Fairness opinions › Medical Devices and Supplies › 2021

Cantel Medical acquired by STERIS: fairness opinion by Centerview Partners

Announced January 12, 2021 · Merger · Cash and stock · DEFM14A filed April 1, 2021

Medical Devices and Supplies Medical Equipment

Enterprise value

$4.3B

EV / LTM EBITDA

16.2x

EBITDA $267M · 22% margin

EV / LTM revenue

3.63x

revenue $1.2B

DCF discount rate

9.3%–10.0%

Perpetuity growth

Deal terms

ConsiderationCash and stock

Price per share$16.93

Premium—

Premium basis—

StructureMerger

Termination fee$127M

Reverse termination fee—

Go-shopNone

Outside dateOctober 12, 2021

FilingDEFM14A · EDGAR index

Each share converted into $16.93 in cash plus 0.33787 STERIS Shares; implied value of $84.66 per share based on STERIS closing price on January 11, 2021 ($16.93 cash + $67.73 stock). Based on STERIS closing price of $190.48 on March 31, 2021, the Merger Consideration was worth approximately $81.29. Multi-step structure: Pre-Closing Merger and Conversion, First Merger (Crystal Merger Sub into Canyon Newco) and Second Merger.

Implied value per share by method vs. $16.93 offer

Selected companies — EV / Estimated 2021 EBITDA (Cantel comparison companies; applied to Cantel CY2021E EBITDA of $278mm) $76.00 – $91.00

Selected companies — EV / Estimated 2021 EBITDA (applied to consensus Estimated 2021 EBITDA of Cantel of $256mm) $69.00 – $82.00

Selected companies — EV / Estimated 2021 EBITDA (STERIS comparison companies; applied to STERIS CY2021E EBITDA of $925mm) - per STERIS Share $176.00 – $208.00

Precedent transactions — EV / LTM EBITDA (applied to Cantel LTM EBITDA of $193mm) $53.00 – $65.00

Precedent transactions — EV / NTM EBITDA (applied to Cantel NTM EBITDA of $278mm) $72.00 – $93.00

Discounted cash flow $67.00 – $91.00

Historical Stock Price Trading Analysis (Cantel, 52 weeks prior to January 11, 2021) $22.00 – $85.00

Analyst Price Target Analysis (Cantel) $62.00 – $100.00

Premiums Paid Analysis $86.00 – $117.00

Historical Stock Price Trading Analysis (STERIS, 52 weeks prior to January 11, 2021) $108.00 – $203.00

Analyst Price Target Analysis (STERIS) $200.00 – $217.00

Illustrative Selected Companies Information (STERIS) $176.00 – $208.00

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

Opinion of Centerview Partners to the target board

Delivered January 12, 2021 · Fee $67.0M ($64.5M contingent on closing), $2.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate9.3%–10.0%

BasisCenterview's analysis of Cantel's weighted average cost of capital

Terminal valuePerpetuity growth

Perpetuity growth3.8%–4.5%

Exit multiple—

Projection periodfiscal half-year ending July 31, 2021 and fiscal years 2022-2025

Projections usedCantel Forecast (Cantel management plan forecast as of January 4, 2021)

Implied value per share$67.00–$91.00

Mid-year convention applied to after-tax unlevered free cash flows; implied equity values divided by fully diluted shares as of January 8, 2021. Centerview separately performed a DCF of STERIS using a 7.50%-8.25% discount rate and 3.75%-4.50% perpetuity growth rates over the fiscal quarter ending March 31, 2021 and fiscal years 2022-2026, deriving implied per STERIS Share value of approximately $158 to $239.

Selected public companies (13)

Conmed Corporation (NYSE: CNMD) · Dentsply Sirona Inc (NASDAQ: XRAY) · Envista Holdings Corporation (NYSE: NVST) · Integra LifeSciences Holdings Corporation (NASDAQ: IART) · Merit Medical Systems, Inc. (NASDAQ: MMSI) · STERIS · Teleflex Incorporated (NYSE: TFX) · Boston Scientific Corporation (NYSE: BSX) · Cantel · Coloplast A/S (DKK: COLO.B) · Hill-Rom Holdings, Inc. (NYSE: HRC) · Smith & Nephew plc (NYSE: SNN) · Sotera Health Company (NASDAQ: SHC)

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / Estimated 2021 EBITDA (Cantel comparison companies; applied to Cantel CY2021E EBITDA of $278mm)	16.1x	18.8x	24.5x	15.0x–17.5x	$76.00–$91.00
EV / Estimated 2021 EBITDA (applied to consensus Estimated 2021 EBITDA of Cantel of $256mm)	16.1x	18.8x	24.5x	15.0x–17.5x	$69.00–$82.00
EV / Estimated 2021 EBITDA (STERIS comparison companies; applied to STERIS CY2021E EBITDA of $925mm) - per STERIS Share	13.7x	17.9x	27.2x	18.0x–21.0x	$176.00–$208.00

Selected precedent transactions (14)

