Aetna acquired by CVS Health: fairness opinion by Allen and Barclays and Goldman Sachs and Centerview Partners
Deal terms
$145.00 in cash plus 0.8378 of a share of CVS Health common stock per Aetna common share. Implied ~$207.94 per share based on CVS closing price of $75.12 on December 1, 2017; ~$208.28 based on CVS closing price on October 25, 2017 (unaffected date); ~$204.11 based on February 8, 2018 closing price.
Opinion of Allen to the target board
Discounted cash flow assumptions
Present value as of December 1, 2017 of stand-alone unlevered after-tax free cash flows through FY2022; stock-based compensation treated as a cash expense; terminal year assumed growth in risk-based capital contributions commensurate with premium revenue growth. Implied per share equity value reference range table was truncated in the filing excerpt.
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Selected companies analysis / selected transactions analysis | Allen & Company reviewed publicly available information for selected companies deemed generally relevant in evaluating Aetna and CVS Health and selected transactions deemed generally relevant in evaluating the merger; details truncated in the excerpt. | — |
Fee arrangements not disclosed in the sliced sections.
Opinion of Barclays to the acquirer board
Discounted cash flow assumptions
Present values as of September 30, 2017. Including expected synergies (terminal perpetuity growth of 1.5% for synergies): $191.50-$288.75 per Aetna share. Barclays also performed a DCF of CVS Health stand-alone (discount rates 6.0%-7.0%, terminal EBITDA multiples 6.5x-9.5x) implying $75.10-$112.93 per CVS share, and a combined company DCF implying $72.81-$128.31 per share.
Selected public companies (4)
UnitedHealth Group Incorporated · Anthem, Inc. · Cigna Corporation · Humana Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / 2018E Adjusted EPS | 18.0x | 19.6x | 21.4x | 17.0x–18.5x | $170.25–$185.25 |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2015-07-24 | Cigna Corporation | Anthem, Inc. | — |
| 2015-07-03 | Humana Inc. | Aetna Inc. | — |
| 2015-07-02 | Health Net, Inc. | Centene Corporation | — |
| 2012-10-08 | Amil Participações S.A. | UnitedHealth Group Incorporated | — |
| 2012-08-20 | Coventry Health Care, Inc. | Aetna Inc. | — |
| 2012-07-09 | AMERIGROUP Corporation | WellPoint, Inc. | — |
| 2011-10-24 | HealthSpring, Inc. | Cigna Corporation | — |
| 2007-03-12 | Sierra Health Services, Inc. | UnitedHealth Group Incorporated | — |
| 2005-09-27 | WellChoice, Inc. | WellPoint, Inc. | — |
| 2005-07-06 | PacifiCare Health Systems, Inc. | UnitedHealth Group Incorporated | — |
| 2004-10-14 | First Health Group Corp. | Coventry Health Care, Inc. | — |
| 2004-04-26 | Oxford Health Plans, Inc. | UnitedHealth Group Incorporated | — |
| 2003-10-27 | Mid Atlantic Medical Services, Inc. | UnitedHealth Group Incorporated | — |
| 2003-10-27 | Wellpoint Health Networks Inc. | Anthem, Inc. | — |
| 2002-04-29 | Trigon Healthcare, Inc. | Anthem, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / NTM EPS | 13.0x | 20.3x | 44.3x | 19.0x–22.0x | $190.00–$220.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Transaction premium analysis | Reviewed 1-day and 52-week high premiums in 15 selected managed care transactions: 1-day high 43.0%, mean 23.1%, median 21.2%, low 9.4%; 52-week high premiums high 35.0%, mean 12.2%, median 13.7%, low (25.1%). Barclays did not calculate implied equity values per Aetna share from this analysis. | — |
| Discounted cash flow analysis of CVS Health (stand-alone) | Discount rates 6.0%-7.0%; terminal EBITDA multiples 6.5x-9.5x applied to FY2022 EBITDA from CVS Health forecasts. | $75.10–$112.93 |
| Illustrative pro forma combined company DCF | Combined equity values including expected synergies (perpetuity growth 1.0%-2.0% for synergies), less new transaction debt, divided by pro forma fully diluted shares. | $72.81–$128.31 |
| Illustrative future share price analysis | Applied NTM adjusted P/E multiples of 11.60x-14.00x to CVS stand-alone NTM adjusted EPS for FY2017-FY2021 and 11.60x-15.00x to combined company NTM adjusted EPS for FY2018-FY2021. | — |
Transaction fee of $52 million, $5 million payable upon delivery of the opinion (not contingent on conclusion or completion), remainder contingent on completion. Barclays received $23 million from CVS Health and $28 million from Aetna in prior two years; Barclays and affiliates estimated to receive ~$142 million in fees for bridge loan facility, term loan facility and bond issuance.
