitals, healthcare systems, ambulatory surgery centers, pharm hospitals, healthcare systems, ambulatory surgery centers, pharmacies and acies and physical therapy practices regarding general contracting, licensing and ing and physical therapy practices regarding general contracting, licens strategic planning. strategic planning. Nelson Mullins Riley & Scarborough LLP is a national law firm with almost is a national law firm with almost Nelson Mullins Riley & Scarborough LLP � � 450 attorneys and a strong reputation in meeting the complex lit 450 attorneys and a strong reputation in meeting the complex litigation, igation, corporate, securities, regulatory, and other legal needs of a wide range of de range of corporate, securities, regulatory, and other legal needs of a wi companies and individuals, offering solutions that complement our clients' r clients' companies and individuals, offering solutions that complement ou values and objectives for more than 100 years. values and objectives for more than 100 years.
Impact of Recent Developments on Impact of Recent Developments on Ability to Obtain Healthcare Financing Ability to Obtain Healthcare Financing � Who has the capital? Who has the capital? � � Economic Policy vs. Healthcare Policy Economic Policy vs. Healthcare Policy— — � Impact of Presidential Election Impact of Presidential Election � Ever Ever- -evolving Landscape evolving Landscape— —Bear Stearns, Bear Stearns, � Fannie Mae, Freddie Mac, Lehman Bros., Fannie Mae, Freddie Mac, Lehman Bros., Merrill Lynch, AIG, Goldman Sachs… … Merrill Lynch, AIG, Goldman Sachs
Valuation of Healthcare Valuation of Healthcare Companies Companies � Volume of deals Volume of deals— —Small vs. Large Small vs. Large � Companies Companies � Changes in EBITDA Sale Multiples vs. Changes in EBITDA Sale Multiples vs. � Financing Leverage Multiples Financing Leverage Multiples � Adjustment of Expected Rates of Return for Adjustment of Expected Rates of Return for � Private Equity Investors Private Equity Investors
Volume of Deals Volume of Deals Deal Volume (No. of Transactions) Sector YTD 2008 2007 2006 2005 Behavioral Health 48 13 24 26 E-Health 81 59 74 61 Home Health 20 48 55 73 Hospitals 31 57 56 50 Labs, MRI, Dialysis 28 52 46 39 Long-Term Care 23 125 146 129 Managed Care 8 28 28 30 Physician Groups 6 41 32 35 Rehabilitation 12 14 9 10 Other 62 104 136 135 Subtotal Services 319 541 606 588 Biotechnology 93 142 115 113 Medical Devices 79 191 150 141 Pharmaceuticals 35 177 138 128 Subtotal Life Sciences 207 510 403 382 Grand Total 526 1,051 1,009 970 Source: Irving Levin Associates, Inc.
Volume of Deals (continued) Volume of Deals (continued) Deal Value ($mm) Sector YTD 2008 2007 2006 2005 Behavioral Health $ 140 $ 58 $ 1,771 $ 1,200 E-Health 5,845 1,505 4,863 4,100 Home Health 2,804 1,485 842 498 Hospitals 1,814 8,416 35,738 2,880 Laboratories, MRI, Dialysis 364 5,303 2,537 6,500 Long-Term Care 1,429 14,719 22,629 6,900 Managed Care 845 8,804 1,254 19,100 Physician Medical Groups 222 98 237 1,100 Rehabilitation 14 432 153 96 Other 8,386 14,245 30,888 8,000 Services Subtotal $ 21,863 $ 55,065 $ 100,912 $ 50,374 Biotechnology $ 76,358 $ 40,632 $ 36,407 $ 23,100 Medical Devices 62,215 57,936 53,268 42,200 Pharmaceuticals 34,122 72,862 77,851 46,600 Life Sciences Subtotal $ 172,694 $ 171,430 $ 167,526 $ 111,900 Grand Total $ 194,557 $ 226,495 $ 268,438 $ 162,274 Source: Irving Levin Associates, Inc.
Volume of Deals (continued) Volume of Deals (continued)
Capital Structures Capital Structures Back to the Basics Back to the Basics � Senior/Mezz/Equity Senior/Mezz/Equity � � Tumultuous Times Tumultuous Times— —LIBOR Floors, Best LIBOR Floors, Best � Efforts Underwriting, the Demise of the Efforts Underwriting, the Demise of the Second Lien Market, and End of "Covenant- - Second Lien Market, and End of "Covenant Lite" Era Lite" Era � Cost of Capital Cost of Capital— —Fees, OID, and Warrants Fees, OID, and Warrants �
THE GOOD… … THE GOOD Attractive Industry Sectors: Attractive Industry Sectors: What's Hot and Why? What's Hot and Why? � Government Reimbursement Environment Government Reimbursement Environment � � Industry Fragmentation Industry Fragmentation— —Consolidation Consolidation � Opportunities Opportunities � Effective Management and Cost Effective Management and Cost � Containment Containment � Regulatory Barriers to Entry Regulatory Barriers to Entry �
THE BAD… … THE BAD Challenged Healthcare Sectors Challenged Healthcare Sectors � Restrictions in Physician Referrals and Restrictions in Physician Referrals and � Ownership Ownership � Moratoriums Moratoriums � � Impact of Medicare Advantage/Part D Impact of Medicare Advantage/Part D �
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