Fairness opinions › Pharmaceutical Services › 2017

Albany Molecular Research acquired by Carlyle Group / GTCR: fairness opinion by Credit Suisse

Announced June 6, 2017 · One-step merger · All cash · DEFM14A filed July 14, 2017

Pharmaceutical Services CRO Sponsor: The Carlyle Group and GTCR LLC

Enterprise value

$1.6B

EV / LTM EBITDA

11.5x

EBITDA $140M · 19% margin

EV / LTM revenue

2.20x

revenue $730M

DCF discount rate

7.8%–9.8%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$21.75

Premium—

Premium basis—

StructureOne-step merger

Termination fee$35.0M

Reverse termination fee$70.0M

Go-shopNone

Outside dateDecember 5, 2017

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $21.75 offer

Selected companies — EV / CY2017E Adj. EBITDA $17.00 – $27.50

Selected companies — EV / CY2018E Adj. EBITDA $17.00 – $27.50

Precedent transactions — EV / LTM Adj. EBITDA (as of March 31, 2017) $15.75 – $27.00

Discounted cash flow $16.50 – $32.00

Historical Trading Range (52-week ending June 2, 2017) $12.50 – $20.50

Premiums in Selected Leveraged Buyout Transactions $15.25 – $21.75

Premiums in Selected All-Cash Transactions $15.75 – $22.00

Leveraged Buyout Analysis $16.00 – $26.25

Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.

Opinion of Credit Suisse to the special committee

Delivered June 5, 2017 · Fee $16.0M ($16.0M contingent on closing)

Discounted cash flow assumptions

Discount rate7.8%–9.8%

Basisestimate of AMRI's weighted average cost of capital

Terminal valuePerpetuity growth

Perpetuity growth2.0%–3.0%

Exit multiple—

Projection period9 months ending 12/31/2017 and FY2018-FY2021 plus normalized terminal year

Projections usedCompany Projections (AMRI management)

Implied value per share$16.50–$32.00

Perpetuity growth rate applied to normalized terminal year projected 2021E adjusted EBITDA; share-based compensation treated as a cash expense.

Selected public companies (5)

Patheon N.V. · Catalent, Inc. · Cambrex Corporation · Siegfried Holding · Recipharm AB

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2017E Adj. EBITDA	10.1x	12.8x	14.2x	10.0x–12.5x	$17.00–$27.50
EV / CY2018E Adj. EBITDA	9.9x	11.3x	13.2x	9.5x–11.5x	$17.00–$27.50

Selected precedent transactions (11)

Date	Target	Acquirer	Multiple
2017-05-15	Patheon N.V.	Thermo Fisher Scientific, Inc.	17.2x EV / LTM Adj. EBITDA
2016-12-15	Capsugel S.A.	Lonza Group AG	15.1x EV / LTM Adj. EBITDA
2016-06-01	PCI Pharma Services	Partners Group	10.5x EV / LTM Adj. EBITDA
2016-05-05	Prime European Therapeuticals S.p.A (Euticals)	Albany Molecular Research, Inc.	13.3x EV / LTM Adj. EBITDA
2016-04-18	Kemwell AB	Recipharm AB	15.5x EV / LTM Adj. EBITDA
2014-09-30	Aesica Pharmaceuticals Ltd.	Consort Medical plc	11.5x EV / LTM Adj. EBITDA
2013-11-19	Patheon N.V.	DPx Holdings B.V.	13.3x EV / LTM Adj. EBITDA
2013-11-19	DSM Pharmaceutical Products	DPx Holdings B.V.	12.6x EV / LTM Adj. EBITDA
2012-08-06	Aenova Group	BC Partners	9.4x EV / LTM Adj. EBITDA
2011-04-04	Capsugel S.A.	KKR & Co LP	11.3x EV / LTM Adj. EBITDA
2007-01-25	Cardinal Health, Inc. (Pharmaceutical Technologies and Services Segment (Catalent))	Blackstone Group	9.9x EV / LTM Adj. EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Adj. EBITDA (as of March 31, 2017)	9.4x	—	17.2x	10.5x–15.0x	$15.75–$27.00

