Apollo Medical Holdings acquired by Network Medical Management: fairness opinion by BofA Securities and Vantage Point Advisors
Deal terms
All-stock reverse-merger: each share of NMM common stock converted into shares of ApolloMed common stock at an assumed exchange ratio of 0.07002656301 (rounded 0.070x); NMM shareholders to own approximately 80%+ of the combined company on a fully diluted basis (roughly 82% pro forma ownership per BofA contribution analysis; 72% immediate post-deal ownership plus a 10% share holdback per Vantage Point). NMM survives as a wholly owned subsidiary of ApolloMed.
Opinion of BofA Securities to the acquirer board
Discounted cash flow assumptions
Discounted to present value as of September 30, 2016. ApolloMed total implied per share range $7.60-$9.20 (implied equity value $63.1-$77.9mm); ApolloMed ex-50% NGACO $3.73-$4.15; 50% of NGACO $3.86-$5.06 ($32-$43mm); NMM implied equity value $274-$379mm (NMM ex-50% NGACO $242-$336mm).
Selected public companies (7)
DaVita Inc. · Envision Healthcare Corporation · MEDNAX Inc · Team Health Holdings Inc. · American Renal Associates LLC · Diplomat Pharmacy, Inc. · ExamWorks, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| 2017E EV / EBITDA - Physician Services Sector peers | 8.4x | 8.9x | 10.4x | 8.0x–9.0x | $4.75–$5.20 |
| 2017E EV / EBITDA - High Growth Healthcare Services peers | 8.7x | 9.0x | 11.1x | 8.0x–9.0x | — |
| 2016E-2018E Revenue CAGR - PSS | 0.1x | 0.1x | 0.1x | — | — |
| 2016E-2018E Revenue CAGR - HG | 0.1x | 0.1x | 0.2x | — | — |
| 2016E-2018E EBITDA CAGR - PSS | 0.0x | 0.1x | 0.1x | — | — |
| 2016E-2018E EBITDA CAGR - HG | 0.1x | 0.1x | 0.2x | — | — |
| 2017E EBITDA Margin - PSS | 0.1x | 0.2x | 0.2x | — | — |
| 2017E EBITDA Margin - HG | 0.0x | 0.2x | 0.3x | — | — |
| 2016E-2018E EPS CAGR - PSS | 0.1x | 0.1x | 0.2x | — | — |
| 2016E-2018E EPS CAGR - HG | 0.1x | 0.1x | 0.5x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Relative Valuation (implied exchange ratios) | Implied exchange ratio reference ranges of 0.104x-0.129x based on selected publicly traded companies analysis and 0.054x-0.092x based on the discounted cash flow analysis, compared to the assumed exchange ratio of 0.070x. | — |
| Contribution Analysis | Relative contributions of ApolloMed and NMM to combined company revenue, EBITDA and net income (each less NCI) for CY2017-CY2019. Implied exchange ratios: revenue less NCI 0.021x in each of 2017E-2019E; EBITDA less NCI 0.122x (2017E), 0.055x (2018E), 0.046x (2019E); net income less NCI 0.138x (2017E), 0.043x (2018E), 0.034x (2019E). Pro forma ownership 18% ApolloMed / 82% NMM at the assumed 0.070x ratio. | — |
| Pro Forma Accretion/Dilution Analysis | Merger could be accretive to ApolloMed's estimated CY2017 EPS by $0.35 and dilutive to CY2018 EPS by $0.10 and CY2019 EPS by $0.33. | — |
| Other Factors - historical trading | Reviewed historical trading prices and volumes of ApolloMed common stock during the one-year period ended December 20, 2016. | — |
$750,000 payable on rendering of the opinion; $2,000,000 payable immediately prior to or upon closing; plus an additional discretionary fee of up to $500,000 determined in ApolloMed's sole discretion payable at closing. Expense reimbursement and indemnification also provided.
Opinion of Vantage Point Advisors to the target board
Discounted cash flow assumptions
NMM: BEV from operations $153.0-$176.0mm; after adding cash of $35.0mm, ApolloMed preferred stock held by NMM of $17.1mm, ApolloMed warrants of $5.5mm and NMM's 50% NGACO interest of $43.0-$50.0mm, equity value $254.0-$284.0mm. ApolloMed: BEV $36.0-$41.0mm; equity value $79.0-$91.0mm after adding 50% NGACO interest of $43.0-$50.0mm and less related party payable of $201 thousand. Combined entity: BEV $226.0-$274.0mm; implied combined equity value $322.0-$384.0mm; post-deal consideration to NMM $284.0-$334.0mm. NGACO: BEV $86.0-$100.0mm. Terminal capitalization rates: NMM 11.0%-13.0%; ApolloMed 15.5%-17.5%; combined 11.0%-13.0%; NGACO 17.0%-19.0%.
