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Healthcare Investment Banking BB bank
 

JuniorBanker2012's picture
IB
 
Points)
 on 6/21/12 at 7:18am

Hi,
Am new to WSO. Have interned in a top 10 UK bank and am now looking to move to a BB in the healthcare team.
Am trying to brush up on healthcare specific valuation methods - specifically for:

1). Pharma (am thinking just normal multiples, dcf etc for big pharma - as ultimately they are large businesses with cash flows) - biotech, maybe some kind of product NPV or probability weighted DCF?

2). Medical devices - also multiples/ dcf. anything specific on this one?

3). Services/ Hospitals (dcf) specific multiples ie. EV/ number of beds?

Generally am just trying to get some colour on how healthcare stuff is valued, and how it differs from the 'textbook' approaches to valuation. Also any comps adjustments that people normally make much appreciated for colour also.

Thanks a lot guys.

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couchy's picture

they don't really use any

(King Kong, 1,368
 
Points)
 on 6/21/12 at 8:20am

they don't really use any unique valuations methods that other groups wouldn't use. They do however use more tools in the toolkit as the healthcare sector is so diverse.

Probability weighted DCFs etc... your kidding. Nobody ever uses something that complicated. Please let me know if you've ever seen one at work.

WallStreetOasis.com's picture

more than different valuation

EN
(Human, 12,074
 
Points)
 on 6/21/12 at 8:23am

more than different valuation techniques, i think the primary difference is that healthcare will use different operating metrics when looking at companies in the industry. So, for example, for a private hospital operator, they would look at

ALOS (avg length of stay), in-patient & out-patient volume, procedure volume, etc...among many others.

But that is just one example. Someone in Healthcare Investment Banking, feel free to tell me I'm wrong :-)

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mhurricane's picture

http://www.mergersandinquisit

 
Points)
 on 6/21/12 at 8:46am

http://www.mergersandinquisitions.com/healthcare-i...

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

oR3DL1N3o's picture

as mentioned above,

IB
(Orangutan, 319
 
Points)
 on 6/21/12 at 9:06am

as mentioned above, healthcare is an extremely diverse sector - the best way to figure out how to look at these industries is to find equity research if you can. I work for a large public PBM so I see deals range from specialty pharma to DME and other PBMs... and we haven't taken a similar approach to any two deals. take two specialty pharmacies for example, the therapeutic classes of each are obviously not going to be the same, some have preferred agreements with manufacturers, some may be more oncology focused, thus lower margins and some might be focused on slow growth, niche classes. that said, you obviously can't compare apples to apples across this industry. bottom line, there just isn't a standard for the industry.

on the banking side, you really wouldn't be digging too deep into the dcf, but getting an understanding of what the KPIs and drivers of each industry are is important. again, check out equity research for that. i've seen some weird models in my time but nothing to the extent of a probability weighted dcf/npv. i'm not sure that has been done in years, although i know it used to be very popular in biotech.

JuniorBanker2012's picture

Thanks a lot guys this is

IB
 
Points)
 on 6/21/12 at 9:18am

Thanks a lot guys this is helpful.

JuniorBanker2012's picture

Also - does anybody know

IB
 
Points)
 on 6/21/12 at 9:35am

Also - does anybody know which 'branches' of healthcare make attractive LBO prospects?
Have read about a few LBOs of care/nursing homes (i.e. Terrafirma buying Four Seasons in the UK).
and would it be enough at interviews to just touch on the fact that nursing/care homes in this context make decent candidates for LBO because they've got pretty stable cash flows - and then go down the demographic route (ageing population underpinning Revenue growth and FCF generation for debt paydown)?

Thanks a lot.

FormerHornetDriver's picture

As with any prospective LBO

IB
(Orangutan, 363
 
Points)
 on 6/21/12 at 9:44am

As with any prospective LBO target, the company would have to have large, predictable cash flows that could support the debt load placed on it by the financial sponsor. Additionally, many players in the health care industry have relatively inelastic demand for their product. As long as those companies have a relatively predicable cost base, they might be attractive as well.

With all the boomers set to retire, long term care/nursing homes seem like they might fit that bill. I have a friend that works in the industry and they are defintely setting their sights on some pretty significant growth.

cdnbanker's picture

couchy: Probability weighted

IB
 
Points)
 on 6/21/12 at 9:55am
couchy:

Probability weighted DCFs etc... your kidding. Nobody ever uses something that complicated. Please let me know if you've ever seen one at work.

Please don't talk about things you're not familiar with. Probability-weighted DCFs are definitely used in healthcare banking...specifically for biotech companies.

JuniorBanker2012's picture

Thanks cdnbanker. could you

IB
 
Points)
 on 6/21/12 at 10:01am

Thanks cdnbanker. could you very briefly explain to me how this works in practice ie weights applied through different stages of clin. trials and how terminal value is dealt with i.e. (growing perpetuity/ or whether an exit multiple is applied).

mhurricane's picture

If you need equity research

 
Points)
 on 6/21/12 at 10:35am

If you need equity research reports and industry primers on this industry, I have a few.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

JuniorBanker2012's picture

mhurricane: If you need

IB
 
Points)
 on 6/21/12 at 10:36am
mhurricane:

If you need equity research reports and industry primers on this industry, I have a few.

That would be extremely helpful mhurricane. Pls could you pm me with them.
Much appreciated, thanks.

R0bin's picture

Biotech is ridonculous if you

(Orangutan, 292
 
Points)
 on 6/21/12 at 12:06pm

Biotech is ridonculous if you want quick and large gains, but you need a strong scientific background to distill the proof of concept behind novel compounds. There seems to be alot of guys in healthcare devices and services with business background tho.

Baby you're the perfect shape, baby you're the perfect weight. Treat me like my birthday, I want it this way and I want it that way. It makes a man feel good baby.

mhurricane's picture

R0bin: Biotech is ridonculous

 
Points)
 on 6/21/12 at 5:34pm
R0bin:

Biotech is ridonculous if you want quick and large gains, but you need a strong scientific background to distill the proof of concept behind novel compounds. There seems to be alot of guys in healthcare devices and services with business background tho.

Yeah, FDA/regulatory approval can make a stock jump 20+%. I've seen some go up 100%. Earlier this year, VRUS (Pharmasset) was acquired for an 85% premium by Gilead Sciences.

The difference between successful people and others is largely a habit - a controlled habit of doing every task better, faster and more efficiently.

OMS's picture

what couchy said it wrong - i

PE
(King Kong, 1,886
 
Points)
 on 6/21/12 at 5:48pm

what couchy said it wrong - i used weighted valuation for pharma clients that have drugs in the pipeline pending fda approval. no other way to value them accurately enough if the drug hasn't been commercialized yet. It is the most widely used valuation method in biotech.

SECfinance's picture

mhurricane: R0bin: Biotech

IB
(King Kong, 1,421
 
Points)
 on 6/21/12 at 6:02pm
mhurricane:
R0bin:

Biotech is ridonculous if you want quick and large gains, but you need a strong scientific background to distill the proof of concept behind novel compounds. There seems to be alot of guys in healthcare devices and services with business background tho.

Yeah, FDA/regulatory approval can make a stock jump 20+%. I've seen some go up 100%. Earlier this year, VRUS (Pharmasset) was acquired for an 85% premium by Gilead Sciences.

Hell, look at PCYC:

couchy's picture

I'm sorry. I take back what I

(King Kong, 1,368
 
Points)
 on 6/21/12 at 6:05pm
cdnbanker's picture

couchy: I'm sorry. I take

IB
 
Points)
 on 6/21/12 at 10:37pm

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