Date	Target	Acquirer	Multiple
2020-10-06	Key Surgical	STERIS	17.0x EV / LTM EBITDA (LTM EBIT as disclosed)
2019-07-30	Hu-Friedy Mfg. Co.	Cantel Medical Corp.	16.1x EV / LTM EBITDA
2019-05-02	Acelity, Inc.	3M Company	15.2x EV / LTM EBITDA
2018-11-20	BTG plc	Boston Scientific Corporation	14.5x EV / LTM EBITDA
2018-06-06	Advanced Sterilization Products	Fortive Corporation	13.8x EV / LTM EBITDA
2017-04-23	C.R. Bard, Incorporated	Becton, Dickinson and Company	19.7x EV / LTM EBITDA
2016-12-19	BSN Medical	Svenska Cellulosa Aktiebolaget (SCA)	13.6x EV / LTM EBITDA
2016-12-02	Vascular Solutions, Inc.	Teleflex Incorporated	25.8x EV / LTM EBITDA
2016-02-01	Sage Products, LLC	Stryker Corporation	21.0x EV / LTM EBITDA
2015-09-15	Sirona Dental Systems, Inc.	Dentsply International Inc.	16.3x EV / LTM EBITDA
2014-10-13	Synergy Health plc	STERIS	13.0x EV / LTM EBITDA
2014-10-05	Carefusion Corporation	Becton, Dickinson and Company	13.9x EV / LTM EBITDA
2014-09-15	Nobel Biocare Holding AG	Danaher Corporation	15.7x EV / LTM EBITDA
2014-02-02	Arthrocare Corporation	Smith & Nephew plc	18.9x EV / LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA (applied to Cantel LTM EBITDA of $193mm)	13.0x	15.9x	25.8x	16.0x–19.0x	$53.00–$65.00
EV / NTM EBITDA (applied to Cantel NTM EBITDA of $278mm)	11.8x	15.0x	19.3x	14.5x–18.0x	$72.00–$93.00

Other analyses

Analysis	Summary	Implied per share
Historical Stock Price Trading Analysis (Cantel, 52 weeks prior to January 11, 2021)	Low and high closing trading prices during the 52-week period of $22 and $85 per share.	$22.00–$85.00
Analyst Price Target Analysis (Cantel)	Wall Street research analyst price targets as of January 11, 2021 ranged from $62 to $100 per share.	$62.00–$100.00
Premiums Paid Analysis	Reviewed control premiums in change of control transactions valued between $100 million and $10 billion with 50-100% stock consideration and target pro forma ownership of 15%-30%. Applied 25th-75th percentile one-day prior and 30-day VWAP premiums of 13-38% and 16-38% to Cantel's price of $84.66 and 30-day VWAP of $73.86 as of January 11, 2021, implying $96 to $117 per share and $86 to $102 per share, respectively.	$86.00–$117.00
Historical Stock Price Trading Analysis (STERIS, 52 weeks prior to January 11, 2021)	Low and high closing trading prices of STERIS Shares during the 52-week period of $108 to $203 per share.	$108.00–$203.00
Analyst Price Target Analysis (STERIS)	Wall Street research analyst price targets for STERIS Shares as of January 11, 2021 ranged from $200 to $217 per share.	$200.00–$217.00
Illustrative Selected Companies Information (STERIS)	Applied EV / Estimated 2021 EBITDA reference range of 18.0x-21.0x to Cantel management's estimate of STERIS CY2021 operating EBITDA of $925 million, deriving implied per STERIS Share equity value of approximately $176 to $208.	$176.00–$208.00

Aggregate fee of approximately $67 million, $2.5 million payable upon rendering of opinion and remainder contingent on consummation of the Mergers; plus expense reimbursement and indemnification.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$1.3B	$1.4B	$1.5B	$1.6B	8.9%
Revenue growth	7.4%	8.6%	9.4%	8.6%
EBITDA	$299M	$341M	$391M	$442M	13.9%
EBITDA growth	12.0%	14.0%	14.7%	13.0%
EBITDA margin	23%	25%	26%	27%
Implied EV / EBITDA	14.4x	12.7x	11.0x	9.8x

Year-1 growth is against LTM at announcement ($1.2B revenue, $267M EBITDA); later years are year over year.

Cantel management prepared the Cantel Forecast (as of January 2021) for fiscal years 2021-2025 on a standalone basis: revenue of $1,189mm in 2021E rising to $1,648mm in 2025E, Adjusted EBITDA of $267mm in 2021E to $442mm in 2025E, operating income of $233mm to $406mm, and unlevered free cash flow of $132mm to $264mm ($72mm in 2021E for analysis purposes, covering Dec 31, 2020 - July 31, 2021). Cantel management also prepared the STERIS Forecast for fiscal years 2021-2026 based on completed quarters, Wall Street consensus and directional trends: revenue of $3,086mm in 2021E to $4,460mm in 2026E, Adjusted EBITDA of $827mm to $1,307mm, and unlevered free cash flow of $427mm to $774mm ($128mm in 2021E for analysis). STERIS management projected approximately $110 million of cost savings and operating synergies, furnished to Centerview through Cantel.

Process notes

Single financial advisor: Centerview Partners delivered an oral opinion January 11, 2021, confirmed in writing January 12, 2021, to the Cantel Board. Mixed cash-and-stock consideration; Centerview valued both Cantel and STERIS (selected companies and DCF for each). Merger Agreement executed January 12, 2021 and amended March 1, 2021. Outside Date of October 12, 2021 automatically extendable by three months to January 12, 2022 and by a further three months to April 12, 2022 for antitrust/FDI conditions; closing expected by June 30, 2021. STERIS to fund cash consideration and refinancing with approximately $2.1 billion of new indebtedness. A voting agreement with Mr. Diker, Mr. Mark N. Diker and Diker Management LLC was contemplated in negotiations. Centerview had advised Cantel on strategic matters for approximately two years without compensation during that period; no prior engagement with STERIS.

Other Medical Devices and Supplies fairness opinions

Hill-Rom Holdings / Baxter International 2021 · 17.6x EV/EBITDA
Misonix / Bioventus 2021
SeaSpine Holdings / Orthofix Medical 2022
Abiomed / Johnson & Johnson 2022 · 55.9x EV/EBITDA
Apollo Endosurgery / Boston Scientific 2022
Intersect ENT / Medtronic 2022

All Medical Devices and Supplies opinions → · Centerview Partners opinions