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1、Q1 2023Healthcare Market Update&Vertical PerspectivesTABLE OF CONTENTSHEALTHCARE MARKET UPDATE IHEALTHCARE VERTICAL PERSPECTIVESIIHARRIS WILLIAMS UPDATEIIIHARRIS WILLIAMS SECTOR COVERAGEIVPage|2C O N S U M E R P R O D U C T S&S E R V I C E SJan-21Apr-21Jul-21Oct-21Jan-22Apr-22Jul-22Oct-22Economic Ba
2、ckdropUnprecedentedmonetarystimulus,supply chain constraints,and labor dynamicshave resulted in inflationlevels not seen over the last 40 yearsUkraine/Russia conflictcreating heightenedgeopoliticaluncertaintyThe S&P 500 declined 19.4%in 2022,marking a retreat from the benchmarksprior three straightp
3、ositiveyearsThe Fed raised interest rates by a total of 425 basis points in 2022,and uncertainty around future rate hikes has challenged financing marketsHigh-yield bond markets,which typicallyfollow equity trends,as well as the syndicatedloan markets,remain choppyCapital Markets Experienced Rising
4、Volatility Throughout 20221)As of December 2022Notable Statistics Public Market VolatilityFF Rate 50 bpsFF Rate 75 bpsFF Rate 75 bpsFF Rate 75 bpsFF Rate 75 bpsVIXS&P 50019.4%2022 S&P 500 Decline7.1%US CPI-U YoY Change(1)425 bps 2022 Increase in Fed Funds Rate(1)0.4%Consensus 2023 U.S.GDP GrowthFF R
5、ate 50 bpsFF Rate 25 bps2Page|3C O N S U M E R P R O D U C T S&S E R V I C E SInvestors Are Increasingly Selective as M&A Markets Begin to Moderate1)PitchBook data as of 12/31/2022(latest data available);PitchBook middle-market deal size defined as$25M-$1.0B3Deal volume moderated in 2022,and investo
6、rs are picking their spots in 2023.#of Closed North American M&A Transactions by QuarterQ1 2021 Q4 2022($in billions)Moderations in M&A Volume(1)U.S.Leveraged Loan Volume(2)Frothy capital markets and SPAC/IPO crazeRecord Level Of Capital Deployment via M&AVolatile public equity and credit marketsHei
7、ghtened Focus on Quality,Market Leaders,and Recession ResilienceRecord M&A volume and valuation levelsModerating M&A volume and valuation disconnect COVID normalization and priority on growthPriority on stability,sustainable growth,and cash-flow generationSpeed and structure in M&A processesFlexibil
8、ity and“dealmaking”in M&A processes 2H 2020+20212022+1H 2023The M&A Market Remains Active;Buyers Have Shifted Their Mindset Since Mid-20224,4064,3224,7415,8184,4954,1603,7262,9411Q212Q213Q214Q211Q222Q223Q224Q22$490$395$801$44320022Page|4C O N S U M E R P R O D U C T S&S E R V I C E SS&P 5
9、00:1990 2022(1)Healthcare Has Historically Been Resilient Through Economic Cycles.4Gulf War Recession(1)Dot-Com Recession(1)The Great Recession(1)COVID-19 Recession(1)Healthcare has historically been more resilient than other industries and has proven to be a growth driver of the economy,with health
10、care as a percentage of U.S.GDP rising from 13%in 2000 to 20%in 2022.Gulf War Recession1990 1991Dot-Com Recession2001The Great Recession2007 2009COVID-19 Recession2020(18%)(3%)S&P 500S&P 500 Health Care(Sector)(22%)(14%)S&P 500S&P 500 Health Care(Sector)(54%)(40%)S&P 500S&P 500 Health Care(Sector)(3
11、1%)(25%)S&P 500S&P 500 Health Care(Sector)1)PitchBookPage|5C O N S U M E R P R O D U C T S&S E R V I C E S.And Presents Great Investment Opportunities During a Downturn5Healthcare investments during the Great Recession returned a multiple on invested capital(MOIC)that was nearly a full turn higher t
12、han otherindustriesHealthcare assetsalso led the way comingout of the Great Recession,outperformingother sectorsby 14%from 2009 to 2015Performance of North American Private Equity-Owned Healthcare Investments Made During the Great Recession(1)GREAT RECESSION(2006 2008)(Multiple on Invested Capital)R
13、ECOVERY(2009 2015)(Multiple on Invested Capital)+50%+14%1)Bain&CompanyTABLE OF CONTENTSHEALTHCARE MARKET UPDATEIHEALTHCARE VERTICAL PERSPECTIVESIIHARRIS WILLIAMS UPDATEIIIHARRIS WILLIAMS SECTOR COVERAGEIVPage|7C O N S U M E R P R O D U C T S&S E R V I C E SHealthcare:Resilience With Value Creation P
14、otential7Recent Insights2023 M&A OutlookBuyers have capital to put to work,and high-quality companies are available at attractive values.Those investors who can see past the volatility and uncertainty in the headlines have the potential to pull ahead,and healthcare has long been viewed as a recessio
15、n-resilient sector.Within the industry,companies with proven management teams will continue to be in especially high demand.Buyers want to see that leadership can manage the company through a downturn and come out ahead.Subsectors of particular interest include outsourced pharma services,providers a
16、nd outsourced provider services,payors and payor services,medical products and devices,and healthcare IT.See our full article.ConsumerHealthcareEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsLabor-heavy industry that has experienced difficulties within the c
17、urrent marketExposure to InflationIncreases in wages,supplies,and other core expenses are felt strongly within the sectorExposure to Consumer SpendingMany dental services are necessary,regardless of consumer spending habits,while some services(i.e.,cosmetic)are more discretionary in natureExposure t
18、o Capital(B2B)SpendingMinimal exposure+Significant remaining fragmentation in the market presents a major opportunity for continued consolidation+Investors continue to look to add specialties to their general practice services,creating multispecialty,regionally dense platforms+Attractive resiliency
19、as proven by a strong rebound after the Great Recession and COVID-Payor negotiations have remained challenging for dental platforms,as payor rate increases have lagged behind labor/wage inflation and other input costs within these businesses-Clinical staff retention has been difficult in the tight l
20、abor market and continues to be a focus for most dental businessesTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023HIGHLOWThere will be continued consolidation of midmarket players Institutional logic and appetite for many 30-40 practice players that will combine wit
21、h other similarly sized platforms in the near termBlending of international lines as U.S.groups continue to move north of the border and Canadian platforms seek lower multiples in the U.S.Specialty platforms continue to achieve premium multiplesDental8ConsumerHealthcareEconomic ConsiderationsEconomi
