Welcome

Ira Coleman, Chairman

McDermott Will & Emery
Smart Health Care
Investing in 2018
Moderator: Paige Daly
Ira J. Coleman Partner
Chairman Harvest Partners
McDermott Will & Emery

TJ Carella Brandon Hull

Managing Director Executive Advisory Council Member
Warburg Pincus New Mountain Capital

Devin O’Reilly
Michael Dal Bello
Managing Director
Investment Partner
Bain Capital Private Equity
PPC Partners

6
What do you think will happen with the
Amazon/JPM/Berkshire Hathaway joint venture? 42%
1. Nothing will ever come of it.
2. It will change health care.
3. It will be impossible to execute. 21%
17% 19%
4. I need more information.

1 2 3 4
7
What exit options do you expect to generate the
greatest returns in 2018? 56%
1. Long term holds
2. IPOs
3. Strategic buyers 31%
4. Financial buyers
9%
4%
1 2 3 4
8
What is the most common reason that you see a deal die?
77%
1. Regulatory issues
2. Management team
conviction
3. Pricing/Quality of Earnings
concerns
4. Lack of access to financing 16%
6%
1%
1 2 3 4

9
What is the most surprising thing you
predict to occur in health care services
in 2018?

10
What common themes do you see driving returns in
2018 and going forward?
1. Economic conditions
2. Reimbursement changes
3. Mega-mergers between
payors and/or providers
4. Blockchain technology
0% 0% 0% 0%
1 2 3 4

11
Hot or Not? A Health
Care Sector Analysis
Moderator: Camilo E. Horvilleur
Jerry J. Sokol Managing Director
Partner H.I.G. Capital
McDermott Will & Emery

Rajat Duggal William D. Lautman

Partner Managing Partner
FFL Partners Nexus Health Capital

Buddy Gumina
Founder & Managing Partner
Grant Avenue Capital

14
In which of the following sectors do you see the most
opportunity in 2018? 39%

1. Physician Practice Management

2. Behavioral Health
3. Autism 17%

4. Outsourced Pharma Services 12% 12%

8%
5. HCIT / Software 7%
4%
6. Payor Services
7. Retail Health 1 2 3 4 5 6 7
15
Which do you think are the hottest areas of physician
practice management? 39%

1. Dermatology
2. Dental 23%

3. Anesthesia
13% 12%
4. Ophthalmology 11%

5. Radiology
2%
6. Gastroenterology
1 2 3 4 5 6

16
Which of the following do you think is the most poised
to cool off in 2018? 24%

1. Imaging facilities
18% 18%
2. Free-standing ED’s 16%

3. Pure-play ASC’s
10%
4. Urgent Care 9%

5. SNF’s 4%

6. Labs
7. Substance abuse –
1 2 3 4 5 6 7
out of network 17
When underwriting hot sectors – do you assume no
change in EBITDA multiple at exit? 43%
37%
1. Yes
2. No, assume multiple growth
3. No, assume multiple decline 20%

1 2 3
18
Successful Strategies
for Winning Auctions
Moderator: Roger Marrero
Fred L. Levenson Managing Partner
Partner Comvest Partners
McDermott Will & Emery

Marc Cabrera Nav Rahemtulla

Managing Director & Founding Partner
Co-Head of Healthcare LightBay Capital
Oppenheimer & Co. Inc.

James R. Davis, Jr.

Managing Partner
Blue Sea Capital

21
Successful Strategies for Winning Auctions
▪ What is the current auction environment
– Few viable targets
– Large amounts of capital to deploy
– Competitive and crowded marketplace of private equity and strategic buyers
– Sellers can be very selective and make demands
– Sellers can limit the number of bidders
– Sellers can create bidding wars
– Auction landscape has changed in today’s heated auction environment
Successful Strategies for Winning Auctions
▪ How do you win an auction in today’s auction environment – Need to be
Creative and Differentiated
– Develop a relationship with the sellers and management
– Not just paying the highest purchase price
– Need to show conviction, confidence, persistence, and “lean in”
▪ Complete diligence on or before the bid deadline
▪ Engage a credible and experienced team of advisors
▪ Expend significant time, effort, money, and resources
▪ Be ready, willing, and able to close at the bid submission
– Need to differentiate your bid and include unique positioning

