The State of the Healthcare
Private Equity Market
Jeff Woods
Head of the U.S. Healthcare Practice
The Parthenon Group
March 21st, 2013
Context
Parthenon’s Healthcare Practice Overview
Suppliers
•
•
•
•
•
Informatics
Medical equipment
Medical publishing
Revenue cycle mgmt.
Temporary staffing
Life Sciences
•
•
•
•
•
Cosmeceuticals
Diabetes supplies
Medical Devices
Nutritional supplements
Contract research
organizations
T HE P ARTHENON G ROUP
Providers
•
•
•
•
•
Dental
Diagnostic imaging
Optometry
Physical therapy
Urgent care
Payers
•
•
•
•
Managed care
Medicare/Medicaid/PDP
Brokers
Workers compensation
Government
• Healthcare funding
• Health policy and
strategy
2
Investment Themes
Healthcare is ~15% of total PE deal activity, with services
and software increasing as a portion of the total
Number of U.S. PE Investments
in the U.S., 1995-2012
Other
Healthcare
3,609
Number of PE Investments
PE Investments in
Healthcare (U.S.), 2000-2012
3,000
2,844
1,968
2,000
1,000 874
100%
n=997
n=1,264
n=843
Payers
Internet/
commerce
% of Total Healthcare Deals
4,000
T HE P ARTHENON G ROUP
Pharma
-ceutical
80
Diagn
-ostics
Health
products
60
Devices/
Therapeutics
40
Software
Note: Includes buyout deals of US targets only; Healthcare excludes biotech
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
0
1995
20
0
Providers
('00-'04)
('05-'09)
('10-'12)
5
Investment Themes
Prospects for growth in the healthcare sector over the next
3-5 years vary significantly by segment
More Pressure
Pressure
• Health Insurance
Brokers/ Managing
General Agents
• Fixed indemnity
health plans
• Medicare PDP
• Specialty Hospitals
• Managed CareCommercial
• Branded Pharma
Stable
Growth
More Growth
• Medical Devices
• CROs
• Concierge Medicine
• Hospitals
• Generic Pharma
• Healthcare IT
• Medicaid Managed
Care/ Duals
• Hospice
• Home Infusion
• Diagnostic Imaging
• Home Health
• Dialysis
• Medicare Advantage
• Psych/ Behavioral
Health
• Durable Medical
Equipment
• Optometry
• SNFs
T HE P ARTHENON G ROUP
• PBMs
• Specialist
Physicians
Reimbursement Pressure
Unfavorable Regulatory Environment
Supply/ Demand Imbalance
• Primary Care
Physicians
• Outsourced Provider
Services
• Urgent Care
• Post-Acute Care
• Physical Therapy
• Workers Comp
Efficiency and Cost Savings
Favorable Regulatory Environment
Favorable Supply/ Demand Balance
Economic Recovery
6
Investment Themes
Parthenon believes investments focused on these themes
will benefit from strong, favorable market dynamics
T HE P ARTHENON G ROUP
Four themes that will shape the healthcare landscape through 2014…
1
Challenges and opportunities from expanded gov’t role in healthcare
2
Continued investment and success in HCIT
3
Delivering healthcare in lower cost settings
4
Bending of the cost curve through competition: The PDP Miracle
7
Expanded Gov’t Role
Reform could add up to 30M newly insured lives through
1) Medicaid Expansion and 2) Insurance Exchanges…
1
Health Insurance Status, U.S. Non-Elderly, 2012-2020F
Includes Full Impact of Healthcare Reform
268M
Uninsured
280M
Incremental Covered Lives Added Under
Reform, Cumulative, 2012-2020F
40M
Uninsured
Medicaid Expansion
33M
31M
30
Medicaid & CHIP
Medicaid & CHIP
Exchanges
Non-Group/Other
Non-Group/Other
22M
20
15M
Exchanges
200
10
100
Employer
2M
Employer
2M
0
-1M
0
2012
2018F
34M
Medicaid
300M
T HE P ARTHENON G ROUP
-10
2012
2013
2014
Employer
-2M
2015
-5M
-5M
-5M
2016
2017
2018
8
HCIT
Most hospitals have not completed all stages of EHR
implementation, leaving a significant remaining opportunity
2
Economic Stimulus Package, 2009
(Does not include $276B of tax savings)
T HE P ARTHENON G ROUP
EHR Hospital Adoption Rates, by Stage,
2007-2012
Total = $511B
100%
$155B
80
Health IT
($31B)
60
Expand Health
Coverage
Under Cobra
$100B
$100B
$88B
$43B $24B
2012
2007
40
30
20
40
Medicaid to
States
20
0
50%
Healthcare
State Grants Unemployfor Education
ment
Benefits
Education
Social
Programs
Highway
Infrastructure
NIH
10
Electricity Grid
Transport/
Sci/
InfraTech
structure Energy
0
Stage 0
1
2
3
4
5
6
Stage 7
Fully
Electronic
Limited
Extent of EMR
Adoption
--Not to be reproduced without written permission of The Parthenon Group --
10
3
Shift to Lower Cost Setting
Healthcare delivery is shifting to lower cost settings
T HE P ARTHENON G ROUP
11
Shift to Lower Cost Setting
Access to care issues are looming as 30M newly insured
will enter the healthcare system in 2014
3
Comparison of MA Physician
Workforce vs. U.S. Total, 2010
MA Physician Accepting New
Patients, ’05–‘12
Primary
Care
MA Reform
Passed in 2006
80
60
40
20
0
2006
2012
Surgeons
% of MA Physicians Accepting New
Patients
100%
Other
Specialists
T HE P ARTHENON G ROUP
Family
Internal OB/GYN Cardiology GastroOrtho
Medicine Medicine
enterology Surgery
/ GP
Avg. Time
to Appt (Days) 45
44
38
29
44
--Not to be reproduced without written permission of The Parthenon Group --
12
16
Cost-curve bending through competition
The PDP Miracle: Medicare spend per Prescription Drug
Plan beneficiary has declined by 10% since 2010
4
T HE P ARTHENON G ROUP
PDP Bids Relative to Regional Benchmark
for Basic Benefit Types, 2007-2013
Wtd Avg Bid Differential
$20
10
Humana-Walmart
Company B
Company C
Company D
Company E
Company F
Company G
0
-10
-20
2007
2008
2009
2010
2011
2012
2013
--Not to be reproduced without written permission of The Parthenon Group --
13
T HE P ARTHENON G ROUP
Appendix
14
Appendix
The Parthenon Group Overview
T HE P ARTHENON G ROUP
London
(1997)
San Francisco
(2000)
Boston
(1991)
Shanghai
(2012)
Mumbai
(2008)
Founded in 1991 with 250+ Members in 2013
Healthcare
Private Equity Practice
Education Center of Excellence
Consumer Growth
Information Services
Industrials
15
Appendix
Private Equity/ Healthcare Practice Services
Private Equity
Strategy
Development