22、c Risk Magnitude of RiskCommentaryExposure to Labor MarketsShortage of medical assistants and support staff has led to wage inflation;technology implementation expected to limit exposureExposure to InflationLimited exposure to inflation given variable compensation is the largest bucket of operating
23、expensesExposure to Consumer SpendingMedical necessity of many dermatological procedures limits exposure to consumer spending trendsExposure to Capital(B2B)SpendingLow exposure to capital spending given the relatively low fixed costs associated with clinics+Stabile demand drivers given medical neces
24、sity and proven recession resiliency+Sector grew through the Great Recession and will likely continue to receive more interest,on a relative basis,during this cycle+Resilient,recurring cosmetic spend(e.g.,Botox,fillers)expected to continue despite the current economic environment+Greater focus on th
25、e appearance of the skin in the post-COVID world has accelerated growth in cosmetic services+More pricing opportunity within cosmetics helps offset inflationary pressures+Large number of organic levers to pull operationally within dermatology platforms;breadth of service offerings across medical and
26、 cosmetic dermatology allows practices to better absorb changes in utilization patterns driven by economic cycles-Labor shortages and wage inflation,specifically among medical assistants and support staff,have been the largest challenges facing dermatology practices-An inability to pass on price inc
27、reases to patients,particularly for medical dermatology services,has caused margin pressure for some dermatology practicesTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023Relative to 2022,add-on M&A activity will likely be as busy,if not busier,driven by large platfo
28、rms continuing to execute on their acquisition growth strategiesPotential for a number of small to medium-sized platforms to explore an exit in 2023Large platforms will likely see muted activity in 2023 given a significant number of large trades in 2022 and disruption in the credit marketsHIGHLOWDer
29、matology9Consumer HealthcareEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsVery tight REI and embryologist market pre-COVID-19;dynamics remain similar post;recruiting often represents competitive advantage for platformsExposure to InflationCash pay nature of
30、 the sector enables quality providers to pass along price increases to patients Exposure to Consumer SpendingLife event importance of childbirth and biological clock meaningfully mitigate exposureExposure to HousingSome patients will tap home equity to finance services;historic run-up in home prices
31、 over last decade may also mitigate impact of any consumer spending pressure+High degree of cash pay and greater ability to pass along price increases than virtually all other healthcare services sectors+International demand for U.S.fertility services is high,and with most travel restrictions now li
32、fted post-COVID,patients will increasingly seek treatment in U.S.-While legislative clarity is still forthcoming in some states,there is limited anticipated impact on the broader sector based on the Dobbs decision-While scaled platforms are extremely well positioned to continue to recruit physicians
33、 and grow their businesses,it is becoming increasingly difficult to create new platforms given overall physician supplyTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023HIGHLOWThe sectors strong and resilient performance,as well as insulation from inflation,expected t
34、o continue driving high investor interest Several new platforms of scale have emerged in sector over last two yearsFertility10Consumer HealthcareEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsPrimarily with respect to medical assistants and support staff,sim
35、ilar to other healthcare services sectorsExposure to InflationSimilar to many other healthcare services sectors given high percentage of insurance payExposure to Consumer SpendingVery limited exposure to consumer spending due to primary care nature of appointmentsExposure to Capital(B2B)SpendingLow
36、exposure to capital spending given the relatively low fixed costs associated with sector+Platform providers seek ways to increase broad service offerings,including through MFM,imaging,oncology,behavioral,and digital health offerings+Highly stable demand given primary care nature of many visits+Conti
37、nued focus on value-based models(e.g.,maternity)-The U.S.continues to experience modest birth rates consistent with many other developed nations-Offset by primary care nature of many services(i.e.,many women see OB/GYN in lieu of primary care provider)as well as growing prevalence of underlying cond
38、itions driving higher-complexity pregnancies(e.g.,obesity,advanced maternal age,etc.)Trends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023Multiple scaled platforms have traded within the past two to three years and are early in their hold periods,thus platform activity i
39、n 2023 is expected to be relatively mutedThe next group of platform OB/GYN companies is gaining scale and is more likely to transact in 2024 or beyondHIGHLOWOB/GYN11Economic RiskMagnitude of RiskCommentaryExposure to Labor MarketsPhysical therapist labor pool tight before pandemic has grown more so
40、sinceExposure to InflationPrimarily in form of labor ratesExposure to Consumer SpendingLow exposure to consumer spending given diverse payor mix and low percentage of self-payExposure to Capital(B2B)SpendingLow exposure to capital spending given the relatively low fixed costs associated with clinics
41、ConsumerHealthcareEconomic Considerations+Largest platforms continue to grow and expand through aggressive de novo,tuck-in acquisitions,and the accelerating pace of combinations with other platforms+Emergence of the next wave of midsized platforms with 150 clinics or more as well as numerous smaller
42、,private equity-backed providers at early stages of their growth trajectory will provide actionable opportunities over the next several years+A number of platforms beginning to experiment/pursue growth in complementary service lines(e.g.,pediatric/ABA,chiro,hospital partnership/JV,etc.)-Availability
