Fairness opinions › Pharmaceutical Services › 2019

Cambrex acquired by Permira Funds: fairness opinion by Morgan Stanley

Announced August 7, 2019 · One-step merger · All cash · DEFM14A filed September 23, 2019

Pharmaceutical Services CDMO Sponsor: Permira Funds (Permira VII L.P.1 and Permira VII L.P.2 SCSp)

Enterprise value

$2.4B

EV / LTM EBITDA

14.5x

EBITDA $166M · 25% margin

EV / LTM revenue

3.55x

revenue $677M

DCF discount rate

7.5%–8.4%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$60.00

Premium—

Premium basis—

StructureOne-step merger

Termination fee$61.6M (2.0% of equity)

Reverse termination fee$123M

Go-shop46 days · $25.7M reduced fee

Outside dateMay 7, 2020

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $60.00 offer

Selected companies — AV / CY2019E EBITDA (Case A Projections) $28.00 – $50.00

Selected companies — AV / CY2020E EBITDA (Case A Projections) $26.00 – $45.00

Selected companies — AV / CY2019E EBITDA (Case B Projections) $26.00 – $47.00

Selected companies — AV / CY2020E EBITDA (Case B Projections) $26.00 – $46.00

Precedent transactions — AV / LTM EBITDA (LTM EBITDA as of June 30, 2019 of $153 million) $32.00 – $59.00

Discounted cash flow $47.00 – $72.00

Precedent Premiums Paid Analysis $49.00 – $59.00

Illustrative Leveraged Buyout Analysis (reference only) $49.00 – $60.00

Equity Research Analysts' Price Targets (reference only) $40.00 – $51.00

Historical Trading Range (reference only) $36.00 – $68.00

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

Opinion of Morgan Stanley to the target board

Delivered August 6, 2019 · Fee $20.5M ($19.0M contingent on closing), $1.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate7.5%–8.4%

BasisCompany's estimated weighted average cost of capital (WACC)

Terminal valuePerpetuity growth

Perpetuity growth2.0%–2.5%

Exit multiple—

Projection period2H2019E-2024E

Projections usedManagement Projections (Case A and Case B)

Implied value per share$47.00–$72.00

Unlevered free cash flows for the last two quarters of 2019 and calendar years 2020-2024, discounted to present value as of June 30, 2019; terminal value from perpetual growth applied to normalized 2024 unlevered free cash flow. Case A Projections implied $47.00-$63.00 per share; Case B Projections implied $54.00-$72.00 per share.

Selected public companies (3)

Consort Medical plc · Recipharm Limited · Siegfried Group

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
AV / CY2019E EBITDA (Case A Projections)	8.2x	9.9x	13.2x	8.5x–13.0x	$28.00–$50.00
AV / CY2020E EBITDA (Case A Projections)	7.9x	8.9x	11.8x	8.0x–12.0x	$26.00–$45.00
AV / CY2019E EBITDA (Case B Projections)	8.2x	9.9x	13.2x	8.5x–13.0x	$26.00–$47.00
AV / CY2020E EBITDA (Case B Projections)	7.9x	8.9x	11.8x	8.0x–12.0x	$26.00–$46.00

Selected precedent transactions (17)

Date	Target	Acquirer	Multiple
2007-01-25	Cardinal Health PTS (Catalent)	The Blackstone Group	10.3x AV / LTM EBITDA
2011-04-04	Capsugel S.A.	Kohlberg Kravis Roberts & Co L.P.	10.9x AV / LTM EBITDA
2011-05-09	Elan Drug Technologies	Alkermes plc	9.8x AV / LTM EBITDA
2011-08-22	Aptuit LLC, Clinical Trial Supplies Business	Catalent Pharma Solutions, Inc.	10.3x AV / LTM EBITDA
2012-08-06	Aenova	BC Partners, The Carlyle Group L.P.	11.2x AV / LTM EBITDA
2012-12-24	Qualicaps	Mitsubishi Chemical Holdings	10.3x AV / LTM EBITDA
2013-07-29	Santa Cruz Nutritionals	RoundTable Healthcare Partners	10.5x AV / LTM EBITDA
2013-10-02	Acino Holding AG	Nordic Capital / Avista Capital Partners / Ardian	11.8x AV / LTM EBITDA
2014-07-28	Penn Pharmaceutical Services Limited	PCI Pharma Services	16.2x AV / LTM EBITDA
2014-09-30	Aesica Pharmaceuticals Limited	Consort Medical plc	11.5x AV / LTM EBITDA
2015-05-05	Prime European Therapeuticals S.p.A.	AMRI Global	13.3x AV / LTM EBITDA
2016-06-01	PCI Pharma Services	Partners Group	10.5x AV / LTM EBITDA (approximately 10.5x)
2016-12-15	Capsugel S.A.	Lonza Group AG	15.1x AV / LTM EBITDA
2017-05-15	Pantheon N.V.	Thermo Fisher Scientific Inc.	17.3x AV / LTM EBITDA
2017-06-06	Albany Molecular Research, Inc.	GTCR, LLC, The Carlyle Group L.P.	13.6x AV / LTM EBITDA
2018-07-23	Halo Pharmaceutical, Inc.	Cambrex Corporation	15.7x AV / LTM EBITDA
2018-11-20	Avista Pharma Solutions, Inc.	Cambrex Corporation	16.8x AV / LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
AV / LTM EBITDA (LTM EBITDA as of June 30, 2019 of $153 million)	9.8x	—	17.3x	10.0x–16.0x	$32.00–$59.00