Opinion of Goldman Sachs to the acquirer board
Discounted cash flow assumptions
Present values as of September 30, 2017. Including expected synergies: $180.50-$267.00 per Aetna share. Goldman Sachs also performed DCFs of CVS Health stand-alone (discount rates 6.25%-7.25%, perpetuity growth 0.5%-1.5%) implying $80.30-$118.84 per CVS share and of the combined company implying $76.40-$129.88 per share.
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2015-07-24 | Cigna Corporation | Anthem, Inc. | — |
| 2015-07-03 | Humana Inc. | Aetna Inc. | — |
| 2015-07-02 | Health Net, Inc. | Centene Corporation | — |
| 2012-10-08 | Amil Participações S.A. | UnitedHealth Group Incorporated | — |
| 2012-08-20 | Coventry Health Care, Inc. | Aetna Inc. | — |
| 2012-07-09 | AMERIGROUP Corporation | WellPoint, Inc. | — |
| 2011-10-24 | HealthSpring, Inc. | Cigna Corporation | — |
| 2007-03-12 | Sierra Health Services, Inc. | UnitedHealth Group Incorporated | — |
| 2005-09-27 | WellChoice, Inc. | WellPoint, Inc. | — |
| 2005-07-06 | PacifiCare Health Systems, Inc. | UnitedHealth Group Incorporated | — |
| 2004-10-14 | First Health Group Corp. | Coventry Health Care, Inc. | — |
| 2004-04-26 | Oxford Health Plans, Inc. | UnitedHealth Group Incorporated | — |
| 2003-10-27 | Mid Atlantic Medical Services, Inc. | UnitedHealth Group Incorporated | — |
| 2003-10-27 | Wellpoint Health Networks Inc. | Anthem, Inc. | — |
| 2002-04-29 | Trigon Healthcare, Inc. | Anthem, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / NTM EPS | 13.0x | 20.3x | 44.3x | 15.0x–21.5x | $149.50–$214.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Transaction premium analysis | Reviewed premiums in 15 selected managed care transactions (1-day: high 43.0%, mean 23.1%, median 21.2%, low 9.4%; 52-week high: high 35.0%, mean 12.2%, median 13.7%, low (25.1%)). Goldman Sachs applied an 18.0%-27.0% premium range (25th/75th percentile) to the unaffected Aetna closing price. | $189.00–$203.25 |
| Large transactions premiums analysis | Reviewed 25 U.S. public-target transactions announced January 1, 2013 to December 1, 2017 with enterprise value greater than $25 billion; median 1-day premium 29.0%, 25th percentile 18.2%, 75th percentile 36.4%. Applied 18.0%-36.5% to the $160.12 unaffected Aetna closing price. | $189.00–$218.50 |
| Discounted cash flow analysis of CVS Health (stand-alone) | Discount rates 6.25%-7.25%, perpetuity growth rates 0.5%-1.5% applied to CVS Health forecasts. | $80.30–$118.84 |
| Illustrative pro forma combined company DCF | Discount rates 6.25%-7.25%, perpetuity growth rates 1.0%-2.0%, CVS Health pro forma forecasts plus expected synergies; equity values per share discounted back to September 30, 2017 at a 7.8% cost of equity. | $76.40–$129.88 |
| Illustrative future share price analysis / present value of future share price | Applied NTM adjusted P/E multiples of 11.60x-14.00x (CVS stand-alone) and 11.60x-15.00x (combined company) to NTM adjusted EPS, discounted at 7.80% cost of equity to December 1, 2017. Stand-alone CVS present values ranged $72.76-$104.18; pro forma combined company present values ranged $77.14-$102.45. | $72.76–$104.18 |
Transaction fee of $52 million, $5 million payable upon execution of the merger agreement and the remainder contingent upon completion of the merger. Goldman Sachs and affiliates estimated to receive approximately $142 million in fees in connection with the bridge loan facility, term loan facility and bond issuance.