23
Successful Strategies for Winning Auctions
▪ How do you win an auction in today’s auction environment – Need to
be Creative and Differentiated
– Need to provide seller favorable (and unique) economic terms
▪ Representations and warranties insurance
▪ Lower escrows (and caps) and more upfront proceeds
▪ Rollover (if a selling point is future upside)
– Need to create deal certainty and limited execution risk
▪ Limited closing conditions
▪ No financing contingencies versus an RTF versus guarantees
▪ Limited consents and approvals
▪ Limited indemnity exposure for the sellers
24
Successful Strategies for Winning Auctions
▪ How do you win an auction in today’s auction environment – Need to
be Creative and Differentiated
 Manage sellers’ expectations
 Meet or exceed the proposed time table
 Identify “real” business, valuation and legal issues
 Proper sequencing and consistent interaction with the investment bankers
 Align with management
 Develop a relationship before (if possible) and during the auction process
 Listen and respond to management’s concerns
 Articulate post-closing strategies and plans
 Incentivize management (options, profits interests, etc.)
 Demonstrate executed transactions coupled with value creation and exits
 Transparency 25
Successful Strategies for Winning Auctions
▪ How to Lose an Auction in Today’s Auction Environment
– Don’t play by the rules and don’t follow instructions in the bid process letter
– Not do what you say you are going to do
– Alienate the investment banker
– Disappoint the seller and the target’s management team
– Present non-relevant and/or immaterial issues
– Offer “off-market” terms and conditions
– Lack of upfront due diligence
– Lack of transparency

26
Successful Strategies for Winning Auctions
▪ Preempt an Auction Process
– Superior industry knowledge and a keen understanding of the target and its
business
– Build strong reputation and relationship with sellers and management; convey
partnership approach
– Pay the asking (or higher) purchase price
– Agree to the sellers’ terms and conditions
– Demonstrate an ability to move quickly
– Guaranty deal certainty and limited execution risk
– Front load third party advisors (i.e., due diligence, Q of E, etc.) and ready,
willing and able to close at the bid submission
27
Successful Strategies for Winning Auctions
▪ Sellers’ Expectations and Goals
– Maximize price
– Advantageous terms and conditions
– Create a bidding war
▪ Sellers’ Preparation for an Auction
– Organize due diligence
– Pre-package responses to known and anticipated business and legal issues
– Create credibility with bidders
– Command a maximum price
– Selection of an investment banker
– Provide bid purchase agreement, disclosure schedules, and ancillary documents
28
Successful Strategies for Winning Auctions

▪ Do’s and don’ts of an auction process?

– Proper sequencing
– Conduct at management meetings
– Engagement and interaction with management
– Transparency
– What do you do if you win an auction and then you don’t want the asset?

29
Successful Strategies for Winning Auctions
▪ Bidder Protections
– Maintain discipline
– Don’t catch “deal fever”
– Expense reimbursement if multiple bidders

30
 10:45 – 11:00 am
Networking Break
Sponsored By:
 View from the Hill: Regulatory/Policy
Updates and Private Sector Responses
Moderator:
Gregory Nersessian
Eric Zimmerman
Managing Principal
Partner and Current
Health Management Associates
President of AHLA
McDermott Will & Emery

Jeff Woods
Adaeze Enekwechi Ph.D. Managing Director
Vice President Co-Head of Health Care
McDermott+Consulting EY-Parthenon

Adam Flisser, MD FACOG

Senior Vice President
Marwood Group

34
 Twenty states recently filed suit in federal court
seeking to invalidate the ACA on the basis that
there is no tax associated with the mandate.
Will the outcome be different this time?

26% 1. Yes
74% 2. No

35
 Congress and the President rail against drug
companies and rising pharmaceutical prices.
Will there be substantial legislation or
regulations addressing drug pricing in 2018?