43、 of physical therapists and wage pressure have been experienced by many,but not all,providers of scale;labor management and recruitment provide meaningful point of differentiation for platformsTrends Were WatchingAssessment of M&A Activity in 2023HIGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWHigh level of plat
44、form transaction activity between 2H-20 and Q3-22,with a number of established platforms having recently transactedNext wave of midsized platforms beginning to mature and should drive transaction activity,likely weighted toward 2H-23Fundamentals of market remain highly attractive,with deep investor
45、pool that likes the sectorImpact of wage pressure may result in some businesses that otherwise would have come to market waiting until 2024Physical Therapy12Economic RiskMagnitude of RiskCommentaryExposure to Labor MarketsHigh exposure to labor markets;particularly difficult to hire and retain clini
46、cal staffExposure to InflationModerate exposure to inflation,though inflation can be passed to customers through price increasesExposure to Consumer SpendingResilient consumer spending patterns mitigate potential downside from consumer spending exposureExposure to Capital(B2B)SpendingOverall,low exp
47、osure to capital spending,though specialty practices experience greater capital spending exposureConsumer HealthcareEconomic Considerations+The veterinary services sector has seen a considerable level of consolidation between 2018 and 2022,and momentum is expected to continue through 2023,with an em
48、erging trend of consolidation of the consolidators+Sector continues to draw high levels of interest as tailwinds such as the humanization of pets and growing pet ownership rates continue to accelerate+DVM recruitment and retention represent areas of continued focus and investment+In todays tight lab
49、or market,weve seen heightened focus on DVM development programs and initiatives to improve the mental health and well-being of DVMs+Increased focus on varied de novo growth strategies vs.traditional acquisition-driven growth-Rising interest rate environment presents a challenge to roll-up strategy,
50、and acquirers have become more circumspect about practice acquisitions,causing multiples to decline,though activity remains strongTrends Were WatchingAssessment of M&A Activity in 2023HIGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWExpected to remain one of the most active multisite sectors;M&A activity will lik
51、ely be busier than 2022Continued M&A activity of small add-ons as practice owners are motivated to partner with larger platforms in the current economic environmentMidsized platforms are expected to come to market as sponsors seek to realize investments and companies seek to access additional capita
52、l to fund de novo and acquisition-driven strategies Veterinary Services13Economic Risk Magnitude of RiskCommentaryExposure to Labor MarketsLarge population of physicians;vision platforms compete with other specialties for midlevel cliniciansExposure to InflationPhysician comp largely variable and ty
53、pically production basedExposure to Consumer SpendingConsumer spending typically elective(e.g.,premium IOLs,LASIK);expenditure levels small relative to quality of life considerationsExposure to Capital(B2B)SpendingLow exposure to capital spending given the relatively low fixed costs associated with
54、clinics Consumer HealthcareEconomic Considerations+Large number of PE-backed platforms beginning to reach typical hold periods likely to provide consistent transaction volume in sector over next several years+Emergence of multiple active and viable strategic acquirers for other PE-backed platforms(e
55、.g.,EyeCare Partners/Partners Group and Eye South/Olympus Partners)+Continued robust add-on activity of small physician-owned practices+Several potentially promising new retina drugs could provide tailwinds within retina subspecialty-Like many other sectors,midlevel clinical labor supply remains rel
56、atively tightTrends Were WatchingAssessment of M&A Activity in 2023Rapid proliferation of sponsor-backed platforms between 2017 and 2019 will likely lead to acceleration in activity as sponsors seek to realize investments High degree of physician compensation,which tends to be productivity-based and
57、 therefore variable,makes sector less sensitive to wage pressure than other retail health sectors on a relative basisHIGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWVision14Physician Practice ManagementEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsSector is largely depe
58、ndent on physician and other clinical laborExposure to InflationMedium exposure to inflation Exposure to Consumer SpendingMany GI services are necessary regardless of consumer sentimentExposure to Capital(B2B)SpendingSome heavier equipment is needed in gastroenterology versus other industries+Stable
59、 reimbursement environment,with professional and facility fees in line with prior years and some reimbursement rates increasing given further hospital price transparency as ambulatory surgery center(ASC)reimbursement rates move in line with hospital-based outpatient department(HOPD)rates+Highly frag
60、mented market where significant consolidation opportunity remains,with 1,300+unconsolidated practices across the country(1)+Margin optimization capabilities through the expansion of ancillary service offerings,including ASCs,in-office endoscopy suites,anesthesia,and pathology+Emergence of value-base
61、d care as a service model is increasingly prevalent in the gastroenterology sector-Shortage of GI physicians expected to exceed 1,600 physicians by 2025,resulting from increased demand for screening and preventive medicine by an aging population(2)-Many larger groups have transacted in the last seve
62、ral years,leaving mainly smaller players available as M&A targets for existing platformsTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023HIGHLOW10 major platforms today,with three having previously traded from one private equity firm to anotherThree to four platforms
63、 are likely to come to market in 2023Expectation that privately owned practices are likely to continue to roll up into existing practicesGastroenterology151)Definitive Healthcare2)Merritt HawkinsEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsLabor shortage a