Other analyses

Analysis	Summary	Implied per share
Historical Trading Range (52-week ending June 2, 2017)	Low and high intra-day trading prices of AMRI common stock for the 52-week period ending June 2, 2017 (rounded to nearest $0.25).	$12.50–$20.50
Premiums in Selected Leveraged Buyout Transactions	Applied 25th percentile premium (15%) and 75th percentile premium (63%) paid in selected LBO transactions with EV greater than $500 million to AMRI's April 5, 2017 closing price (date of Debtwire article).	$15.25–$21.75
Premiums in Selected All-Cash Transactions	Applied 25th percentile premium (17%) and 75th percentile premium (64%) paid in selected all-cash transactions with EV greater than $500 million to AMRI's April 5, 2017 closing price.	$15.75–$22.00
Leveraged Buyout Analysis	Assumed 6.5x maximum leverage, IRR of 17.5% to 22.5%, and exit multiple range of 9.5x to 12.5x normalized terminal year 2021E adjusted EBITDA.	$16.00–$26.25

Transaction fee currently estimated at approximately $16 million, contingent upon consummation of the merger; expense reimbursement and indemnification also provided. Credit Suisse disclosed prior fees of ~$55 million from Carlyle affiliates and ~$20 million from GTCR over the prior two years.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$804M	$875M	$921M	$972M	6.5%
Revenue growth	10.1%	8.8%	5.3%	5.5%
EBITDA	$171M	$206M	$222M	$248M	13.2%
EBITDA growth	22.1%	20.5%	7.8%	11.7%
EBITDA margin	21%	24%	24%	26%
Implied EV / EBITDA	9.4x	7.8x	7.2x	6.5x

Year-1 growth is against LTM at announcement ($730M revenue, $140M EBITDA); later years are year over year.

AMRI management prepared unaudited projections for fiscal years 2017 through 2021 plus a normalized terminal year, provided to the board, Credit Suisse, GTCR and Carlyle. Total revenue grows from $730 million in 2017E to $972 million in 2021E ($960 million normalized terminal year), with adjusted EBITDA of $140 million in 2017E rising to $248 million in 2021E ($236 million terminal year). Unlevered free cash flow (adjusted EBITDA less stock-based compensation, taxes, change in net working capital and capex) grows from $37 million in 2017E to $127 million in 2021E ($119 million terminal year). Credit Suisse used a 9-month stub for 2017 plus FY2018-FY2021 and a management estimate of the perpetuity growth rate.

Process notes

Going-private buyout by funds affiliated with The Carlyle Group and GTCR LLC; Parent/Merger Sub formed by GTCR. A Special Committee of the AMRI board ran the sale process with Credit Suisse as its financial advisor and Goodwin as counsel; Credit Suisse delivered the sole fairness opinion, to the Special Committee. Nine parties (all financial sponsors) were approached; no go-shop was ultimately included in the disclosed terms. Total funds required approximately $1.955 billion ($960 million debt financing, up to ~$995 million equity commitments). Credit Suisse disclosed substantial prior fees from Carlyle (~$55 million) and GTCR (~$20 million) affiliates over the prior two years.

Other Pharmaceutical Services fairness opinions

Parexel International / Pamplona Capital Management 2017 · 13.9x EV/EBITDA
Patheon NV / Thermo Fisher Scientific 2017 · 16.4x EV/EBITDA
Juniper Pharmaceuticals / Catalent 2018 · 9.9x EV/EBITDA
Quintiles / IMS Health 2016 · 10.8x EV/EBITDA
IMS Health / Quintiles 2016 · 13.5x EV/EBITDA
Cambrex / Permira Funds 2019 · 14.5x EV/EBITDA

All Pharmaceutical Services opinions → · Credit Suisse opinions