American Medical Alert acquired by Tunstall Healthcare Group: fairness opinion by Houlihan Lokey
Deal terms
CVR: One contingent payment right (CPR) per share: pro rata portion of the first $5 million, plus 66.66% of proceeds in excess of $5 million, received from a Lifecomm LLC liquidity event (sale, IPO or liquidation of AMAC's interest in Lifecomm); alternatively, upon a change of control of Tunstall prior to a Lifecomm liquidity event, holders may elect $0.50 per CPR if certain financial hurdles relating to AMAC's Lifecomm interest are met. CPRs are non-transferable except in limited circumstances.
$8.55 in cash, without interest, plus one contingent payment right per share of AMAC common stock.
Implied value per share by method vs. $8.55 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Houlihan Lokey to the target board
Discounted cash flow assumptions
Present values calculated as of September 1, 2011; terminal value derived by applying perpetuity growth rates to fiscal year 2015 estimated unlevered free cash flow.
Selected public companies (5)
AlarmForce Industries Inc. · CIBER, Inc. · Convergys Corporation · Sykes Enterprises, Incorporated · TeleTech Holdings Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Adjusted EBITDA | 3.2x | 5.7x | 11.6x | 6.0x–7.0x | $5.77–$6.65 |
| EV / NFY (CY2011E) Adjusted EBITDA | 3.9x | 4.9x | 12.4x | 5.5x–6.5x | $5.78–$6.74 |
Selected precedent transactions (17)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| — | Monitronics International, Inc. | Ascent Media Corporation | — |
| — | Protection One, Inc. | GTCR Golder Rauner II, L.L.C. | — |
| — | Brink's Home Security Holdings, Inc. (Broadview Security) | Tyco International Ltd. | — |
| — | The Brink's Company | Brink's Home Security Holdings, Inc. (spinoff) | — |
| — | Health Watch Holdings, Inc. | Koninklijke Philips Electronics N.V. | — |
| — | Integrated Alarm Services Group, Inc. | Protection One, Inc. | — |
| — | Lifeline Systems, Inc. | Koninklijke Philips Electronics N.V. | — |
| — | APAC Customer Services, Inc. | NCO Group, Inc. | — |
| — | MedComm Solutions, LLC | Dohmen Company | — |
| — | Actionline De Argentina S.A. | Aegis Limited | — |
| — | DecisionOne Corp. | Glodyne Technoserve Limited | — |
| — | Morse plc | 2e2 Limited | — |
| — | ICT Group, Inc. | Sykes Enterprises, Incorporated | — |
| — | eTelecare Global Solutions, Inc. | Stream Global Services, Inc. | — |
| — | UCMS Group Ltd. | Aegis BPO Services Australia Pty Limited | — |
| — | Kurtzman Carson Consultants, LLC | Computershare Limited | — |
| — | West Corporation | Quadrangle Group LLC and Thomas H. Lee Partners, L.P. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| TV / LTM Adjusted EBITDA | 3.8x | 7.2x | 19.0x | 7.0x–8.0x | $6.65–$7.54 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Review of historical trading prices and volumes | Houlihan Lokey reviewed current and historical market prices and trading volume for AMAC common stock and current and historical market prices of publicly traded securities of certain other companies deemed relevant. No implied per share range was disclosed. | — |
| Third-party solicitation process | Houlihan Lokey considered the results of the third-party solicitation process conducted by AMAC, with Houlihan Lokey's assistance, with respect to a possible sale of AMAC. | — |
Aggregate fee of $1.5 million for financial advisory services, portions of which were payable during the course of the engagement and for rendering the opinion and were not contingent on completion of the merger or the conclusion of the opinion; $1.125 million contingent upon completion of the merger. Expense reimbursement and indemnification also provided.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $49.8M | $56.8M | $65.5M | $76.6M | 15.4% |
| Revenue growth | 12.7% | 14.1% | 15.3% | 16.9% | |
| EBITDA | $11.2M | $13.1M | $15.6M | $17.8M | 16.7% |
| EBITDA growth | 15.5% | 17.0% | 19.1% | 14.1% | |
| EBITDA margin | 22% | 23% | 24% | 23% | |
| Implied EV / EBITDA | 7.3x | 6.3x | 5.3x | 4.6x |
Year-1 growth is against LTM at announcement ($44.2M revenue, $9.7M EBITDA); later years are year over year.
AMAC management prepared five-year stand-alone projections (fiscal 2011E-2015E) on August 22, 2011; these "updated" projections (more aggressive than the base case and less aggressive than the high case previously given to Tunstall) were the only ones the board considered and were the ones Houlihan Lokey was instructed to use. Revenue grows from $44.2 million in 2011E to $76.6 million in 2015E (14.7% CAGR), with adjusted EBITDA rising from $9.7 million (21.9% margin) to $17.8 million (23.3% margin) and net income from $3.9 million to $9.2 million. Projected unlevered free cash flow used in the DCF was $1.7 million for the four months ending December 31, 2011, then $5.1 million (2012E), $5.8 million (2013E), $6.8 million (2014E) and $7.4 million (2015E); Lifecomm results and future acquisitions were excluded.
Process notes
Other Medical Devices and Supplies fairness opinions
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
- SonoSite / FUJIFILM Holdings 2011 · 21.1x EV/EBITDA
- Synovis Life Technologies / Baxter International 2011 · 17.1x EV/EBITDA
- Kinetic Concepts / Apax Partners, CPPIB and PSP Investments 2011 · 9.7x EV/EBITDA
- Orthovita / StrykerCorp. 2011 · 18.1x EV/EBITDA
- American Medical Systems / Endo Pharmaceuticals 2011 · 15.2x EV/EBITDA
All Medical Devices and Supplies opinions → · Houlihan Lokey opinions