64、nd wage pressure move count for nonphysician employeesExposure to InflationLimited exposure to inflation given variable compensation is the largest bucket of operating expensesExposure to Consumer SpendingLimited exposure to consumer spending due to medical necessity of servicesExposure to Capital(B
65、2B)SpendingCapex generally required for growth of ASCs or other ancillaries+Recession-resistant sector due to medical necessity of services;many treatments require near-term or immediate care+Favorable payor mix with very limited cash pay;reimbursement rates for orthopedic procedures have remained s
66、table+Businesses have demonstrated“platform value”through favorable payor contracting,offering of ancillary services,and ability to acquire in-market physicians at attractive prices+While value-based care models overall have low penetration in the sector,market leaders range from exploring to capita
67、lizing on value-based care+Value-based care models create opportunities for leading orthopedic practices to generate incremental revenue while improving patient outcomes and lowering cost for the system-Inability to pass on cost inflation to patients can result in margin pressureTrends Were Watching
68、HIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023Approaching the first wave of secondary platform trades;roughly 15 PE-backed platforms have scaled and performed well,with three to five of these platforms planning to go to market in 2023Strong momentum for add-on investments in the high
69、ly fragmented industry HIGHLOWOrthopedics16Physician Practice ManagementPhysician Practice Management+Significant demand tailwinds,given the growing 65+U.S.population and a high urological disease incidence rate,including prostate cancer,urinary incontinence,and BPH+Scaling platforms can unlock sign
70、ificant value creation opportunities,including greater economies of scale,better access to ancillary services,and more efficiently navigating the reimbursement and regulatory landscape,in excess of what smaller practices can realize+Complex reimbursement environment and high barriers to entry provid
71、e significant opportunity for scaled platforms and drive urologists to join larger organizations+Highly fragmented landscape with limited national platforms-Similar to supply/demand trends in other specialties,demand for urologists is expected to outpace provider supply-Urologists,in terms of physic
72、ian age,are above average,with 50%over the age of 55(1)Trends Were WatchingAssessment of M&A Activity in 2023HIGHLOWUrology remains in the early stages of consolidation,with only five scaled platforms todayUntapped growth potential from ancillary service opportunity at many smaller practicesOpportun
73、ity to drive transformative platform growth through multispecialty models,combining urology services with complementary servicesEconomic ConsiderationsEconomic RiskMagnitude of RiskCommentaryExposure to Labor MarketsSector is largely dependent on physician and other clinical labor,with a large conce
74、ntration of physicians in urban areasExposure to InflationMedium exposure to inflationExposure to Consumer SpendingMany urological services are necessary regardless of consumer sentimentExposure to Capital(B2B)SpendingSome heavier equipment is needed in urology versus other specialtiesHIGHLOWHIGHLOW
75、HIGHLOWHIGHLOWUrology171)American Urological Association:2021|The State of the Urology Workforce and Practice in the United StatesEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsHigh exposure to labor markets as providers compete for scarce resources,resulting in increased recruiti
76、ng and retention costsExposure to InflationProviders have been able to negotiate some reimbursement rate increases to stem the margin compression incurred largely due to rising wage rates Exposure to Consumer SpendingSector is largely commercial and government payor reimbursed and has shown resilien
77、cy in past downturnsExposure to Capital(B2B)SpendingModerate exposure to capital spending for majority of models;main capital expense relates to de novo growth,particularly with inpatient/residential subsector Behavioral HealthEconomic Considerations+Persistent supply-demand imbalance for services,g
78、rowing demand from adolescent and young adult patient populations most adversely affected by COVID crisis+School systems are becoming an increasingly important care setting for the provision of behavioral and mental health care+Destigmatization of mental and behavioral health issues driving more pat
79、ients to seek treatment+Greater awareness;public figures openness about suffering from mental health issues+Acceptance of mental and behavioral health as a medical issue+Increased support from governmental and commercial insurance funding sources+COVID increased the attention paid to behavioral heal
80、th,while also creating significant demand for behavioral health services due to the populations isolation and feelings of fear and insecurity+Innovative care delivery models and technologies expected to continue to drive the sector forward+Shift to multidisciplinary services+Integration of primary a
81、nd behavioral health care;value-based care alternative treatment and payment models+Reduction of regulatory barriers to dispensing MAT;rise in technology-enabled home-based MAT and SUD treatment;normalizing of psychedelic-assisted therapy-Labor markets continue to be a headwind as the sector struggl
82、es to recruit and retain line therapists and other non-M.D.clinical staffTrends Were WatchingAssessment of M&A Activity in 2023HIGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWIncredibly active sector,which has maintained momentum through COVID-19 and is expected to remain active in 2023 driven by strong but unfo
83、rtunate tailwinds Investors will favor in-network providers able to demonstrate leading clinical outcomesCompelling market opportunity for novel treatment modalities(e.g.,psychedelic-assisted therapy)and settings(e.g.,home-based and school)Behavioral Health18HCITEconomic ConsiderationsEconomic Risk
