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Personal Emergency Response Systems (PERS) State of the Industry Sector
Henry Edmonds, President Doug Schultz, SVP Barbara Bosch, VP
September 25, 2012
A Personal Emergency Response System (PERS) is an electronic device that enables individuals to secure help in an emergency. The system is connected to the person's phone and programmed to signal a response center once a "help" button is activated. Professionally trained PERS staff assesses the nature of the emergency and obtain appropriate help for the individual as necessary. The typical PERS consumer is elderly or disabled, living alone. The PERS System became a part of American culture in the 1980s and 1990s, popularized by a television commercial by LifeCall with the catchphrase, “I’ve fallen and I can’t get up.” Today LifeAlert has taken up that slogan. The PERS sector is also expanding to include mobile, telemedicine and telehealth offerings.
Industry Overview and Drivers PERS systems are primarily marketed to senior citizens through two main channels, each of which represents approximately half of the market. • The Institutional Channel includes hospitals and government subsidy programs. o A single contract may involve thousands of units. o A direct sales force is the primary sales and marketing approach. • The Retail Channel markets directly to private-pay individuals. o Separate contracts are signed by each subscriber, typically for a month-tomonth commitment. o Key sales approaches include: Print, especially direct mail and catalogs Internet Dealer programs Mass media advertising, especially TV, radio Strategic partnerships (e.g. CVS, Walgreens, Wal-Mart, etc.) Other markets for PERS systems include domestic abuse programs and latch-key children. Also, emerging services like telemedicine and telehealth are now included as branches of the PERS industry. The product offerings in the PERS industry are expanding. • Traditional PERS systems provide emergency response services using the following technologies and equipment: o POTS lines and VOIP o 2-Way voice o 600’-800 feet of transmitter range
o Console/communicator equipment o Pendant transmitter Expanded PERS offerings add safety monitoring and healthcare monitoring to the traditional emergency response services, using newer technologies and equipment. o Cellular o Extended Voice – wireless remote speakers o 1000’ of transmitter range o Mobile PERS - using GPS technology o Multiple wearable devices
Market Size The PERS Market in North America was estimated to be $963.9 million in 2010 by Frost & Sullivan. It is expected to grow at 10.4% per year to $1.86 billion by 2017 and over $3 billion when telemedicine and telehealth are included. Some of the factors driving this growth rate include: • Aging population - Aging “baby boomers” who expect to live independently are increasing the need for effective and affordable solutions to support an “action care link” with healthcare providers and with patients’ families. o “Boomer” Growth Demographics for U.S. The population of 65+ individuals is expected to increase significantly over the next 20 years, with the fastest growth expected to come in the number of people who have lived 80 or more years.
Table 1 - Estimated Number of U.S. Residents over 65 years old (in millions) Year 65+ 70+ 75+ 2010 40 28 19 2020 55 37 22 2030 72 52 33 2040 81 62 44 % annual growth rate from 2010 to 2040 2.4% 2.7% 2.8%
Source: U.S. Census Bureau
80+ 11 13 19 28 3.2%
The average age of an in-home PERS subscriber is 81.
Health Care and Nursing Care cost pressures – o In 2010, the average annual cost was $51,000 for a resident in an assisted living facility and $85,000 for nursing care. o Consumers (patients and family care providers), federal and state government, and insurance companies are collectively looking for ways to reduce healthcare costs. o Allowing people to remain in their homes provides significant healthcare cost savings compared to institutionalized health care facilities. Most elderly individuals prefer “aging in place” versus “senior living.”
Telehealth care opportunities – o Telehealth technologies have greatly increased the amount of health data that can be transmitted from the home. o These new technologies have allowed an expansion of PERS services from the original core service of “emergency response”. o Expanded services include health condition monitoring, medication management, and patient tracking / location. Technology improvements – o Several vendors now offer systems with automated fall detection capabilities. Fall victims who receive help quickly have shown significant reduced mortality rates and hospital stays. o Other vendors provide user compliance tracking which detects when the device is not worn. o Technology now allows for easier caregiver notifications, notifying adult children or others via text or email messaging of the status of the user. o Mobile PERS is capturing an increasing percentage of the market. In MPERS, the customer is provided with a cell-phone-like device with one-button two-way communication and a GPS locator.
Other important factors that could accelerate the current rate of PERS market growth include: • • the Center for Medicare and Medicaid Services determining that PERS becomes reimbursable by Medicare telehealth services increasingly being reimbursed under the Affordable Care Act based on innovations that reduce the cost of healthcare services
There were approximately 1,600,000 monitored PERS accounts in 2011, with over 300,000 activations occurring annually. The traditional PERS pendants, linked to a home base station, are expected to grow 2% per year from 2012 to 2015. MPERS (mobile PERS) linked to mobile networks are expected to grow 35% per year from 2012 to 2015. IP technology advancements are driving the growth in the MPERS market segment. Industry Participants Philips Lifeline is the largest player in the PERS industry in North America, dominating the industry with an estimated market share of more than 40% in the U.S. Philips Lifeline is part of Royal Philips Electronics of the Netherlands. They are also a major producer of PERS equipment. Table 2 – Top PERS Companies ranked by number of customers Ranking Company 1 2 3 4 Phillips Lifeline Connect America Life Alert ?