Selected public companies (12)
AMN Healthcare Services, Inc. · Diversicare Healthcare Services, Inc. · Genesis Healthcare, Inc. · Kindred Healthcare, Inc. · LHC Group, Inc. · Pacific Health Care Organization, Inc. · Quorum Health Corporation · Select Medical Holdings Corporation · Surgical Care Affiliates, Inc. · Team Health Holdings, Inc. · The Ensign Group, Inc. · The Providence Service Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| BEV / LTM Revenue | 0.3x | 1.0x | 2.9x | — | — |
| BEV / LFY Revenue | 0.3x | 1.0x | 3.4x | — | — |
| BEV / Forward FY1 Revenue | 0.5x | 1.0x | 2.7x | — | — |
| BEV / Forward FY2 Revenue | 0.6x | 0.9x | 2.4x | — | — |
| BEV / LTM EBITDA | 5.0x | 10.3x | 14.6x | — | — |
| BEV / LFY EBITDA | 1.9x | 10.1x | 16.2x | — | — |
| BEV / Forward FY1 EBITDA | 4.2x | 10.3x | 25.0x | — | — |
| BEV / Forward FY2 EBITDA | 4.3x | 9.3x | 23.0x | — | — |
Selected precedent transactions (27)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-06-15 | Envision Healthcare Holdings, Inc. | <UNKNOWN> | 12.6x EV / EBITDA |
| 2016-08-29 | USMD Holdings, Inc. | <UNKNOWN> | — |
| 2016-09-23 | VEGA Medical Professionals LLC | <UNKNOWN> | 30.0x EV / EBITDA |
| 2015-09-16 | Alliance Healthcare Services, Inc. | <UNKNOWN> | 6.5x EV / EBITDA |
| 2015-11-17 | B. E. Smith, Inc. | <UNKNOWN> | — |
| 2015-12-01 | Allied Healthcare International Inc. | <UNKNOWN> | — |
| 2015-07-10 | IPC Healthcare, Inc. | <UNKNOWN> | 22.0x EV / EBITDA |
| 2015-10-13 | Recruitment Group PS | <UNKNOWN> | 26.7x EV / EBITDA |
| 2015-05-20 | Omnicare Inc. | <UNKNOWN> | 15.0x EV / EBITDA |
| 2015-03-22 | Concentra, Inc. | <UNKNOWN> | — |
| 2015-05-14 | Healthcare Business Insights, LLC | <UNKNOWN> | — |
| 2015-03-17 | Physicians Practice Plus Inc. | <UNKNOWN> | 9.1x EV / EBITDA |
| 2015-01-19 | VISTA Staffing Solutions, Inc. | <UNKNOWN> | — |
| 2014-11-26 | Athas Health, LLC | <UNKNOWN> | 20.6x EV / EBITDA |
| 2014-03-13 | Conemaugh Health System, Inc. | <UNKNOWN> | — |
| 2014-05-29 | Sheridan Healthcare, Inc. | <UNKNOWN> | 19.1x EV / EBITDA |
| 2014-06-02 | Medical Staffing Network Healthcare, LLC | <UNKNOWN> | — |
| 2014-06-10 | Phoenix Physicians, LLC | <UNKNOWN> | 15.6x EV / EBITDA |
| 2014-05-16 | Health Advocate, Inc. | <UNKNOWN> | — |
| 2014-03-31 | CDMI, LLC | <UNKNOWN> | 10.1x EV / EBITDA |
| 2014-02-27 | KnowledgePoint360 Group LLC | <UNKNOWN> | 7.2x EV / EBITDA |
| 2013-12-02 | Allied Healthcare Staffing Division | <UNKNOWN> | — |
| 2012-08-19 | Coventry Health Care Inc. | <UNKNOWN> | 6.3x EV / EBITDA |
| 2012-05-20 | HealthCare Partners, LLC | <UNKNOWN> | 8.9x EV / EBITDA |
| 2011-10-24 | HealthSpring Inc. | <UNKNOWN> | 6.2x EV / EBITDA |
| 2011-09-18 | Midwest Health Plan, Inc. | <UNKNOWN> | — |
| 2010-08-26 | Bravo Health, Inc. | <UNKNOWN> | 6.7x EV / EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / Revenue and EV / EBITDA applied to NMM (31 selected transactions) | — | — | — | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Guideline Company Analysis - NMM | Trailing and forward revenue and EBITDA multiples from 12 guideline companies produced unadjusted BEV of $207.0-$222.0 million; after adding cash of $35.0mm, ApolloMed preferred stock of $18.0mm, warrants of $6.1mm and NMM's 50% NGACO interest of $43.0-$50.0mm, equity value range of $309.0-$331.0 million. | — |
| Guideline Company Analysis - ApolloMed | Revenue and FY2 EBITDA multiples produced unadjusted BEV of $40.0-$48.0 million; after adjustments (zero cash, less $201 thousand related party payable, plus 50% ACO interest of $43.0-$50.0mm), equity value range of $83.0-$98.0 million. | — |