84、Magnitude of RiskCommentaryExposure to Labor MarketsCapital-efficient businesses do not require a large employee base to growExposure to InflationBest-in-class software companies have built-in annual price escalators,which provide a hedge against inflationExposure to Consumer SpendingEnterprise appl
85、ications have little to no consumer spending Exposure to Capital(B2B)SpendingLittle to no exposure to capital spending,since most enterprise software applications are paid through Opex+Employers,health systems,and payors are increasingly focused on cost containment technology solutions+As labor mark
86、ets have tightened,cost containment solutions are becoming increasingly relevant as employers seek to manage medical costs to manage narrow networks,reference-based pricing,and other reimbursement structures+Health systems seek operational and administrative tools that monitor costs purchasing,labor
87、 management,and asset utilization,among others+Life sciences technology continues to see activity as clinical trial volumes continue to increase based on pharma and biotech funding,as well as smaller trials supporting a need for innovative solutions that can rapidly scale+Specialty EMR and practice
88、management solutions continue to attract investors across specialty clinics,while larger“traditional”outpatient specialties that have achieved meaningful scale and profitability look to expand into core markets and adjacencies+Expansion of investor interest from pure software solutions into tech-ena
89、bled solutions,such as cost containment,quality of care,and care utilization+The addition of a services element accompanying software increases stickiness and expands addressable market opportunity-As investors prioritize profitability,HCIT companies must demonstrate a strong,proven economic model,r
90、ather than only a“growth at all costs”mentality,in order to attract investor interestTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023Relative to prior years,M&A activity was depressed in 2022,as quality companies were pulled forward to 2021 and limited supply in 202
91、2While 2022 activity was more focused on revenue cycle services and payor/employer software,2023 will see more provider-facing solutions and life sciences tech solutionsProven software companies have held their multiples,and with debt composing a relatively small part of the capital stack/not repres
92、enting a risk in the current credit environment,M&A activity should be moderately strongHIGHLOWHCIT19Economic Risk Magnitude of RiskCommentaryExposure to Labor MarketsSignificant labor market pressure in spring/summer 2022,which has begun to normalizeExposure to InflationExposure directly related to
93、 the labor market and gas/mileageExposure to Consumer SpendingWhile private duty nursing is cash pay,the majority of the broader sector is not exposed to consumer spendingExposure to Capital(B2B)SpendingLow exposure to capital spending given the relatively low fixed costs associated with sectorHome
94、Health&HospiceEconomic Considerations+Family caregiving model(a.k.a.consumer-directed home care)is gaining traction as an attractive way to provide nonmedical home care+Model drastically expands the labor force and reduces caregiver turnover,leading to continuity of patient care and improved quality
95、+Introduction of advanced technology solutions into the field enables caregivers to deliver improved care of scale+Payors offering more attractive Medicare Advantage contracts and structures+Highlighted by recent partnerships between Amedisys/Aetna and CenterWell/Humana,Medicare Advantage partnershi
96、ps are gaining traction-Labor force challenges have begun to normalize;however,they will continue to be top of mind for operators in 2023;many home health and hospice platforms have made permanent cost structure changes to assuage wage pressuresTrends Were WatchingAssessment of M&A Activity in 2023H
97、IGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWM&A activity is expected to rebound meaningfully from 2022,while not likely to reach the highs in 2021 again as some providers continue to battle a tough,yet improving,labor market that may constrain organic growthHome Health&Hospice20Medical Products and DevicesEco
98、nomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsMedical products and devices manufacturers are moderately exposed to labor marketsExposure to InflationMaterial inputs and labor cost inflation were largely passed on to end customers through product or service pri
99、ce increasesExposure to Consumer SpendingLimited,if any,exposure to consumer spending outside of HME categoriesExposure to Supply ChainThe medical products and devices supply chain supply chain is global,thus freight and material costs are affected by global economic environment+Manufacturers and se
100、rvice providers continue to consolidate key suppliers to ensure on-time deliveries,production of high-quality products,and reduction of down time of hospital equipment+The drive for innovation remains constant,as both startup and established players develop next-gen products and devices to improve p
101、atient care and reduce costs to patients and providers,resulting in higher-value products with attractive margins+Medical products and devices companies have a variety of attractive organic and M&A growth levers they can pull on,such as product portfolio expansion,geographic expansion,addition of ne
102、w and complimentary manufacturing or service capabilities,and new/existing customer growth-Medical products and devices companies expect continued labor and supply chain challenges,which may impact a companys ability to meet demandTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Act
103、ivity in 2023Corporates focused on smaller add-ons in 2023,and strong demand from investors likely to increase activity for OEM platforms The CMO pipeline remains robust,and there is corresponding interest among investorsSignificant transaction volume over last 24 months in outsourced medical device
104、 services likely to continue into 2023HIGHLOWMedical Products and Devices21Outsourced Provider ServicesEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsMost outsourced provider services firms have a high people element;demand for labor coupled with low market
