C. R. Bard acquired by Becton Dickinson: fairness opinion by Goldman Sachs
Deal terms
$222.93 in cash plus 0.5077 of a share of BD common stock per Bard share, subject to a cap on BD stock issuance of 19.9% of BD shares outstanding as of April 23, 2017 (exchange ratio adjusted downward with corresponding cash increase if exceeded). Implied value of $317.00 based on BD closing price of $185.29 on April 21, 2017; Bard holders to own approximately 15% of BD after closing.
Implied value per share by method vs. $222.93 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Goldman Sachs to the target board
Discounted cash flow assumptions
Mid-year convention; unlevered free cash flow from January 1, 2017 to December 31, 2021 discounted to present value as of December 31, 2016; Net Debt as of December 31, 2016 subtracted.
Selected public companies (9)
Abbott Laboratories · Baxter International Inc. · Becton, Dickinson and Company · Boston Scientific Corporation · Edwards Lifesciences Corporation · Medtronic, Inc. · Stryker Corporation · Teleflex Incorporated · Zimmer Biomet Holdings, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / 2017E adjusted EPS | 14.1x | 20.0x | 28.8x | — | — |
| 2017 P/E/G (P/E divided by long-term adjusted EPS growth rate) | 1.4x | 1.9x | 2.3x | 1.4x–2.3x | $156.92–$257.80 |
Selected precedent transactions (9)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-09-16 | Abbott Medical Optics (a subsidiary of Abbott Laboratories) | Johnson & Johnson | — |
| 2016-04-28 | St. Jude Medical Inc. | Abbott Laboratories | — |
| 2015-09-16 | Sirona Dental Systems, Inc. | Dentsply International Inc. | — |
| 2014-10-05 | CareFusion Corporation | BD | — |
| 2014-06-15 | Covidien plc | Medtronic Inc. | — |
| 2014-04-24 | Biomet Inc. | Zimmer Holdings Inc. | — |
| 2013-05-27 | Bausch & Lomb Holdings Inc. | Valeant Pharmaceuticals International Inc. | — |
| 2012-12-04 | Gambro AB | Baxter Healthcare Corporation | — |
| 2011-04-27 | Synthes, Inc. | Johnson & Johnson | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 12.2x | 14.8x | 19.8x | 12.2x–19.8x | $181.03–$296.17 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Analysis of Merger Consideration (implied multiples and premia) | Implied value of merger consideration of $317.00. EV/EBITDA (IBES): LTM 12/31/2016 21.2x; 2017E 19.0x (21.6x ex-Gore royalties); 2018E 17.6x (19.9x ex-Gore). EV/EBITDA (Forecasts): LTM 21.2x; 2017E 19.7x (22.5x ex-Gore); 2018E 18.3x (20.7x ex-Gore). P/E (IBES): 2017E 27.2x (30.9x ex-Gore); 2018E 24.7x (27.7x ex-Gore). P/E (Forecasts): 2017E 27.2x (30.9x ex-Gore); 2018E 24.8x (27.8x ex-Gore). Implied premia: 24.4% to all-time high closing price of $254.77; 26.7% to 30-day VWAP of $250.25; 30.2% to 90-day VWAP of $243.41; 39.5% to 1-year VWAP of $227.22; 27.8% to median analyst price target of $248.00. | — |
| Illustrative Present Value of Future Share Price Analysis | Applied forward P/E multiples of 18.0x to 22.0x to estimated adjusted EPS for 2018-2021 (Forecasts) to derive theoretical future share values at year-end 2017 through 2020, discounted (with projected dividends) at a 5.7% cost of equity to December 31, 2016. | $218.76–$299.55 |
| Implied Premia Paid Analysis (premium to 1 day prior) | Thomson Reuters data on U.S. public target transactions announced January 1, 2011 - April 21, 2017 with value of $15 billion or more (excluding 1-day premia above 200%): 75th percentile 41.0%, median 29.0%, 25th percentile 21.5%. Applied 21.5%-41.0% to Bard's April 21, 2017 closing price. | $307.48–$356.83 |
| Implied Premia Paid Analysis (premium to 52-week high) | Same transaction data set: 75th percentile 29.2%, median 15.0%, 25th percentile 2.2%. Applied 2.2%-29.2% to Bard's 52-week high as of April 21, 2017. | $260.37–$329.16 |
Engagement letter dated April 12, 2017; transaction fee estimated at approximately $51 million, all contingent upon consummation of the merger, plus expense reimbursement and indemnity. Goldman Sachs received approximately $0.2 million from Bard and approximately $3 million from BD for investment banking services in the two years ended April 23, 2017.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | — | — | — | — | — |
| Revenue growth | — | — | — | — | |
| EBITDA | $1.4B | $1.4B | $1.5B | $1.7B | 6.9% |
| EBITDA growth | 7.8% | 6.9% | 4.2% | 9.6% | |
| EBITDA margin | — | — | — | — | |
| Implied EV / EBITDA | 18.6x | 17.4x | 16.7x | 15.2x |
Year-1 growth is against LTM at announcement ($3.9B revenue, $1.3B EBITDA); later years are year over year.
Bard management prepared standalone "Forecasts" for fiscal years 2017E-2021E, provided to the Bard board, Goldman Sachs and BD management. EBITDA grows from $1,258 million in 2017E to $1,656 million in 2021E; adjusted EPS from $11.63 to $16.80; unlevered free cash flow from $633 million in 2017E to $937 million in 2021E (with $523 million in 2018E). EBITDA and adjusted EPS include W. L. Gore royalty payments (assumed to contribute $160 million of EBITDA and $1.39 of adjusted EPS in 2017 and 2018), which end in August 2019.
Process notes
Other Medical Devices and Supplies fairness opinions
- NxStage Medical / Fresenius Medical Care AG & Co. KGaA 2017 · 29.7x EV/EBITDA
- Exactech / TPG 2017 · 15.0x EV/EBITDA
- Entellus Medical / StrykerCorp. 2017
- Spectranetics / Philips 2017
- Miramar Labs / Sientra 2017
- ZELTIQ Aesthetics / Allergan 2017 · 32.9x EV/EBITDA
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