| Guideline Company Analysis - combined entity | Combined enterprise value $247.0-$270.0 million; with cash of $10.0mm and ACO value of $86.0-$100.0mm, implied combined equity value $343.0-$380.0 million; post-deal consideration to NMM of $301.0-$331.0 million after 72% post-deal ownership, present value of 10% share holdback of $32.0-$35.0mm, $25.0mm cash dividend, $3.7mm net warrant value and less $6.6mm option dilution. | — |
| Market Transaction Analysis - NMM | 31 selected transactions produced unadjusted BEV of $208.0-$224.0 million; after adjustments (cash $35.0mm, ApolloMed preferred $18.1mm, warrants $6.1mm, 50% NGACO interest $43.0-$50.0mm), equity value range of $310.0-$333.0 million. | — |
| Market Transaction Analysis - ApolloMed | 31 selected transactions produced unadjusted BEV of $40.0-$49.0 million; after adjustments, equity value range of $83.0-$99.0 million. | — |
| Market Transaction Analysis - combined entity | Combined enterprise value $248.0-$273.0 million; with cash of $10.0mm and ACO value of $86.0-$100.0mm, implied combined equity value $344.0-$383.0 million; post-deal consideration to NMM of $302.0-$333.0 million. | — |
| Public Stock Price consideration | Vantage Point concluded the public stock price was not a good indicator of ApolloMed value due to lack of public information on the ACO, lack of trading liquidity, small public float outside insiders and no equity analyst coverage. | — |
| Valuation of the NGACO (DCF) | DCF of the 50/50 NGACO joint venture using 2017-2019 management projections plus two smoothing years, WACC of 20.0%-22.0%, 3.0% sustainable growth (terminal cap rate 17.0%-19.0%), producing business enterprise value of $86.0-$100.0 million. | — |
Aggregate fee of $410,000 for services in connection with the Merger; fee not contingent on issuance of a favorable fairness opinion. Vantage Point received no other compensation from NMM or its affiliates during the last two years. Expense reimbursement and indemnification also provided.
Management projections
BofA Merrill Lynch relied on NMM management forecasts for NMM and ApolloMed management forecasts plus separate NGACO forecasts (and cost savings and NOL utilization projections) for ApolloMed, covering the last quarter of 2016 through calendar year 2025 for DCF purposes. Comparable company work used CY2016E-CY2018E revenue, EBITDA and EPS CAGRs and CY2017E EBITDA; ApolloMed showed a 291.7% 2016E-2018E revenue CAGR and 2.9% 2017E EBITDA margin versus NMM's 8.0% revenue CAGR and 14.4% EBITDA margin. Vantage Point relied on NMM management projections for 2016-2019 (adding a smoothing year with 2020 EBITDA of $35.0 million), ApolloMed management probability-adjusted projections for fiscal years ending March 2017-March 2019 (adding two smoothing years with 2021 EBITDA of $11.0 million), combined-entity projections for 2016-2019 (2020 EBITDA of $48.0 million) and NGACO projections for 2017-2019.
Process notes
Other Managed Care fairness opinions
- Universal American / WellCare Health Plans 2016 · 9.3x EV/EBITDA
- Aetna / CVS Health 2017 · 12.1x EV/EBITDA
- Health Net / Centene 2015 · 9.3x EV/EBITDA
- Catamaran / United HealthGroup 2015 · 15.2x EV/EBITDA
- Express Scripts Holding / Cigna 2018 · 11.6x EV/EBITDA
- WellCare Health Plans / Centene 2019 · 14.5x EV/EBITDA
All Managed Care opinions → · BofA Securities opinions · Vantage Point Advisors opinions