Financing Development Financing Development and Expansion and - - PDF document

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Financing Development Financing Development and Expansion and - - PDF document

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Financing Development Financing Development and Expansion and Expansion Sponsored by: Lilly Oncology Sponsored by: Lilly Oncology Grant R. Chamberlain Peter S. Myhre Managing Director, Shattuck Chief Executive Officer, MarCap Hammond

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Financing Development Financing Development and Expansion and Expansion

Sponsored by: Lilly Oncology Sponsored by: Lilly Oncology

Grant R. Chamberlain Managing Director, Shattuck Hammond Partners Peter S. Myhre Chief Executive Officer, MarCap Corporation

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Access to Capital Access to Capital

Projects or new business enterprises can be financed through multiple channels:

  • Debt Markets

– Tax-Exempt – Taxable – Vendor

  • Equity Markets

– Venture Capital – Angels

  • Partnership Models
  • Alternative Sources

– Government supported initiatives – Philanthropy

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Equity Capital Equity Capital

Equity capital to support well-grounded business models is readily available.

2 4 6 8 10 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2003 2004 2005 2006 2007 Venture Capital 50 100 150 200 250 300 350 400 HC Venture Capital HC Venture Capital $ Amount Venture Capital $ Amount $4.3B 691 deals $5.0B 736 deals $4.9B 710 deals $5.6B 777 deals $5.3B 707 deals $6.3B 850 deals $5.0B 684 deals $5.9B 828 deals $5.1B 721 deals $6.3B 817 deals $5.9B 781 deals $5.8B 808 deals $6.4B 856 deals $7.0B 920 deals $6.7B 885 deals $6.2B 892 deals $7.4B 854 deals $7.1B 977 deals $79M 16 deals $36M 12 deals $54M 19 deals $83M 22 deals $50M 14 deals $184M 19 deals $68M 16 deals $99M 17 deals $89M 15 deals $109M 17 deals $67M 16 deals $141M 19 deals $124M 22 deals $80M 10 deals $78M 11 deals $129M 15 deals $161M 10 deals $22M 8 deals

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Equity Equity Capital Capital (cont

(cont’ ’d) d)

Driven by the increased availability of debt capital

  • ver past 6 years, valuations have

correspondingly increased each year.

2.7 x 3.0 x 2.8 x 3.2 x 3.8 x 3.9 x 4.5 x x 0.9 x 0.9 x 1.3 x 1.5 x 1.5 x 1.4 x 1.6

0.0 x 1.0 x 2.0 x 3.0 x 4.0 x 5.0 x 6.0 x 7.0 x 2001 2002 2003 2004 2005 2006 YTD

Total Debt/EBITDA

Senior Debt/EBITDA Subordinated Debt/EBITDA 3.9 x 4.1 x 4.7 x 3.6 x 5.2x 5.3x 6.1x

6.4 x 6.7 x 6.8 x 7.2 x 8.1 x 8.4 x 9.0 x 4.0 x 5.0 x 6.0 x 7.0 x 8.0 x 9.0 x 2001 2002 2003 2004 2005 2006 YTD

Mean Multiple

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Equity Capital Equity Capital (cont

(cont’ ’d) d) Private equity is flowing into several healthcare services sectors that support various cancer services models:

  • Re-emergence of physician practice management companies = Lessons Learned

– Single specialty focus

  • Oncology
  • Urology
  • Pathology
  • Anesthesiology

– “PhyCor” Model Structures

  • Outpatient Service Models

– Radiation Therapy – Proton Therapy – Gamma Knife – PET/CT

  • Molecular Science – Genetics driven businesses

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Halpern, Denny & Co.

Selected Healthcare Private Equity Selected Healthcare Private Equity Investors Investors

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Investor Growth Capital

Selected Healthcare Private Equity Selected Healthcare Private Equity Investors Investors (cont

(cont’ ’d) d)

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Private Equity Backed Participants Private Equity Backed Participants

Private equity generally has a different set of business mandates, in comparison to debt capital providers, when assessing an investment opportunity.