105、unemployment rates will place a premium on effective recruiting and retention strategies;however,due to severe shortages in some sectors,such as nursing,demand for outsourced services is expected to remain in a recessionary environment todayExposure to InflationModerate exposure to inflation;majorit
106、y of firms in this sector are price makers that are not subject to fixed government/commercial payor reimbursement rates and can pass on some level of higher costs to customersExposure to Consumer SpendingLimited exposure to consumer spending due to the nondiscretionary nature of healthcare services
107、 being provided,coupled with significant growth in consumer HSA balances since the 2008/2009 recession+Highly favorable long-term trends support robust demand for outsourced provider services,amplified in the travel nursing and contingent labor sectors+Rising incidence of chronic diseases coupled wi
108、th rapidly aging population(number of adults 65 and older increasing at 3.2%per year)(1)+Contingent labor utilization increasing as a result of permanent staff not meeting hospital staffing needs and growing clinician interest and awareness of travel nursing as an appealing career path+The continued
109、 shift in work preferences,with a bend toward flexibility and higher compensation potential,particularly among younger providers,has led to a great number of healthcare employees seeking flexible work models and a greater acceptance within the healthcare industry for using contingent labor-“Normaliz
110、ed”travel nurse bill rates in excess of$110/hr.driven by persistent clinician shortages in the face of rapidly rising demand over the foreseeable future-Nurse retirement at inflection point(avg.age is 52;19%of nurses are 65+);burnout and vaccination mandates driving more nurses away from the bedside
111、(1)-Nurses have worked 24+months at higher wages and have a low propensity to accept materially lower wages in the futureTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023While the outsourced provider services sector saw a limited amount of M&A activity in 2021/2022,several
112、market and regulatory factors kept a lot of investors on the sidelinesLooking ahead,we anticipate more M&A activity in the outsourced provider services sector as financial and operating performance continues to normalize and investors become more confident in underwriting sustainable post-COVID perf
113、ormanceHIGHLOWOutsourced Provider Services221)U.S.Bureau of Labor Statistics,U.S.Census Bureau,NSI Nursing Solutions Inc.,Journal of Nursing RegulationEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsExposure to labor markets varies by business model Exposure to InflationLow exposur
114、e to inflation;inflation offers opportunity to drive more cost savings Exposure to Consumer SpendingNo exposure to consumer spending since consumers do not participate in the sectorExposure to Capital(B2B)SpendingLow exposure to capital spending given the relatively low fixed costs associated with t
115、he sectorPayors&Payor ServicesEconomic Considerations+Increasing demand for specialty benefit management as employers and health plans seek solutions to address accelerating spend across kidney care,surgery,DME,behavioral health,fertility,and other high-spend categories,creating opportunities for be
116、st-in-class solution providers addressing these needs+Continued growth among independent third-party administrators to help an increasing number of employers who are self-insuring recognize the benefits of network design,care management,and cost containment+Accelerating demand for cost containment s
117、olutions to help payors and employers manage healthcare costs that are expected to increase in 2023 as rates for providers increase to compensate for inflation+Further penetration of value-based care in the commercial employer sector as the gap is narrowed with penetration in government-reimbursed h
118、ealthcare-Uncertainty around how the implementation of new regulations(most notably the price transparency and no surprise billing regulations)will play out+New regulations have driven significant growth for cost containment platforms that help plan sponsors navigate the complex legislation,identify
119、 and measure the appropriate qualified payment amount(QPA),and comply with requirements to avoid penaltiesTrends Were WatchingAssessment of M&A Activity in 2023HIGHLOWHIGHLOWHIGHLOWHIGHLOWHIGHLOWOverall M&A activity within sector expected to maintain momentum,as businesses are expected to be insulat
120、ed from recessionary headwindsTPA activity expected to slow in 2023 given the number of transactions closed between 2020 and 2022;however,deals are still expected to get doneInvestors will favor cost containment solutions,specialty benefit management,and direct-to-employer models Payors&Payor Servic
121、es23Economic Risk Magnitude of RiskCommentaryExposure to Labor MarketsTalent acquisition,as opposed to margin compression from rising labor costs,is the most difficult issue within pharma services for management teamsExposure to InflationPharma services is insulated from inflation relative to other
122、sectorsExposure to Consumer SpendingNo exposureExposure to Biotech Funding CycleThe greatest risk to the sector is exposure to the biotech funding cycle,but that risk is specific to subsectors and not a longer-term concern for HWPharma ServicesEconomic Considerations+The trend of outsourcing by biop
123、harmaceutical companies will continue in 2023+R&D costs have risen and the challenges of commercializing products have increased,which is driving outsourcing by biopharmaceutical manufacturers+Small pharma and biotech are increasingly leading novel compounds through commercialization,driving a new w
124、ave of customers for outsourced pharma services and tech providers;these smaller companies are even more likely to outsource than large pharma-The biotech funding cycle will likely be the greatest question in 2023-More likely to impact businesses in early phase R&D,as opposed to late-stage or commer
125、cialization platforms,which will be minimally affected-Longer term,little concern on the funding cycle,as small pharma and biotech will continue to drive innovation and attract capital to fund research and development activitiesTrends Were WatchingAssessment of M&A Activity in 2023HIGHLOWHIGHLOWHIGH
