Fairness opinions › Diagnostics / Life Sciences › 2017

Alere acquired by Abbott Laboratories: fairness opinion by J.P. Morgan

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

Diagnostics / Life Sciences Diagnostic Tools

Enterprise value

$7.1B

EV / LTM EBITDA

14.3x

EBITDA $498M · 21% margin

EV / LTM revenue

2.95x

revenue $2.4B

DCF discount rate

8.3%–9.8%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$51.00

Premium—

Premium basis—

StructureOne-step merger

Termination fee$161M

Reverse termination fee—

Go-shopNone

Outside dateSeptember 30, 2017

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $51.00 offer

Selected companies — Firm Value / CY2017E EBITDA $30.50 – $49.50

Selected companies — Price (4/11/2017) / CY2017E cash earnings per share $31.25 – $47.75

Precedent transactions — Firm Value / LTM EBITDA $38.00 – $51.50

Discounted cash flow $29.25 – $47.75

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

Opinion of J.P. Morgan to the target board

Delivered April 13, 2017 · Fee $42.0M ($37.0M contingent on closing), $5.0M on delivery of the opinion

Discounted cash flow assumptions

Discount rate8.3%–9.8%

Basisweighted average cost of capital of the Company

Terminal valuePerpetuity growth

Perpetuity growth1.5%–2.5%

Exit multiple—

Projection period2017E-2026E

Projections usedManagement Case Forecasts (2017-2020) and Forecast Extrapolations (2021-2026) approved by Company management

Implied value per share$29.25–$47.75

Included tax benefit of $69 million from certain tax attributes (NOLs of $176 million and R&D tax credit of $7 million); terminal value calculated as of December 31, 2026; Firm Value adjusted for net cash, debt and minority interest as of December 31, 2016 and divided by fully diluted shares outstanding as of February 28, 2017.

Selected public companies (17)

Agilent Technologies, Inc. · bioMérieux S.A. · Bio-Rad Laboratories, Inc. · Bio-Techne Corporation · Bruker Corporation · DiaSorin S.p.A. · Hologic, Inc. · Illumina, Inc. · Laboratory Corporation of America Holdings · Meridian Bioscience, Inc. · Mettler-Toledo International Inc. · OraSure Technologies, Inc. · PerkinElmer, Inc. · QIAGEN N.V. · Quest Diagnostics Incorporated · Thermo Fisher Scientific Inc. · Waters Corporation

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
Firm Value / CY2017E EBITDA	10.1x	14.8x	22.5x	11.0x–15.0x	$30.50–$49.50
Price (4/11/2017) / CY2017E cash earnings per share	14.9x	22.2x	32.3x	15.0x–23.0x	$31.25–$47.75

Selected precedent transactions (29)