  • Growth, growth, growth

– De Novo or through acquisitions – Regional, national or global aspirations – Expansive service lines

  • Unique, business model

– Replicable – Intellectual property

  • Seasoned management talent
  • Identifiable exit
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Debt: Funding Options and Debt: Funding Options and Sources of Capital Sources of Capital

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Ownership Models Ownership Models

Physician-Owned Physicians + Developer Physicians + Hospital Physicians + Hospital + Developer

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What Are Your Financing Options? What Are Your Financing Options?

Risk/Pricing

Higher Lower More Less

Local Banks National Banks Leasing Companies

Flexibility

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What Does a Financing Company What Does a Financing Company Look For? Look For?

  • Physicians: reliability of patient referrals
  • Track record of developer
  • Knowledge of the market
  • Commitment from physicians, developer and/or hospital

– Equity – Guarantees

  • Adequate equity contribution (at least 20 to 25 percent)
  • Sufficient working capital (at least 4 to 6 months’

expenses)

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Types of Loans Types of Loans

Need a certain amount of equity and the rest can be financed:

Tenant Improvements Real Estate Financing Equipment Financing Working Capital

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Loan/Lease Structure Options Loan/Lease Structure Options

  • Zero and interest only payments during start up period
  • Step payments

(amount increases or decreases over time)

  • Terms of 60 to 84 months
  • Include vault costs and some tenant improvements

financing

  • Working capital back-up line of credit
  • Fair market value leases available
  • Fee for scan or fee for use
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Model Developers/Operators Model Developers/Operators

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  • Joint venture with hospitals

to provide stereotactic radiosurgery (SRS)

  • The doctors select the

equipment and take an equity position

  • Hospital, physicians and

Accelitech provide equity; Accelitech provides

  • ngoing management

Developer: Developer: Accelitech Accelitech

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  • Developer, manager and

investor in SRS projects that include physician

  • wnership, and often a

hospital partner

  • They are private equity

backed and, therefore, have equity to invest in projects

Developer: U.S. Developer: U.S. Radiosurgery Radiosurgery

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  • Developer of radiation therapy

cancer treatment facilities

  • Establish turn-key cancer

treatment facilities for urology groups

  • Often facilitate the joint venture
  • r merger of smaller urology

groups to obtain adequate patient volume and scale

  • Their focus is developing and

managing the center leaving 100% ownership to the doctors

Developer: USMD Developer: USMD

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Transaction: New JV between hospitals and local physicians Cancer center located on hospital campus 10 year fee-for-procedure with the hospital Limited local competition Doctors provided $1M in working capital Hospital strong financially Building and leaseholds were directly funded by the hospital Prove-up correlated by feasibility study, cancer incidence rate Strong support by community and hospital physicians Funding Provided: $5,500,000 Equipment: New Accuray Cyberknife New GE 16/S CT Structure: Term: 84 months Credit Enhancements: Assignment of “fee-for-procedure” contract

Sample Transaction #1 Sample Transaction #1

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Transaction: Acquisition financing of existing CyberKnife center Funding Provided: $5.4M Structure: Term: 66 months Payments: 1-3 @ $0 4-6 Half level payments 7-66 Level payments fully amortizing

  • Purpose: Finance acquisition of JV between developer, local hospital, and

eight physicians (6 Radiation Oncologists, 1 Urologist, 1 Thoracic Surgeon) for an existing SRS CyberKnife center

  • Provided a facility comprised of a loan for $3.75M term loan for equipment,

$1.15M to pay off tenant improvement debt, and $500k to pay off existing working capital facility

  • Customer provided $800k working capital
  • No Guarantees
  • Hospital admits patients and handles all billing & collecting

Sample Transaction #2 Sample Transaction #2

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Transaction: De novo CyberKnife center Funding Provided: $5.0M Equipment: $3.85M Structure: Term: 66 months Payments: 1-3 @ $0 4-6 Half level payments 7-66 Level payments fully amortizing

