Dental Products Market Analysis – April 2019

Valuations hover at robust levels, while strategic buyers focus on differentiating technologies.

Valuation multiples in the dental products industry are as robust as they have been. This wouldn’t have been evident in December during the market correction, but current public multiples are back to 2017 levels.

Median revenue multiples for public companies are 2.4x and EBITDA multiples are 16.9x. Recent median transaction multiples are 4.4x revenue and 15.2x EBITDA, though these mask significant differences in multiples depending on the market segment within the industry.

Over the past five years our Dental Products Index has risen 148% compared to a 46% increase in the S&P 500.

Acquisition activity in the sector has slowed since a busy summer of 2018, with only six deals announced so far this year, as of April 2019.

Vision Products Market Analysis – September 2018

Vision products companies are consolidating their position in the market with acquisitions of digital software and expansion into emerging markets.

Since mid-2012, Brocair’s international index of publicly-traded vision products companies has been outperforming the S&P 500 index. It has risen 130% compared to a 70% increase in the S&P 500 index. However, our Vision Products index excludes Essilor and Luxottica. Stock performances of these two eyewear giants have been unsatisfying, mainly due to their slowing retail sales, and their impending merger has also had a significant effect.

Median public company multiples are 2.7x revenue, and 13.9x EBITDA. For transactions over the past three years, median revenue multiples are tracking at .5x
and median EBITDA multiples are 15.3x.

Healthcare Payer Services Market Analysis – August 2017

Emerging shift from Fee-for-Service care to Value-Based Reimbursement model results in new challenges for the dynamic Healthcare Payer Services Industry

As a direct result of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA), traditional fee-for-service payments are being replaced with a financial incentive framework that rewards improved quality, outcomes and cost This transition to value-based care creates new challenges in which care providers will now have to emphasize patient outcomes compared to the traditional volume based approach. Recognizing that low-cost services will be fundamental to their success, numerous industry leaders are meeting these challenges by lowering administrative costs and restructuring their practices to deliver more efficient systems to record and foster successful patient outcomes. These regulatory changes have led to an increase in acquisitions that promote a more patient-focused health insurance business model.

Over the past seven years, our Healthcare Payer Services Index has generally tracked the S&P 500 Index. Given the dynamic nature and complexity of changes in the health insurance industry, the companies that have been more active in pursuing inorganic growth have been able to stay ahead of the competition.

The median revenue multiple for public companies in the space has risen to 2.4x vs 1.7x in 2015 while EBITDA multiples have jumped to 14.0x for the last-twelve months, from 11.2x in 2015. Median reported valuation multiples from M&A transactions over the past year are 1.7x revenue and 18x EBITDA, though these are skewed high, since usually only the larger deals report multiples. Smaller transactions would command lower multiples.

Pharma Business Services Market Analysis – July 2017

Outsourced service providers to the pharmaceutical and medical device industry continue to expand their service offerings and geographic presence—and CROs have become buyers.

Valuations in the space continue to rise, with revenue multiples in the public markets currently tracking at a median of 2.7x, and median EBITDA multiples of 15.4x.

Median revenue multiples are 1.7x and median EBITDA multiples are 13.9x for transactions over the past three years. In September 2015 transaction multiples of EBITDA were 9.3x, so valuations have moved significantly higher.

Brocair’s index of pharma business services companies outperformed the S&P 500, and is up approximately 135% in the past five years, versus nearly 100% for the broader index.

M&A activity in the space has continued apace as industry leaders have been trying to consolidate the market share by merging with competitors, and traditional CROs have been moving into complementary services in the space.

Medical Reprocessing Market Analysis – June 2017

Medical reprocessing market sees renewed growth as healthcare providers face pressures to manage costs and increase sustainability

The global medical sterilization, repair, and refurbishment industry is expected to reach $6.93 billion by 2021 from $4.69 billion in 2016, at a CAGR of 8.8%.¹

Our medical reprocessing index has generally tracked the growth of the S&P 500 index since 2012. In the last three years the S&P index has increased 37%, while our medical reprocessing index has increased 45%.

Median revenue multiples in the public markets are currently tracking at a median of 2.1x, while EBITDA multiples have a median of 21.1x, showing stable performance compared to the last year with 1.8x and 19.4x respectively.

Transaction multiples, as are typical, are tracking in a somewhat lower range, with median revenue multiples of 1.7x and median EBITDA multiples of 9.0x over the past three years.

CRO Market Analysis – June 2017

Middle-market CROs continue to consolidate in order to expand their menu of service offerings

Over the past two years, valuations have remained consistently strong in the CRO industry. Since mid-2012 our CRO Index has risen 240% compared to an 85% increase in the S&P 500. Public company multiplies have been tracking at 2.6x revenue and 13.5x EBITDA while recent transactions have been tracking at 3.5x and 12.5x, respectively.

The CRO industry is expected to grow to $45.2 billion by 2020 at a compound annual growth rate of 6%.¹ This growth is being driven both by an increase in venture capital investment in small biotech drug discovery firms and greater focus on research and development by larger pharmaceutical companies.

The CRO market has recently become a major target for private equity, such as the acquisition of eResearchTechnology by Nordic Capital in March 2016 for nearly $1.8 billion, and the purchase of BioClinica by Cinven for $1.4 billion in October 2016. Advent International and Thomas H. Lee bought inVentiv Health for $3.8 billion in November 2016, but just six months later, in May 2017, INC Research and inVentiv announced a merger to form the second largest biopharmaceutical outsourcing provider with an enterprise value of $7.4 billion. Advent and Thomas H. Lee remain shareholders.