126、LOWHIGHLOWHIGHLOWTremendous deal activity seen over the last several years,which is expected to continue in 2023,driven by relative attractiveness of the sector,with a strong organic growth profile and opportunities to consolidate fragmented subsectorsInsulated from macroeconomic pressures,such as i
127、nflation,wages,and supply chain,which positions the sector well for M&A activity in 2023 and beyondPharma Services24PharmacyEconomic ConsiderationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsHome infusion is affected by labor markets,while other pharmacy areas are moderately ex
128、posed to labor markets Exposure to InflationNo exposureExposure to Consumer SpendingNo exposureExposure to Capital(B2B)SpendingNo exposure+Pharmacy models that have unique differentiation or add more value to the healthcare ecosystem than pure play pharmacy models are in favor with investors and inc
129、lude:+Value-added outsourced service providers to health systems,such as outpatient specialty pharmacy management,that create a new revenue stream for the health system and allows it to retain chronic patients+In-home and ambulatory infusion centers that are taking advantage of payors desire to push
130、 patients into lower-cost environments+Businesses that are moving closer to pharma manufacturers,such as rare-disease-exclusive distribution pharmacies that are providing white-glove patient service+Increased prevalence of home-based care,which was heightened as a result of COVID,has driven demand f
131、or home-based pharmacy services,whether that relates to e-commerce,technology to drive adherence,or alternative site of care-Payors are putting additional pressure on reimbursement rates for specialty drugs-PBM continues to be a challenging subsector due to concerns around the sustainability of prof
132、its from rebates and their value-add in the healthcare systemTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023HIGHLOWPharmacy continues to be an attractive sector,with strong momentum after an active 2022 for add-on investments in the highly fragmented market Continu
133、ed consolidation of the larger players/payors(United Health,CVS,Walgreens,etc.),who are highly interested in acquiring specialty pharmaciesM&A activity is expected to vary between subsectors,with infusion and health system outsourcing remaining the most activePharmacy25Primary Care Economic Consider
134、ationsEconomic Risk Magnitude of RiskCommentaryExposure to Labor MarketsExposure to labor markets as providers compete for clinical resourcesExposure to InflationModerate exposure to inflation reflected in rising compensation expensesExposure to Consumer SpendingLimited exposure for Medicare Advanta
135、ge;commercial and concierge services are more exposed to consumer spendingExposure to Capital(B2B)SpendingMinimal exposure to capital spending for majority of models,main capital expense relates to clinic build-out+New Medicare payment models(e.g.,ACO REACH)enabling value-based primary care for seni
136、ors+In 2022,CMS converted the existing Global&Professional Direct Contracting Model to ACO REACH,which will officially go live January 1,2023+Increased consumerization of healthcare,with patients seeking choice to find affordability and convenience+Patient choice is increasingly important,as patient
137、s want affordability and greater convenience,e.g.access to clinics in attractive locations,online/virtual scheduling,telehealth/ability to message physician,app-based connectivity,etc.-Conversion of primary care and other healthcare services for seniors-Increasing trend of integrating and coordinati
138、ng services for high-risk,high-cost seniors,with Medicare Advantage plans and PACE programs providing broader ancillary services and increasing partnership between in-home primary care,palliative,and hospice providersTrends Were WatchingHIGHLOWHIGHLOWHIGHLOWHIGHLOWAssessment of M&A Activity in 2023W
139、hile public valuations for value-based primary platforms have subsided from the highs of 2021,capital continues to flow into the sector to enable innovative care models,and we expect this to continue in 2022 across both venture investments and large-scale M&AHIGHLOWPrimary Care 26TABLE OF CONTENTSHE
140、ALTHCARE MARKET UPDATEIHEALTHCARE VERTICAL PERSPECTIVESIIHARRIS WILLIAMS UPDATE IIIHARRIS WILLIAMS SECTOR COVERAGEIVEnergy,Power&InfrastructureTransportation&LogisticsBusiness ServicesIndustrialsAerospace,Defense&Government ServicesHealthcare&Life SciencesConsumerTechnologyHarris Williams is a globa
141、l investment bank specializing in M&A advisory services.Clients worldwide rely on us to help unlock value in their business and turn ambitious goals into reality.We approach every engagement with boundless collaboration,pooling expertise and relationships across industries and geographies to uncover
142、 the unique story of each company.Deep Industry ExperienceOffices:Boston|Cleveland|Frankfurt|London|Minneapolis|Richmond|San Francisco|Washington,DCRevenue from repeat clients70%Managing directors promoted fromwithin the firm 83%Year history30+GLOBAL M&A ADVISOR28Page|29C O N S U M E R P R O D U C T
143、 S&S E R V I C E SHealthcare&Life SciencesCommercialization Services Contract Development&Manufacturing Contract Research Organizations Safety and Regulatory Affairs OUTSOURCED PHARMA SERVICESCardioContract Manufacturing Dental&OrthodonticsEyecareHME/DME/MobilityMedical&Surgical EquipmentOrthopedics
144、&SpinePatient Diagnostics&MonitoringOutsourced Medical Device ServicesSpecialty DistributionMEDICAL PRODUCTS AND DEVICESCompounding PharmacyInfusion ServicesInstitutional PharmacyOutsourced Pharmacy ManagementSpecialty Pharmacy340BPHARMACYBehavioralCardiologyChiropracticDentalDermatologyENTGastroent
145、erologyHome Health&HospiceMedSpa ServicesMultispecialtyNephrologyOncologyOrthopedicsOther ProvidersPhysical TherapyPodiatryPrimary CareRadiologySurgery CentersUrgent CareUrologyVet Products&ServicesVision Womens HealthPROVIDERSHCITData ManagementEmployerInpatient-Admin and OperationalInpatient-Clini
146、calLTC and Home HealthOutpatientPayerPharma ITRCM ServicesRCM SoftwareCLINICAL LAB SERVICESLIFE SCIENCES TOOLSPROVIDER,PHARMA,AND DEVICE DISTRIBUTIONCost Containment&Member Engagement Direct-to-Payor ServicesHealth Plans&Network ServicesPharmacy Benefit ManagersSpecialty Benefit Managers Third-Party
