CareFusion acquired by Becton Dickinson: fairness opinion by Perella Weinberg Partners
Deal terms
Each share of CareFusion common stock converted into the right to receive $49.00 in cash and 0.0777 of a share of BD common stock; based on BD's closing price of $115.84 on October 3, 2014 (last trading day before announcement), implied value of $58.00 per share. Based on BD's $136.80 close on December 17, 2014, implied value would be $59.63. Cash in lieu of fractional shares. CareFusion holders to own approximately 8% of BD post-closing.
Implied value per share by method vs. $49.00 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Perella Weinberg Partners to the target board
Discounted cash flow assumptions
Management Case 1 implied $46.00-$58.00 per share; Management Case 2 implied $50.00-$63.25 per share. Present value as of October 3, 2014. A separate DCF of BD using BD Public Forecasts (FY2015-FY2025, discount rates 7.0%-8.0%, perpetuity growth 1.5%-2.5%) implied $108.75-$151.75 per BD share.
Selected public companies (19)
Johnson & Johnson · Medtronic, Inc. · Abbott Laboratories · Baxter International Inc. · Stryker Corporation · St. Jude Medical, Inc. · Boston Scientific Corporation · Zimmer Holdings, Inc. · Smith & Nephew plc · C. R. Bard, Inc. · Hospira, Inc. · Getinge AB · ResMed, Inc. · Teleflex Incorporated · Omnicell, Inc. · Thermo Fisher Scientific Inc. · Danaher Corporation · Hologic, Inc. · Qiagen N.V.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2015E EBITDA (CareFusion comparables) | — | 11.1x | — | 9.0x–11.0x | $42.50–$51.75 |
| Share Price / 2015E EPS (CareFusion comparables) | — | 16.7x | — | 15.0x–18.0x | $40.75–$49.00 |
| EV / 2015E EBITDA (BD comparables) - BD valuation | — | 11.1x | — | 9.0x–12.0x | $101.50–$137.50 |
| Share Price / 2015E EPS (BD comparables) - BD valuation | — | 16.2x | — | 15.0x–19.0x | $103.25–$130.75 |
Selected precedent transactions (16)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2014-09 | Sigma-Aldrich Corp. | Merck KGaA | 19.7x EV/LTM EBITDA |
| 2014-09 | Nobel Biocare Holding AG | Danaher Corporation | 15.5x EV/LTM EBITDA |
| 2014-06 | Covidien plc | Medtronic, Inc. | 16.8x EV/LTM EBITDA |
| 2014-04 | Biomet, Inc. | Zimmer Holdings, Inc. | 12.2x EV/LTM EBITDA |
| 2014-02 | ArthroCare Corporation | Smith & Nephew plc | 16.5x EV/LTM EBITDA |
| 2013-04 | Life Technologies Corporation | Thermo Fisher Scientific Inc. | 12.6x EV/LTM EBITDA |
| 2012-12 | Gambro AB | Baxter International Inc. | 15.8x EV/LTM EBITDA |
| 2012-04 | Gen-Probe Incorporated | Hologic, Inc. | 20.1x EV/LTM EBITDA |
| 2011-07 | Kinetic Concepts, Inc. | Apax Partners/Canada Pension Plan Investment Board/Public Sector Pension Investment Board | 9.8x EV/LTM EBITDA |
| 2011-04 | Synthes, Inc. | Johnson & Johnson | 12.2x EV/LTM EBITDA |
| 2011-04 | American Medical Systems Holdings Inc. | Endo Pharmaceuticals Holdings Inc. | 15.9x EV/LTM EBITDA |
| 2010-02 | Millipore Corporation | Merck KGaA | 17.4x EV/LTM EBITDA |
| 2007-12 | Respironics, Inc. | Royal Philips Electronics | 19.7x EV/LTM EBITDA |
| 2007-07 | Arrow International, Inc. | Teleflex Incorporated | 16.2x EV/LTM EBITDA |
| 2007-05 | Cytyc Corporation | Hologic, Inc. | 24.1x EV/LTM EBITDA |
| 2005-12 | Guidant Corporation | Boston Scientific Corporation | 25.8x EV/LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 9.8x | — | 25.8x | 12.0x–15.0x | $49.25–$61.50 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading of CareFusion (52-week range) | 52-week trading range per CareFusion share for period ending October 3, 2014 of $36.73 to $46.90 ($46.90 was the all-time high closing price), compared to $58.00 implied merger consideration. | $36.73–$46.90 |