Opinion of Centerview Partners to the acquirer board
Discounted cash flow assumptions
Including net synergies (perpetuity growth 2.0%-3.0%, discount rates 6.5%-7.5%), implied values per Aetna share of $193 to $299. Centerview also performed a CVS Health stand-alone DCF (discount rates 6.25%-7.25%, perpetuity growth 0.5%-1.5%) implying $80-$119 per CVS share.
Selected public companies (7)
United Health · Anthem · Cigna · Humana · Walmart · Walgreens Boots Alliance · Express Scripts
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2017E EBITDA (Aetna comparables) | 10.5x | 13.4x | 15.4x | — | — |
| EV / 2018E EBITDA (Aetna comparables) | 10.1x | 11.4x | 12.8x | 10.0x–12.5x | $159.00–$206.00 |
| EV / 2019E EBITDA (Aetna comparables) | 9.1x | 10.4x | 11.4x | — | — |
| P / 2017E Earnings (Aetna comparables) | 19.4x | 21.2x | 22.5x | — | — |
| P / 2018E Earnings (Aetna comparables) | 18.0x | 19.5x | 21.4x | 16.0x–21.0x | $160.00–$210.00 |
| P / 2019E Earnings (Aetna comparables) | 16.3x | 17.3x | 18.9x | — | — |
| EV / 2017E EBITDA (CVS Health comparables) | 6.8x | 9.3x | 10.2x | — | — |
| EV / 2018E EBITDA (CVS Health comparables) | 6.7x | 8.8x | 9.9x | 7.5x–9.0x | $74.00–$93.00 |
| EV / 2019E EBITDA (CVS Health comparables) | 6.5x | 8.5x | 9.6x | — | — |
| P / 2017E Earnings (CVS Health comparables) | 8.9x | 13.2x | 22.1x | — | — |
| P / 2018E Earnings (CVS Health comparables) | 8.2x | 12.4x | 20.9x | 10.0x–15.0x | $63.00–$95.00 |
| P / 2019E Earnings (CVS Health comparables) | 7.4x | 11.4x | 19.6x | — | — |
Selected precedent transactions (20)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2015-07 | Cigna (Terminated) | Anthem | — |
| 2015-07 | Humana (Terminated) | Aetna | — |
| 2015-07 | Health Net | Centene Corporation | — |
| 2012-10 | AMIL Participações | UnitedHealth Group | — |
| 2012-08 | Coventry Health Care | Aetna | — |
| 2012-07 | Amerigroup | WellPoint Health Networks | — |
| 2011-10 | HealthSpring | Cigna | — |
| 2007-03 | Sierra Health Services | UnitedHealth Group | — |
| 2005-09 | WellChoice | WellPoint Health Networks | — |
| 2005-09 | HealthMarkets | The Blackstone Group and others | — |
| 2005-07 | Pacificare Health Systems | UnitedHealth Group | — |
| 2004-10 | First Health Group | Coventry Health Care | — |
| 2004-09 | American Medical Security Group | Pacificare Health Systems | — |
| 2004-04 | Oxford Health Plans | UnitedHealth Group | — |
| 2003-10 | WellPoint | Anthem | — |
| 2003-10 | Mid Atlantic Medical Services | UnitedHealth Group | — |
| 2003-06 | Cobalt Corporation | WellPoint Health Networks | — |
| 2002-04 | Trigon Healthcare | Anthem | — |
| 2001-10 | RightCHOICE Managed Care | WellPoint Health Networks | — |
| 2000-11 | Cerulean Companies | WellPoint Health Networks | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | — | 12.0x | — | 11.0x–13.5x | $166.00–$210.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical stock price trading analysis (Aetna) | 52-week closing price range prior to December 1, 2017 of $105 to $192; highest closing price prior to the first day of transaction speculation was $165. Presented for reference only. | $105.00–$192.00 |