  • Purpose: Finance JV between developer, local hospital, one existing

Radiation Oncology practice, one existing Neurosurgery practice, and eight

  • ther Neurosurgeons for a de novo SRS CyberKnife center
  • Financing included $3.85M for equipment, $1M for tenant improvements, and

$150k for FFE

  • Customer provided $500k working capital
  • No Guarantees
  • Hospital admits patients and handles all billing & collecting

Sample Transaction #3 Sample Transaction #3

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Transaction: De novo Cancer Treatment Center using IMRT and IGRT Funding Provided: $5 Million Equipment: GRT Equipment, Vault, CT, and Tenant Improvements Structure: Term: 84 Month Capital Lease Payments 1-3 @ $0.00 Payments 4-6 @ Interest Only Payments 7-84 full amortization of the total debt remaining

  • Purpose – Finance Cancer Treatment Equipment, Tenant Improvements, Etc.

for a 16 man Urology group

  • Provided a facility that financed the Cancer Treatment Center Equipment

needs with 100% financing, with no Personal Guarantees of the Physicians

  • Transaction was secured by the Equipment Collateral and the Accounts

Receivables of the Cancer Treatment Center

Sample Transaction #4 Sample Transaction #4

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Transaction: Start-up Radiation Therapy Center located in SW USA Single Radiation Oncologist-doing locums & live in area Strong prove-up correlated by cancer incidence rate Support of local referring physicians, hospital non-compete Patients had to travel 1+ hrs for radiation therapy. Physician owned property across from hospital. Building, leaseholds, working capital provided by SBA loan Funding Provided: $2,800,000.00 Equipment: New TomoTherapy System Structure: Term: 84 months Payments: 1-4 @ $0 5-8 Low payments 9-84 Level payments fully amortizing. Credit Enhancements: PG of Physician Key man Life, disability insurance on Physician Subordination of distributions Lien on second home Supportive letter from hospital provided

Sample Transaction #5 Sample Transaction #5

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Transaction: Takeover operations and equipment purchase of financially troubled cancer treatment facility Funding Provided: $1.425M Equipment: One year old Siemens Primus IMRT System One year old Philips Diamond Select Special CT Structure: Term Loan -78 months Payments – months 1-3 @ 0; months 4 -78 level payments fully amortizing Working capital- 48 months with12 months interest only and 36 months level payments fully amortizing

  • Purpose: Finance JV between developer and one medical oncologist purchasing

financially troubled cancer treatment center located at the cancer treatment medical facility of a hospital

  • Lender provided a $1.1M term loan and a $325k for working capital
  • Customer provided $50k in working capital
  • Transaction secured by corporate guarantees of the owners on a pro-rata basis and

joint and several personal guarantees of the developer and the medical oncologist. The combined guarantee amount is limited to $490k

Sample Transaction #6 Sample Transaction #6

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Transaction: New JV between two hospitals 60%/40% ownership Cancer center located on hospital campus 10 year non-compete agreement 20 mile radius Limited local competition JV provided $2M in working capital. Both hospitals strong financially Building and leaseholds funded by bank financing Prove-up correlated by feasibility study, cancer incidence rate Strong support by community and hospital physicians Funding Provided: $4,280,000.00 Equipment: New Varian Trilogy System New GE 16/S CT Structure: Term: 84 months Credit Enhancements: Subordination of distributions to JV Ownership

Sample Transaction #7 Sample Transaction #7

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Questions? Questions?

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Peter Myhre Chief Executive Officer MarCap Corporation 200 West Jackson Blvd. Suite 2000 Chicago, IL 60606 Tel: 800.621.1677 myhre@marcapcorp.com

Contact Us Contact Us

Grant Chamberlain Managing Director Shattuck Hammond Partners 311 S. Wacker Drive Suite 2010 Chicago, IL 60606 Tel: 312.541.6403 gchamberlain@shattuckhammond.com