Other analyses

Analysis	Summary	Implied per share
Precedent Premiums Paid Analysis	Premiums paid in bids for control of U.S. public targets with aggregate value of $1.0 billion or more announced on or before March 31, 2019 (all cash, all stock and mixed consideration; excluding outliers, terminated deals, ESOPs, self-tenders, spin-offs, buybacks, minority interest deals, exchange offers, recapitalizations and restructurings), measured against the unaffected price four weeks prior. Applied a 20%-45% premium range to the Company share price as of August 5, 2019.	$49.00–$59.00
Illustrative Leveraged Buyout Analysis (reference only)	Hypothetical LBO assuming a June 30, 2019 transaction date, 5.5-year investment period to December 31, 2024, 7.2x gross debt to leverageable EBITDA of $157 million (5.6x first lien term loan at LIBOR+4.00%, 1.6x second lien at LIBOR+7.00%), AV/NTM EBITDA exit multiples of 10.0x-12.0x and a 15.0% target IRR. Implied $49.00-$57.00 per share on Case A Projections and $52.00-$60.00 per share on Case B Projections.	$49.00–$60.00
Equity Research Analysts' Price Targets (reference only)	Undiscounted analyst price targets as of August 5, 2019 ranged from $44.00 to $55.00 per share; discounted to present value for one year at an 8.7% cost of equity, the range was $40.00 to $51.00 per share.	$40.00–$51.00
Historical Trading Range (reference only)	High and low closing prices of Company Common Stock for the period August 5, 2018 through August 5, 2019 were $68.00 and $36.00 per share, respectively.	$36.00–$68.00

Approximately $20.5 million total fee for financial advisory services; approximately $1.5 million payable upon delivery of the fairness opinion and approximately $19.0 million contingent upon consummation of the Merger, plus expense reimbursement and indemnification. Morgan Stanley received approximately $30 million in fees from Permira or its affiliates in the two years prior to the opinion.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$695M	$789M	$876M	$974M	$1.0B	10.1%
Revenue growth	2.7%	13.5%	11.0%	11.2%	5.0%
EBITDA	$165M	$205M	$238M	$278M	$301M	16.2%
EBITDA growth	-0.6%	24.2%	16.1%	16.8%	8.3%
EBITDA margin	24%	26%	27%	29%	29%
Implied EV / EBITDA	14.5x	11.7x	10.1x	8.6x	8.0x

Year-1 growth is against LTM at announcement ($677M revenue, $166M EBITDA); later years are year over year.

Company management prepared two sets of non-public projections for calendar years 2019-2024: Case A (developed in the annual strategic planning process, presented to the Board on May 23 and June 25, 2019) and Case B (developed by executive management for the strategic process, presented June 25, 2019 and the only case shared with Permira). Case A showed net revenue growing from $677 million in 2019E to $1,023 million in 2024E (8.6% CAGR) with Adjusted EBITDA of $166 million rising to $301 million (12.7% CAGR) and unlevered free cash flow of $57 million to $160 million. Case B showed net revenue of $668 million in 2019E to $1,023 million in 2024E (8.9% CAGR), Adjusted EBITDA of $157 million rising to $315 million (15% CAGR) and unlevered free cash flow of $57 million to $180 million; both cases were used by Morgan Stanley in its analyses.

Process notes

Single financial advisor (Morgan Stanley) to the Cambrex Board; an ad hoc committee of convenience (Louis Grabowsky, Ilan Kaufthal, Shlomo Yanai) was formed to manage the process rather than a formal special committee. Pre-signing process was limited to Permira and one other party ('Party B'), followed by a post-signing go-shop period running to 12:01 a.m. on September 22, 2019, with Excluded Party negotiations permitted until the October 7, 2019 Cut-Off Time. Permira Funds provided a $1,382 million equity commitment and signed a Fee Funding Agreement backstopping the $123,200,859 Parent Termination Fee. Morgan Stanley disclosed approximately $30 million of fees from Permira and its affiliates in the prior two years.

Other Pharmaceutical Services fairness opinions

Juniper Pharmaceuticals / Catalent 2018 · 9.9x EV/EBITDA
PPD / Thermo Fisher Scientific 2021 · 20.3x EV/EBITDA
PRA Health Sciences / ICON 2021 · 19.2x EV/EBITDA
Albany Molecular Research / Carlyle Group / GTCR 2017 · 11.5x EV/EBITDA
Parexel International / Pamplona Capital Management 2017 · 13.9x EV/EBITDA
Patheon NV / Thermo Fisher Scientific 2017 · 16.4x EV/EBITDA

All Pharmaceutical Services opinions → · Morgan Stanley opinions