Advisory Board Healthcare acquired by Optum: fairness opinion by Allen
Deal terms
Implied value per share by method vs. $52.65 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Allen to the target board
Discounted cash flow assumptions
Standalone unlevered after-tax free cash flows discounted to present value as of June 30, 2017; stock-based compensation treated as a cash expense.
Selected public companies (18)
Quintiles IMS Holdings, Inc. · Cerner Corp. · Premier, Inc. · Allscripts Healthcare Solutions, Inc. · Inovalon Holdings, Inc. · Quality Systems, Inc. · Huron Consulting Group Inc. · Navigant Consulting Inc. · Computer Programs & Systems Inc. · IHS Markit Ltd. · Verisk Analytics · Gartner Inc. · CoStar Group Inc. · Tyler Technologies Inc. · Guidewire Software Inc. · Blackbaud Inc. · RealPage Inc. · Ebix Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / CY2017E Adjusted EBITDA | 6.6x | 15.3x | 44.1x | 9.5x–12.5x | $39.66–$53.66 |
| Firm Value / CY2018E Adjusted EBITDA | 6.2x | 13.9x | 34.9x | 9.0x–12.0x | $41.07–$56.19 |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2017-07 | WebMD Health Corp. | Internet Brands, Inc. | — |
| 2017-01 | CEB Inc. | Gartner, Inc. | — |
| 2016-08 | Press Ganey Holdings, Inc. | EQT Partners Inc. | — |
| 2016-06 | Cardon Outreach, LLC | MedData, Inc. | — |
| 2016-04 | Verisk Analytics, Inc. (Healthcare Business) | Veritas Capital Fund Management, L.L.C. | — |
| 2016-02 | Brightree LLC | ResMed Inc. | — |
| 2016-02 | Truven Health Analytics Inc. | International Business Machines Corporation | — |
| 2015-11 | MedAssets, Inc. | Pamplona Capital Management LLC | — |
| 2015-08 | Merge Healthcare Inc. | International Business Machines Corporation | — |
| 2015-07 | Altegra Health Inc. | Emdeon Inc. | — |
| 2014-12 | Royall & Company, Inc. | The Advisory Board Company | — |
| 2014-04 | iHealth Technologies, Inc. | Connolly, LLC | — |
| 2012-07 | Sunquest Information Systems, Inc. | Roper Technologies, Inc. | — |
| 2012-04 | Thomson Reuters Corporation (Healthcare Business) | Veritas Capital Fund Management, L.L.C. | — |
| 2011-08 | Emdeon Inc. | Blackstone Group L.P, Hellman & Friedman LLC | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / LTM Adjusted EBITDA | 9.6x | 13.4x | 19.2x | 12.0x–15.0x | $44.97–$57.15 |
| Firm Value / NTM Adjusted EBITDA | 8.9x | 11.3x | 18.2x | 11.0x–14.0x | $52.26–$67.13 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Research analyst price targets (informational only) | Publicly available one-year forward research analysts' stock price targets for ABCO common stock as of January 11, 2017 (last trading day before Elliott Associates, L.P. disclosed an 8.3% stake): $31.00 to $45.00 per share, median $38.00. | $31.00–$45.00 |
| Historical trading performance - 3 months ended Jan 11, 2017 (informational only) | Low to high closing prices for ABCO common stock during the three-month period ended January 11, 2017 of approximately $31.95 to $43.76 per share. | $31.95–$43.76 |
| Historical trading performance - 12 months ended Jan 11, 2017 (informational only) | Low to high closing prices for ABCO common stock during the 12-month period ended January 11, 2017 of approximately $26.50 to $46.55 per share. | $26.50–$46.55 |
Estimated transaction fee of approximately $12.7 million, a portion payable upon consummation of the education transaction and the remainder upon consummation of the merger; no separate opinion fee disclosed. Allen & Company received no compensation for investment banking services to ABCO, Optum/UnitedHealth or Vista during the prior two years.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $585M | $624M | $670M | $720M | 7.2% |
| Revenue growth | 6.4% | 6.7% | 7.4% | 7.5% | |
| EBITDA | $293M | $313M | $339M | $368M | 7.9% |
| EBITDA growth | 132.5% | 6.8% | 8.3% | 8.6% | |
| EBITDA margin | 50% | 50% | 51% | 51% | |
| Implied EV / EBITDA | 4.4x | 4.2x | 3.8x | 3.5x |
Year-1 growth is against LTM at announcement ($550M revenue, $126M EBITDA); later years are year over year.
Allen & Company used ABCO management's forecasts (referred to as the "forecasts," including "whole company forecasts") covering the second half of fiscal year 2017 through fiscal year 2021, plus separate "Evolent information" regarding ABCO's interest in Evolent Health. The DCF used unlevered after-tax free cash flows over 2H2017E-2021E with FY2021E Adjusted EBITDA as the terminal-value metric; Adjusted EBITDA was defined as EBITDA adjusted to add back stock-based compensation and certain non-recurring expenses. Specific revenue and EBITDA dollar amounts were not included in the sliced sections.
Process notes
Other Outsourced Services fairness opinions
- Landauer / Fortive 2017 · 18.2x EV/EBITDA
- BioTelemetry / Philips 2020 · 23.7x EV/EBITDA
- Sharps Compliance / Aurora Capital Partners 2022 · 25.2x EV/EBITDA
- CynergisTek / Clearwater Compliance 2022
- Mmodal / One Equity Partners 2012 · 8.1x EV/EBITDA
- SRI Surgical Express / Synergy Health 2012 · 7.6x EV/EBITDA