Annual portfolio
assessment and
adjustment strategy
Business strategies for
private equity firms
Due Diligence
Services

Customer and market
growth assessments

Industry attractiveness
assessments

Business growth forecasts
Identification of proprietary

deal sourcing options
through industry screens

and assessments
Marketing and positioning
strategy

Portfolio Company
Performance
Improvement Program
180 Day Plan
Development


Target strategic position
assessments
Synergy audits
T HE P ARTHENON G ROUP

Acquisition opportunity
assessments
Collaborative development 
of action-oriented road

map to be executed upon
closing and for first 6

months of investment
Builds upon key issues
and opportunities
highlighted in diligence
Development of key
performance indicators
Exit Strategy
Planning & Support
Mergers & Acquisitions

New Market / Channel
Strategy
Industry attractiveness
assessments

Business growth
forecasts

Tracking of customer
loyalty, company growth
and evolution of market
position

Networking support

Offers third party
assessment of company
positioning, track record
and future prospects

Vendor Due Diligence

1 to 3 Months
Customer Segmentation

Pricing Strategy

Marketing Effectiveness

Sales Force Optimization

Product Mix /
Segmentation

Working Capital
Improvement

Logistics & Supply Chain
Optimization

SG&A Cost Reduction

1 to 6 Months
Typical Project Duration:

1 to 3 Months

3 to 4 Weeks

3 to 8 Weeks
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Appendix
About The Parthenon Group and our advisory services
for investing in Healthcare
T HE P ARTHENON G ROUP
About The Parthenon Group
The Parthenon Group is a global leading advisory firm focused on strategy consulting with offices in Boston, London, Mumbai, San
Francisco, and Shanghai. Since its inception in 1991, the firm has embraced a unique approach to strategic advisory services built on
long-term client relationships, a willingness to share risk, an entrepreneurial spirit, and customized insights. This unique approach has
established the firm as the strategic advisor of choice for CEOs and business leaders of Global 1000 corporations, high-potential growth
companies, private equity firms, educational institutions, and healthcare organizations.
Advisory Services for Investing in Healthcare
The Parthenon Group advises clients in all stages of investing in healthcare companies, including target identification and screening,
strategic due diligence, portfolio company strategy and operational improvement, and sell-side support. The combination of Parthenon's
Private Equity Practice, which has advised clients on over 1,500 transactions, and our Healthcare Practice, which has worked across all
aspects of the healthcare landscape, make The Parthenon Group the preeminent advisor to private equity firms considering investments
in the healthcare industry.
For further information, please contact:
Jeff Woods
Partner, US Healthcare
617-478-4695
[email protected]
Follow Us for Regular Updates
Jay Bartlett
Partner, Private Equity Practice
617-478-4612
[email protected]
Andres Saenz
Partner, Private Equity Practice
617-478-4619
[email protected]
Twitter | @Parthenon_Group
Facebook | www.facebook.com/ParthenonGroup
LinkedIn | www.linkedin.com/company/the-parthenon-group
17