13% 1. Yes
87% 2. No

36
The Health Care Investment
Banker’s Perspective
Moderator: Brian McCarthy
Charlie J. Ditkoff Vice Chairman & Co-Head of Americas,
Counsel Healthcare Investment Banking
McDermott Will & Emery Bank of America Merrill Lynch

Dan Decelles Philip Pucciarelli

Global Joint Head of Managing Director & Co-Head of
Healthcare Banking Healthcare Investment Banking
Jefferies Capital Deutsche Bank

Matthew Mcaskin
Senior Managing Director
Evercore Partners

39
The Health Care Investment Banker’s Perspective
1. How are public health care companies trading?
What is driving those valuations? How does that
compare to private valuations? Any sector-specific
issues driving outliers?

2. Which sectors should be the most active in 2018?

Which were the most active in 2017?
40
The Health Care Investment Banker’s Perspective
3. How receptive are bank and bond investors to health care
deals? What amounts of leverage are available? What
have been types of capital structures? How has it varied
between larger vs. smaller deals? Sector variations?

4. What are the competitive dynamics in the acquisition

market between Strategics and PE firms? Do those
dynamics vary across sectors? How does the IPO market
factor into these dynamics?
41
The Health Care Investment Banker’s Perspective
5. How is the IPO market looking? What were the
important IPOS in 2017? Themes? What important
deals are expected in 2018?

6. Last year antitrust concerns blocked Aetna/Humana

and Cigna/Anthem. With Aetna/CVS announcer and
Amerisouce/Walgreens rumored are these concerns
still top of mind?
42
The Health Care Investment Banker’s Perspective
7. What has been the impact of Activism on the health care
sector? Given that this is a relatively new phenomenon in
Services do we think it will have a sustainable presence?

8. Any new structures finding their ways in deals? For

example Kindred — Strategic/PE partnerships? Put/Calls?

43
 Lunch | 12:30 – 1:45 pm
Glimmer 5-7 (Next Door)
Q&A with Molly Bloom begins at 12:45
 Keynote Introduction
Ira Coleman, Chairman
McDermott Will & Emery
 Moderator: Keynote:
Eric Gilbert, Partner Molly Bloom
McDermott Will & Emery Molly’s Game
 How Disruptive Companies
are Transforming Health Care
Moderator: Christian P. Michalik
Philip Pfrang Managing Director
Partner, M&A Transaction Services Kinderhook Industries
Deloitte

Tracy L. Bahl
Executive Vice President, Health Plans
CVS Caremark

Richard A. Barasch
CEO
DFB Healthcare Acquisitions Corp.

51
Which factors will have the greatest impact on the US
health care industry? 33%

1. The government as a regulator

2. The government as a payer 20% 20%
3. The role of the consumer 16%

4. Technology 12%

5. Alternative payment models

1 2 3 4 5

52
Which constituent has the greatest ability to impact
the US health care industry? 66%

1. Hospital systems
2. Physicians
3. Health Plans 28%

6%

1 2 3

53
Which competitive factor is the most important to
succeed in the US health care industry?
50%
1. Data
2. Scale
29%
3. Technology
21%

1 2 3
54
 Sub-Sector Spotlight:
Considerations for Investing in Physician Services
 Moderator: Dorrie Guest
Danielle E. Golino Managing Director
Partner Deloitte Consulting
McDermott Will & Emery

Alex Albert Karl Wagner

Partner CEO
Ares Management Riverchase Dermatology and
Cosmetic Surgery

Robert E. Wagner
Otto Campo
Principal
Executive Chairman
Golub Capital
IMC Health

57
Which physician services subsector is drawing
the most transaction attention in 2018?
55%

1. Dermatology
2. Orthopedics
3. Ophthalmology
4. Primary Care
22%
5. Gastroenterology
6. Behavioral Health 8%
7%
4%
7. Dentistry 1% 3%
0%
8. Women’s Health 1 2 3 4 5 6 7 8

58
What factor is most like to contribute to long-term value and/or cause
you to pay at the top of market for a particular asset/practice?