147、 AdministratorsPAYORS AND PAYOR SERVICESClinical Provider Services Provider Business ServicesRevenue Cycle Management OUTSOURCED PROVIDER SERVICES29Deep Relationships with Private EquityAccess to Strategic BuyersPage|30C O N S U M E R P R O D U C T S&S E R V I C E SThe proof is in the results HW has
148、 built the markets leading healthcare M&A practice and has exceptional momentum that accrues to the benefit of our clients.30Unmatched Healthcare ExperiencePinnacleDermatologyPamplonaCapitalManagementLittlejohn&Co.LindenInspirataHIG CapitalOMERSAEA InvestorsOak Hill CapitalWCASLindenFrazierArsenal C
149、apitalMorgan StanleyAuroraCapitalPartnersSunMed(Dempsey Ventures)CinvenDatixPatriciaIndustriesGI PartnersRevelstokeLGPCourt SquareDanaherHIG CapitalSmile Brands/GryphonKnox LaneCernerOptima Health/Sentara HealthcareSymplrNovoHoldingsPartnersGroupGHOCapitalLindenMartis CapitalWCASUnifiedBecton,Dickin
150、sonand CompanyNovo HoldingsAcadiaRevelstokeCapitalSkyKnightCapitalWaudCapitalNauticL CattertonVetCorAmerisourceBergenMartisEquianNordic CapitalThe VistriaGroupGryphonInvestorsBertelsmann AGThe Carlyle GroupClearlakeCapitalTA AssociatesGryphon InvestorsAdventInternationalSymplrGoldman SachsWaud Capit
151、alPharMedQuest/KinderhookBDT CapitalLightyear Capital&Oak HC/FTFiveArrowsOMERSAegisTSG ConsumerPartnersPRISM Vision GroupWendelBerkshirePartnersThomasH.Lee PartnersOntario TeachersPension PlanAthilioPharmaeSolutionsSymplrOak HillFlexpointFordHeartlandDentalLHC GroupRidgemontEquityPartnersSentinelFiv
152、eArrowsCDPQMorgan StanleyPartnersGroupShoppersDrug MartCWS-BocoLindenCapitalOpen HealtheSolutionsLeeEquityPartnersCressey&Co./HEPTABLE OF CONTENTSHEALTHCARE MARKET UPDATEIHEALTHCARE VERTICAL PERSPECTIVESIIHARRIS WILLIAMS UPDATEIIIHARRIS WILLIAMS SECTOR COVERAGEIVPage|32C O N S U M E R P R O D U C T
153、S&S E R V I C E SHW Healthcare Segment Contacts32Andy DixonManaging DirectorSan FranciscoPRIMARY COVERAGEOTHER DEAL EXPERIENCEPhysical TherapyVisionWomens Health&FertilityConsumer HealthcareMed Products&DevicesPhysician Practice Mgmt.PRIMARY COVERAGEOTHER DEAL EXPERIENCEHCITHealth Plans&Network Serv
154、icesHome Health&HospiceOrthopedicsPrimary CareConsumer HealthcarePhysician Practice Mgmt.Contract ManufacturingJames ClarkManaging DirectorRichmondCheairs PorterManaging Director,Co-Head of HCLSRichmondDEAL EXPERIENCEBehavioralConsumer HealthcareHCITMed Products&DevicesOutsourced Provider ServicesOu
155、tsourced Pharma ServicesPayor ServicesPharmacyPhysical TherapyPhysician Practice Mgmt.Geoff SmithManaging Director,Co-Head of HCLSRichmondDr.Julian FeneleyManaging DirectorLondonPRIMARY COVERAGEOTHER DEAL EXPERIENCEHCITMed Products&DevicesProvidersLife Sciences ToolsOutsourced Pharma ServicesPharmac
156、yPRIMARY COVERAGEOTHER DEAL EXPERIENCEClinical Lab ServicesOutsourced Pharma ServicesMed Products&DevicesPhysician Practice Mgmt.Paul HepperManaging DirectorRichmondDEAL EXPERIENCEClinical Provider ServicesContract ManufacturingDentalDermatologyMedSpa ServicesOutsourced Pharma ServicesVet Products&S
157、ervicesPage|33C O N S U M E R P R O D U C T S&S E R V I C E SHW Healthcare Segment Contacts(cont.)33Turner BredrupManaging Director,Senior AdvisorRichmondDEAL EXPERIENCEConsumer HealthcareHCITHome Health&HospiceMed Products&DevicesOutsourced Provider ServicesOutsourced Pharma ServicesPayor ServicesP
158、harmacyPhysical TherapyVisionDan LinsalataManaging DirectorBostonPRIMARY COVERAGEOTHER DEAL EXPERIENCEHCITPharma ITPayor ServicesPopulation Heath ManagementOutsourced Pharma ServicesPRIMARY COVERAGEOTHER DEAL EXPERIENCEHCITMed Products&DevicesPharmacyOutsourced Pharma ServicesProvidersTyler Bradshaw
159、DirectorRichmondStephan DoeringDirectorFrankfurtPRIMARY COVERAGEOTHER DEAL EXPERIENCEMed Products&DevicesOutsourced Pharma ServicesHCITMultisite Healthcare ServicesWhit KnierManaging DirectorRichmondPRIMARY COVERAGEOTHER DEAL EXPERIENCEBehavioralClinical Provider ServicesVet Products&ServicesConsume
160、r HealthcareContract ManufacturingPayor ServicesPRIMARY COVERAGEOTHER DEAL EXPERIENCEOutsourced Pharma ServicesHCITMedTechProvidersTherapeutics Andrey DvorkinDirectorLondonPage|34C O N S U M E R P R O D U C T S&S E R V I C E SHW Healthcare Segment Contacts(cont.)34PRIMARY COVERAGEOTHER DEAL EXPERIEN
161、CEDentalGastroenterologyUrologyMobility/DMEOther Consumer HealthcareBehavioralNathan RobertsonDirectorRichmondTaylor WillDirectorRichmondPRIMARY COVERAGEOTHER DEAL EXPERIENCEMed Products&DevicesConsumer HealthcareBehavioralHome Health&HospiceCharles BuschVice PresidentRichmondPRIMARY COVERAGEOTHER D
162、EAL EXPERIENCEDermatologyOrthopedicsOther Consumer HealthcareOutsourced Provider ServicesNick OwensDirectorRichmondPRIMARY COVERAGEOTHER DEAL EXPERIENCEPayor Technology&ServicesEmployer Health ServicesOutsourced Pharma ServicesPrimary CareHome Health&HospicePhysician ServicesBrian JonesVice Presiden
163、tRichmondPRIMARY COVERAGEOTHER DEAL EXPERIENCEOutsourced Provider ServicesHCITMed Products&DevicesPayor ServicesMichael MahoneyVice PresidentSan Francisco PRIMARY COVERAGEOTHER DEAL EXPERIENCEHome Health&HospicePrimary CareMed Products&DevicesMultisite Healthcare ServicesPhysician ServicesPage|35C O
164、 N S U M E R P R O D U C T S&S E R V I C E SHW Healthcare Segment Contacts(cont.)35PRIMARY COVERAGEOutsourced Pharma ServicesKevin FergusonBusiness Development ManagerRichmondDillard WattBusiness Development ManagerRichmondPRIMARY COVERAGEMed Products&DevicesCameron ThomasVice PresidentRichmondPRIMA
165、RY COVERAGEOTHER DEAL EXPERIENCEPharmacyBehavioralConsumer HealthcareMed Products&DevicesPhoebe WillisVice PresidentRichmondPRIMARY COVERAGEOTHER DEAL EXPERIENCEConsumer HealthcareBehavioral Life Sciences&ToolsMed Products&DevicesHarris Williams LLC is a registered broker-dealer and member of FINRA
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169、illiams LLC(“Harris Williams”).Harris Williams is a registered brokerdealer and member of FINRA and SIPC.Harris Williams&Co.Ltd is a private limited company incorporated under English law with its registered office at 8th Floor,20 Farringdon Street,London EC4A 4AB,UK,registered with the Registrar of
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