| Analyst price target analysis (Aetna) | Wall Street analyst price targets of $150-$185 before transaction speculation and $165-$200 after. Presented for reference only. | $150.00–$200.00 |
| Discounted cash flow analysis of CVS Health (stand-alone) | Q4 2017 and 2018-2022 unlevered free cash flows from CVS Health management projections; perpetuity growth 0.5%-1.5%; discount rates 6.25%-7.25%. | $80.00–$119.00 |
| Historical stock price trading analysis (CVS Health) | 52-week closing price range prior to December 1, 2017 of $66 to $85 versus December 1, 2017 close of $75.12. | $66.00–$85.00 |
| Analyst price target analysis (CVS Health) | Wall Street analyst price targets between $73 and $97 versus the December 1, 2017 close of $75.12. | $73.00–$97.00 |
| Relative value analysis (implied exchange ratios) | Cash-adjusted implied exchange ratios (Aetna equity value contribution reduced by $145 cash per share) versus the implied transaction exchange ratio of 0.8378x. Without synergies: trading comps EV/EBITDA 0.1951x-0.6527x; trading comps 2018E P/E 0.2395x-0.6868x; DCF 0.3162x-0.9929x. With synergies (PV of near-term synergies of $9.4 billion, 50-75% attributed to Aetna): 0.3637x-0.8594x; 0.4317x-0.8882x; 0.4655x-1.1485x. | — |
CVS Health paid Centerview an aggregate fee of $12 million upon the rendering of Centerview's opinion (not contingent on closing), plus expense reimbursement and indemnification.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $61B | $67B | $74B | $80B | $88B | 9.7% |
| Revenue growth | 0.3% | 10.9% | 9.5% | 9.1% | 9.2% | |
| EBITDA | $6.2B | $6.6B | $7.1B | $7.7B | $8.3B | 7.6% |
| EBITDA growth | 5.1% | 6.5% | 7.6% | 8.5% | 7.8% | |
| EBITDA margin | 10% | 10% | 10% | 10% | 9% | |
| Implied EV / EBITDA | 11.5x | 10.8x | 10.0x | 9.3x | 8.6x |
Year-1 growth is against LTM at announcement ($61B revenue, $5.9B EBITDA); later years are year over year.
Aetna management projections (2017P-2022P) showed Aetna adjusted revenue growing from $60.5 billion in 2017 to $87.8 billion in 2022, adjusted earnings from $3.3 billion to $4.2 billion, and adjusted EPS from $9.84 to $15.36. Supplemental Aetna projections showed adjusted EBITDA of $5.9 billion (2017) rising to $8.3 billion (2022) and unlevered free cash flow of $3.4 billion (2017) to $3.0 billion (2022). CVS Health management made modest adjustments (the "adjusted Aetna projections," with 2018 unlevered FCF of $3.2 billion vs. $3.5 billion) that Barclays, Goldman Sachs and Centerview were directed to rely on; CVS Health management projections (2017P-2022P) showed net revenue of $183.7 billion rising to $245.6 billion and adjusted EBITDA of $12.5 billion to $15.5 billion, plus combined company pro forma projections and expected synergies.
Process notes
Other Managed Care fairness opinions
- Express Scripts Holding / Cigna 2018 · 11.6x EV/EBITDA
- Apollo Medical Holdings / Network Medical Management 2016
- Universal American / WellCare Health Plans 2016 · 9.3x EV/EBITDA
- WellCare Health Plans / Centene 2019 · 14.5x EV/EBITDA
- Dental Care Plus Group / DentaQuest 2019 · 10.4x EV/EBITDA
- Health Net / Centene 2015 · 9.3x EV/EBITDA
All Managed Care opinions → · Allen opinions · Barclays opinions · Goldman Sachs opinions · Centerview Partners opinions