| Equity Research Analyst Price Targets of CareFusion | Analyst one-year price targets published August 8, 2014 through October 1, 2014 ranged $42.00-$52.00 with median $48.00; discounted at a 9.5% cost of equity (CAPM) to approximately $39.25-$48.50 per share. | $39.25–$48.50 |
| Precedent Premium Paid Analysis | Reviewed premiums paid in acquisitions of public companies over $1 billion since October 1, 2009 (excluding mergers of equals), grouped by mixed cash/stock and all-stock, plus healthcare subgroups. All deals/all industries (548 deals): 25th percentile 43%, median 29%, 75th percentile 16%; healthcare (76 deals): 56%/38%/23%; mixed cash and stock all industries (105): 40%/28%/17%; mixed cash and stock healthcare (13): 38%/31%/17%; all stock all industries (83): 30%/20%/6%; all stock healthcare (4): 34%/27%/17%; Selected Precedent Transactions (16): 26%/33%/39%. Applied a 20%-30% premium range to CareFusion's October 3, 2014 share price. | $55.50–$60.00 |
| Historical Stock Trading of BD (52-week range) | BD 52-week trading range for the period ending October 3, 2014 was $98.30 to $120.40, compared to BD's $115.84 closing price on October 3, 2014. | $98.30–$120.40 |
| Equity Research Analyst Price Targets of BD | Analyst one-year price targets for BD published July 31, 2014 through September 29, 2014 ranged $110.00-$138.00 with median $123.00; discounted at an 8.0% cost of equity (CAPM) to approximately $104.00-$130.25 per share. | $104.00–$130.25 |
| Implied Transaction Multiple | Perella Weinberg observed the EV/LTM EBITDA multiple implied by the $58.00 implied value per share merger consideration was 14.1x. | — |
CareFusion agreed to pay Perella Weinberg $5 million upon delivery of its opinion and an additional fee currently estimated at approximately $28 million upon closing of the merger, against which the opinion fee is credited (the 'transaction fee'). If the merger is not consummated and CareFusion receives a break-up/termination fee, Perella Weinberg receives 10% of such amount, capped at the transaction fee. Expense reimbursement and indemnity also provided. Engagement letter dated April 23, 2014, as amended.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $4.3B | $4.5B | $4.6B | $4.8B | 3.5% |
| Revenue growth | 4.9% | 4.3% | 3.8% | 2.5% | |
| EBITDA | $1.1B | $1.2B | $1.3B | $1.4B | 7.1% |
| EBITDA growth | 11.6% | 8.7% | 7.5% | 5.3% | |
| EBITDA margin | 26% | 27% | 28% | 29% | |
| Implied EV / EBITDA | 11.6x | 10.7x | 9.9x | 9.4x |
Year-1 growth is against LTM at announcement ($4.1B revenue, $989M EBITDA); later years are year over year.
CareFusion management prepared two standalone forecast cases (Management Case 1 and Management Case 2) for fiscal years 2015E-2019E, with extensions of revenue, EBITDA and capex through FY2024 approved for Perella Weinberg's use. Management Case 1 projected revenue of $4,080M in FY2015E growing to $4,751M in FY2019E (and $5,300M by FY2024E), with adjusted EBITDA of $989M rising to $1,358M and EBITDA of $931M to $1,283M; unlevered free cash flow of $552M (FY2015E) to $782M (FY2024E). Management Case 2 assumed higher revenue growth, greater manufacturing efficiencies, lower SG&A and a lower tax rate, projecting revenue of $4,100M in FY2015E to $4,859M in FY2019E ($5,472M by FY2024E), adjusted EBITDA of $999M to $1,457M, and unlevered free cash flow of $555M to $865M. Only Management Case 2 was also provided to BD.
Process notes
Other Medical Devices and Supplies fairness opinions
- Covidien / Medtronic 2014 · 17.5x EV/EBITDA
- Symmetry Medical OEMS Business / Tecomet 2014 · 8.5x EV/EBITDA
- Medical Action Industries / Owens & Minor 2014 · 13.8x EV/EBITDA
- ArthroCare / Smith & Nephew 2014 · 16.1x EV/EBITDA
- Sirona Dental Systems / DENTSPLY 2015 · 16.2x EV/EBITDA
- Liberator Medical Holdings / C. R. Bard 2015 · 11.5x EV/EBITDA
All Medical Devices and Supplies opinions → · Perella Weinberg Partners opinions