0% 1. Ratio of owners to employed providers

21% 2. Culture (e.g., owner vs employee mentality)
2% 3. Age of providers
5% 4. Revenue dispersion among providers
39% 5. Quality of physician leadership
0% 6. Strong compliance infrastructure
32% 7. Ancillary opportunities

59
With multiples this high and increasing, what is the
future of the PPM industry?
1. It’s a race to get out! With multiples this high, the physician services
20%
bubble will burst soon, and someone will be left holding the bag.
2. There’s a happy ending in store for most PPMs. On the last flip, PE
9%
funds will ultimately IPO or sell to a strategic/payor willing to pay up.
71%3. Keep it coming! The physician services industry is still fragmented,
and will continue to consolidate for years to come.

60
 3:15 – 3:30 pm
Networking Break
Building the Right
Management Team
Moderator: James Polfreman
Jed Spielman CEO
Partner Solis Mammography
McDermott Will & Emery

Timothy B. Armstrong Harris C. Siskind

Managing Director Global Head of Transactions
Roark Capital McDermott Will & Emery

Alexander E. Carles
Managing Partner
Wellspring Capital Management

64
What is the top characteristic of a successful CEO of
a health care services company? 46%

1. Knowledge of the health care industry

31%
2. Ability to deal with change
3. Financial acumen
4. Willingness to take risk
5. Vision 8% 8%
4% 4%
6. “Soft” skills
1 2 3 4 5 6
65
How often do you make a change of CEO during your
hold period?
42%
1. It’s usually part of the investment thesis
2. Often 29%
26%
3. About 50/50
4. Sometimes

3%
1 2 3 4
66
Current Market Perspectives
on Health Care Financing
Moderator: Russ Herakovich
Stephanie McCann Managing Director
Partner Brightwood Capital Advisors
McDermott Will & Emery

Javier Casillas Greg Pachus

Managing Director Managing Director and Head of
WhiteHorse Capital Healthcare, Sponsor Finance
Silicon Valley Bank

Michael Girondo Bryan Rupprecht

Managing Director Managing Director
HPS Investment Partners MidCap Financial

69
U.S. Leveraged Loan Market – Macroeconomic Influences
▪ Health Care Reform
▪ Tax Reform Legislation
– Limits deductibility of corporate interest expense to 30% of EBITDA
▪ Rising interest rates in a highly leveraged environment
▪ The future of LIBOR (LIBOR to end in 2021)

70
3 Month LIBOR Rates

71
More Historical Data on 3 Month LIBOR

72
Which one of the following health care sectors do you think
has the most deal activity in today’s market?
1. Behavioral Health – Addiction and 71%
Autism
2. Physician and Dental Practice
Management – Dental, Dermatology,
Ophthalmology and Other Specialties
3. Pharma and Pharma-Related
Businesses, and hospital-related
14%
businesses 10%
6%
4. Independent Practice Associations
(IPAs) 1 2 3 4
73
Corporate Practice of Medicine Issues
▪ Treatment of Friendly Professional Corporations (PCs) in Loan
Documentation
– Including PCs in financial reporting and financial covenants as part of the
“Combined Group”
– Should PCs be subject to the representations and covenants?
– Should loan documents require Management Service Organizations (MSOs) to
perfect their security interests in PCs?
▪ DentMall Case – Florida court refused to enforce a stock transfer agreement
permitting transfer of equity to a friendly physician
– Effect on typical CPOM structures
– Possibly other protections for MSOs in future deals?

74
Which of the following Sponsor/Borrower friendly deal terms is most
valuable to your company?
1. 6x and above leverage levels 38%

2. EBITDA adjustments and addbacks

3. EBITDA – future maturity adjustments
4. Covenant-Lite Loans and Covenant-Lite Like
Loans with significant cushions over the 21% 21%
Sponsor model 17%
5. Builder Baskets for investment and
acquisitions, restricted payments and
prepayments of junior debt and reallocation of 4%
covenant baskets
0%
6. Mandatory prepayment step-downs and dollar-
for-dollar reductions to Excess Cash Flow 1 2 3 4 5 6

75
Key Lender Risks in Health Care Financing
▪ Speed of the diligence process – shifting risk from sellers to buyers and
lenders
▪ Availability of financial and company information after a deal closes
▪ Reduction in the number of financial covenants and increase in the
cushions over the Sponsor model

76