Although smaller firms have dominated M&A activity, larger strategic players have also made significant acquisitions to gain market share and expand their clinical technology applications. The $13.6 billion acquisition of IMS Health Holdings by Quintiles in October 2016, a provider of biopharmaceutical development and outsourcing, created the largest global CRO and will enhance Quintiles’ offerings through IMS Health’s global information solutions for clients.

Dental Products Market Analysis – March 2017

Dental products companies continue international growth and expand scale through acquisition.

Having just wrapped up another bi-annual International Dental Show in Cologne, Germany, attendees are now trying to make sense of the notes they accumulated from dozens of meetings and discussions around the exhibit halls.

Dental product company valuations are as healthy as ever, and have stabilized at robust levels for the past few years. At the midpoint, public companies are trading for 2.1x revenue and 16x EBITDA while recent transactions are tracking at 3.8x and 12.2x, respectively. Since mid-2014 our Dental Products Index has risen 58% compared to a 26% increase in the S&P 500.

The overall dental products space is expected to grow at an annualized rate of 2.9%, and in 2019 the sector is forecasted to reach $55 billion.¹ Some specialties are expected to see much faster growth, such as orthodontic supplies, which are expected to grow 8%.² Growth drivers include demographic trends in the developing world, as middle class disposable income rises and new technologies become available.

Behavioral Healthcare Market Analysis – December 2016

Fragmented behavioral healthcare market continues to consolidate among market leaders and financial buyers to expand geographically and increase service offerings

Over the past three years, valuations have remained strong in the behavioral healthcare industry. Over last twelve months, public company multiplies have been tracking at a median of 1.6x revenue and 9.9x EBITDA while transactions over the last two years are currently tracking at a median of 1.3x and 9.2x, respectively. Since late-2013 our Behavioral Healthcare Index has risen 25.6% compared to a 22.6% increase in the S&P 500.

The main drivers of growth within behavorial health include:

Expansion in insurance coverage: Passage of the Affordable Care Act provides large expansion of mental health and substance abuse insurance coverage building on the Mental Health Parity and Addiction Equity Act of 2008.

More structured reimbursement environment: Private insurers are beginning to reimburse using a value-based care model, resulting in decreased spending and better patient outcomes.

Awareness of behavioral health issues: One in five Americans have a mental health condition with only 44% of adults receiving treatment. This figure is expected to increase as treatment options become more accessible.

The segment is currently a $19 billion industry and has grown at a 4.7% CAGR over the last five years.

CRO Market Analysis – September 2016

Middle-market CROs continue to consolidate in order to expand their menu of service offerings

Over the past two years, valuations have remained consistently strong in the CRO industry. Since mid-2011 our CRO Index has risen 200% compared to a 79% increase in the S&P 500. Public company multiplies have been tracking at 2.4x revenue and 12.5x EBITDA while recent transactions have been tracking at 2.2x and 11.0x, respectively.

The largest volume of M&A activity in the CRO space has occurred in the middle market as smaller firms look for opportunities to expand their service offerings both locally and internationally. Consolidation has also been a way for firms to address high customer concentration. Through acquisition, companies are able to obtain new customers and offer a new breadth of services. The CRO market has recently become a major target for private equity, such as the acquisition of eResearchTechnology by Nordic Capital in March 2016 for nearly $1.8 billion. Recently there have been announcements by Advent, which is buying inVentiv Health for $3.8 billion, and Cinven, which is acquiring BioClinica for $1.4 billion.

Although smaller firms have dominated M&A activity, larger strategic players have also made significant acquisitions to gain market share and expand their clinical technology applications. The $13.6 billion acquisition of IMS Health Holdings by Quintiles, a provider of biopharmaceutical development and outsourcing, creates the largest global CRO and will enhance Quintiles’ offerings through IMS Health’s global information solutions for clients.

Over the past two years, Charles River Laboratories has completed five acquisitions to strengthen its service offerings and expand its geographical presence both in the United States and internationally. Through its acquisition of Oncotest in November 2015, it was able to reach new markets in Germany expand its reach in preclinical pharmacological services. In June 2016, the acquisition of Blue Stream Laboratories expanded its offerings in the contract analytical, formulations, and development-support laboratory services segments.

Pharmaceutical Product Development has also been active over the last two years with four acquisitions. Most notably, the $257 million of Synexus Clinical Research Topco helps PPD expand its presence in the U.K.

Dental Products Market Analysis – June 2016

Industry leaders in the dental products market continue to expand geographically, and increase scale through consolidation.

Over the past three years valuations have remained robust in the dental products industry. Public company multiplies have been tracking at 1.9x revenue and 16.0x EBITDA while recent transactions are currently tracking at 4.0x and 12.2x, respectively. Since mid-2013 our Dental Products Index has risen 77% compared to a 26% increase in the S&P 500.

New technologies and a rise in disposable income among the middle class are expected to drive growth in the global dental products sector. By 2019, the segment is forecasted to reach $55 billion at an annualized rate of 2.9%.¹ Market leaders are actively making acquisitions to create robust product and service platforms. There has also been significant consolidation among these players.

Of particular note is Dentsply’s merger with Sirona Dental Systems which closed in late February 2016. The $5.4 billion merger combined Dentsply’s market leading dental consumables platform with Sirona’s dominant dental technology business. The consolidated company, Dentsply Sirona, will offer the most products and technological solutions within the global dental products market, and is expected to generate more than $125 million in cost-savings synergies over the next three years.