Estimated number of customers 700,000 165,000 150,000 Less than 100,000
Currently there are 50-60 meaningful players providing PERS services. Major PERS companies include: Table 3 – Major PERS Companies Company Website Phillips Lifeline www.lifelinesys.com Connect America connectamerica.com/ Life Alert www.lifealert.com/ Critical Signal Technologies www.criticalsignaltechnologies.com/ Tunstall/AMAC www.amac.com/ ADT www.adt.com/medical-alert-systems/ (See Appendix I for a more comprehensive list of industry participants.) PERS Monitoring Providers Most of the major security alarm industry monitoring stations advertise that they offer thirdparty PERS monitoring services. However, it does take a meaningful investment in staff training to proficient in providing the specialized monitoring associated with PERS. Third-party central stations that actively market their PERS services include the following: Table 4 – Third-party central stations with PERS marketing focus Company Website American Two-Way http://atwcentral.com/ AvantGuard Monitoring Centers http://www.agmonitoring.com/ Centra-Larm Monitoring Inc. http://www.centra-larm.com/ C.O.P.S Monitoring www.copsmonitoring.com Criticom Monitoring Services http://www.cmsn.com/ Emergency 24 http://www.emergency24.com/ Rapid Response http://www.rrms.com/ PERS Manufacturers Philips Lifeline produces its own equipment. Historically, Linear and Visonic (A Tyco International Company) have been the other major manufacturers of traditional PERS equipment. Recent entrants have focused on specific improvements to the traditional system such as MobileHelp which provides mobility away from the 500-feet distance limit from the base station, Halo Monitoring which transmits vital signs from a chest strap, or Wellcore which has developed a fall detector. (For a list of PERS Manufacturers please see Appendix II.)
Location Framingham, MA Broomall, PA Encino, CA and others Farmington Hills, MI, Pittsfield, MA Long Island, NY Boca Raton, FL
Location North Hollywood, CA Ogden, UT, Tacoma, WA Manchester, NH Williamstown, NJ CA, FL & NJ Multiple Syracuse, NY
System Pricing Although a customer can buy a PERS system outright (from $200 to $1500), most customers sign a lease agreement. A standard PERS system lease agreement requires a nominal (sometime zero) activation fee and monthly monitoring fees of $25-$45. The standard system includes a two-way voice console, a personal activator button (radio transmitter) worn on a pendant or bracelet, and telephone line or cellular access to a 24 hour emergency response center. Most companies offer a discount for subscribers who pay annually rather than monthly. The Economics of a Single PERS Account To illustrate the economics of traditional PERS accounts, it is useful to look at the economics of a single account. We will make the following conservative assumptions regarding a “typical” PERS account. Metric Recurring Monthly Revenue (RMR) Up-front payment from customer Equipment cost Marketing cost Total creation cost as a multiple of RMR Monthly operating expenses Annual attrition or “churn” Assumption $29.95 $0 $200.00 $249.25 15x $10.00 30%
The economic return to the investment in this account is 23.3% if it is never sold. If the account is sold for 35x RMR at the end of the 5th year, the return is 27.8%.
Business Models and Metrics Table 5 – Key Metrics for PERS Companies Creation Cost as Growth Rate a multiple of RMR Excellent 15%+ <12x Average 5%-15% 12x-18x Below Average <5% >18x
Margin (Existing Customers) >60% 50%-60% <50%
Annual Attrition “Churn” <25% 25% to 35% >35%
Because of the demographics of the subscribers, attrition or “churn” is significantly higher for PERS contracts than for security alarm contracts. The average client uses a PERS system for 2428 months. However, this is offset by a much lower installation cost than a security alarm system. The PERS unit is typically shipped to the customer and simply plugged in. Accordingly, there is no installation cost. The PERS equipment is also much less expensive than an alarm system, with a basic kit from a major equipment vendor selling for around $200.
Table 6 – Institutional vs. Retail Marketing Channel Metric Institutional Growth Rate Slower – long sales cycle Creation Cost Margin Lower Lower if “wholesale” model where institution is responsible for deploying units Higher since end customers tend to be older/sicker than retail model. However, in wholesale model, institution takes primary redeployment risk
Retail Can be very high depending on marketing resources spent Higher Higher
Transaction Activity and Valuations As a result of the sector’s smaller size, there have been a limited number of PERS transactions and transaction data has not always been available. However, larger PERS companies have typically traded for “alarm industry-like” multiples of 30x to 40x RMR.
Table 7 – Recent Transactions in the PERS Industry Date Seller Health Watch May-07 Holdings, Inc. Valued Relationships Nov-07 (VRI) Sep-09 Link to Life Jan-11 Connect America Buyer Royal Philips Electronics NV Comments $130M transaction for 100,000 subscribers $20M transaction for 30,000 subscribers $25.4M transaction for $650,000 in RMR (39x RMR) $81.7M transaction for $2.2M in RMR, 75,000 subscribers (43x RMR) $82.3M transaction for $1.8M in RMR. Transaction included purchase of a significant call center operation PERS manufacturer
Blue Canyon Capital Critical Signal Technologies, Inc (CST) Rockbridge Tunstall Healthcare Group Generation 3 Capital LLC/Promus Equity Partners Numera
Dec-11 LogicMark Apr-12 BlueLibris
Conclusions The PERS industry is a fast growing and attractive space with significant demographic and economic tail winds. However, currently there are only a few large (independent) players in the industry. The Edmonds Group The Edmonds Group is a specialized investment bank focused on recurring revenue industries with a particular emphasis on the security alarm/PERS industry. Within the security alarm/PERS space, our team has closed over forty transactions representing over $2.5 billion in value in the eight years since the founding of the firm.