Date	Target	Acquirer	Multiple
2016-09	Cepheid	Danaher Corporation	—
2016-05	FEI Company, Inc.	Thermo Fisher Scientific Inc.	19.7x Firm Value / LTM EBITDA
2016-05	PTS Diagnostics	Sinocare Inc.	—
2016-03	The Focus Diagnostics products division of Quest Diagnostics Incorporated	Diasorin S.p.A	12.5x Firm Value / LTM EBITDA
2014-06	Sebia, Inc.	Montagu Private Equity	14.7x Firm Value / LTM EBITDA
2014-06	Genia Technologies, Inc.	Roche Holding AG	—
2014-04	iQuum, Inc.	Roche Holding AG	—
2014-01	Ortho-Clinical Diagnostics, Inc.	The Carlyle Group	—
2013-09	Biofire Diagnostics, Inc.	bioMérieux SA	—
2013-07	Constitution Medical Investors, Inc.	Roche Holding AG	—
2013-02	HemoCue AB	Danaher Corporation	—
2013-02	Epocal, Inc.	Alere, Inc.	—
2013-01	Verinata Health, Inc.	Illumina, Inc.	—
2012-09	Iris International, Inc.	Danaher Corporation	28.1x Firm Value / LTM EBITDA
2012-07	One Lambda, Inc.	Thermo Fisher Scientific, Inc.	10.9x Firm Value / LTM EBITDA
2012-05	Dako Diagnostics Ltd.	Agilent Technologies, Inc.	—
2012-04	Gen Probe Inc.	Hologic, Inc.	18.6x Firm Value / LTM EBITDA
2011-10	Axis Shield plc	Alere, Inc.	15.7x Firm Value / LTM EBITDA
2011-04	Cellestis Ltd.	Qiagen N.V.	34.0x Firm Value / LTM EBITDA
2011-07	Immucor, Inc.	TPG Capital	13.5x Firm Value / LTM EBITDA
2011-07	mtm laboratories AG	Roche Holding AG	—
2011-05	Phadia AB	Thermo Fisher Scientific, Inc.	17.9x Firm Value / LTM EBITDA (full year 2010)
2011-03	Celera Corporation	Quest Diagnostics, Inc.	—
2011-02	Beckman Coulter, Inc.	Danaher Corporation	8.1x Firm Value / LTM EBITDA
2011-02	Athena Diagnostics, Inc.	Quest Diagnostics, Inc.	—
2011-01	Genoptix, Inc.	Novartis AG	7.0x Firm Value / LTM EBITDA
2010-10	Clarient, Inc.	General Electric Company	—
2010-03	Sebia, Inc.	Cinven Group, Ltd.	—
2010-01	Diagnostic Hybrids, Inc.	Quidel Corporation	14.0x Firm Value / LTM operating profit

Multiple	Low	Median	High	Range applied	Implied per share
Firm Value / LTM EBITDA	7.0x	—	34.0x	13.0x–16.0x	$38.00–$51.50

Approximately $42 million total fee; $5 million paid in connection with the rendering of J.P. Morgan's opinion dated January 30, 2016 and the public announcement of the merger; approximately $37 million payable only if the merger is completed. J.P. Morgan received no fee for its April 13, 2017 opinion. Aggregate fees received in prior two years: $11.4 million from the Company and $5.0 million from Abbott. A J.P. Morgan affiliate is a lender to the Company (~$123 million).

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Management projections

Projection year	Year 1	Year 2	Year 3	CAGR
Revenue	$2.5B	$2.7B	$2.8B	5.1%
Revenue growth	6.0%	5.5%	4.8%
EBITDA	$575M	$653M	$709M	11.0%
EBITDA growth	15.5%	13.6%	8.6%
EBITDA margin	23%	24%	25%
Implied EV / EBITDA	12.3x	10.9x	10.0x

Year-1 growth is against LTM at announcement ($2.4B revenue, $498M EBITDA); later years are year over year.

Management Case Forecasts prepared by Alere management on a standalone basis covered fiscal years 2017E-2020E: revenue of $2,403 million in 2017E growing to $2,816 million in 2020E, Adjusted EBITDA of $498 million in 2017E rising to $709 million in 2020E, and unlevered free cash flow of $142 million in 2017E rising to $411 million in 2020E. Forecast Extrapolations, prepared at J.P. Morgan's request to support a longer-term DCF, projected unlevered free cash flow of $438 million in 2021E rising to $545 million in 2026E. J.P. Morgan was directed by management to rely solely on these Financial Forecasts.

Process notes

This proxy relates to the amended transaction: the original merger agreement (January 30, 2016) provided $56.00 per share with a $177 million termination fee; the April 13, 2017 merger agreement amendment reduced the price to $51.00 per share, reduced the termination fee to $161 million, and extended the outside date to September 30, 2017. J.P. Morgan delivered an original opinion dated January 30, 2016 (for which it was paid $5 million) and a second opinion dated April 13, 2017 (oral April 12, 2017, confirmed in writing April 13, 2017) following the price reduction, for which it received no additional fee. J.P. Morgan disclosed a potential conflict: an affiliate is a lender under Alere's revolving credit facility and Term Loan A (approximately $123 million), and consummation may inure to its financial benefit. Alere also has Series B Convertible Perpetual Preferred Stock (NYSE: ALRpB); the opinion covered only the common stock consideration. J.P. Morgan's implied value ranges from all three analyses fell below the $51.00 merger consideration.

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