Fairness opinions › Managed Care › 2015

Catamaran acquired by United HealthGroup: fairness opinion by Blackstone Advisory Partners

Announced March 30, 2015 · Scheme of arrangement · All cash · DEFM14A filed June 8, 2015

Managed Care PBM

Enterprise value

$14B

EV / LTM EBITDA

15.2x

EBITDA $919M · 4% margin

EV / LTM revenue

0.61x

revenue $23B

DCF discount rate

8.5%–9.5%

Exit multiple

Deal terms

ConsiderationAll cash

Price per share$61.50

Premium27.3%

Premium basisclosing price of $48.32 on March 27, 2015, the last full trading day prior to announcement

StructureScheme of arrangement

Termination fee$450M (3.5% of equity)

Reverse termination fee—

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $61.50 offer

Selected companies — TEV / 2015E EBITDA $42.81 – $49.36

Selected companies — TEV / 2014 EBITDA $39.12 – $46.80

Precedent transactions — TEV / LTM EBITDA $39.12 – $54.47

Discounted cash flow $54.99 – $61.87

Equity Analyst Price Targets Analysis $50.00 – $66.00

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

Opinion of Blackstone Advisory Partners to the target board

Delivered March 29, 2015 · Fee $35.0M ($30.0M contingent on closing), $5.0M on delivery of the opinion

Discounted cash flow assumptions

Discount rate8.5%–9.5%

BasisBlackstone's professional judgment, derived from an analysis of Catamaran's estimated weighted average cost of capital

Terminal valueExit multiple

Perpetuity growth—

Exit multiple10.5x–11.5x 2019E EBITDA (terminal year)

Projection period2015E-2019E

Projections usedCatamaran management case projections

Implied value per share$54.99–$61.87

Discounted to present value as of December 31, 2014; net debt pro forma for Catamaran's acquisition of Salveo; fully diluted shares outstanding as of January 31, 2015 using treasury stock method. Mean of precedent multiples 13.4x.

Selected public companies (9)

Express Scripts Holding Company · Walgreens Boots Alliance, Inc. · CVS Health Corporation · Rite Aid Corporation · AmerisourceBergen Corporation · McKesson Corporation · Cardinal Health, Inc. · Premier, Inc. · MedAssets, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
TEV / 2015E EBITDA	10.5x	—	12.0x	10.5x–12.0x	$42.81–$49.36
TEV / 2014 EBITDA	—	—	—	11.0x–13.0x	$39.12–$46.80
TEV / 2015E EBITDA - Selected PBM Company (Express Scripts)	10.2x	10.2x	10.2x	—	—
TEV / 2015E EBITDA - Selected Retail Pharmacy Companies	10.9x	10.9x	13.6x	—	—
TEV / 2015E EBITDA - Selected Pharmaceutical Distribution Companies	11.0x	12.3x	13.4x	—	—
TEV / 2015E EBITDA - Selected GPO Companies	9.5x	11.4x	13.4x	—	—
TEV / 2014 EBITDA - Selected PBM Company (Express Scripts)	10.6x	10.6x	10.6x	—	—
TEV / 2014 EBITDA - Selected Retail Pharmacy Companies	10.8x	11.3x	11.8x	—	—
TEV / 2014 EBITDA - Selected Pharmaceutical Distribution Companies	12.6x	13.4x	13.7x	—	—
TEV / 2014 EBITDA - Selected GPO Companies	9.4x	12.0x	14.6x	—	—

Selected precedent transactions (9)

Date	Target	Acquirer	Multiple
2015-02	Healthcare Solutions, Inc.	Catamaran Corporation	—
2015-02	Envision Pharmaceutical Services	Rite Aid Corporation	—
2014-10	Salveo	Catamaran Corporation	—
2013-08	Restat, LLC	Catamaran Corporation	—
2012-04	Catalyst Health Solutions, Inc.	SXC Health Solutions Corp. (n/k/a Catamaran Corporation)	—
2011-11	HealthTran LLC	SXC Health Solutions Corp. (n/k/a Catamaran Corporation)	—
2011-07	Medco Health Solutions, Inc.	Express Scripts, Inc.	—
2009-04	Next-Rx, Inc. (Wellpoint, Inc. PBM subsidiary)	Express Scripts, Inc.	—
2006-11	Caremark Rx, Inc.	CVS Corporation	—

Multiple	Low	Median	High	Range applied	Implied per share
TEV / LTM EBITDA	9.1x	12.8x	20.2x	11.0x–15.0x	$39.12–$54.47

Other analyses

Analysis	Summary	Implied per share
Illustrative Analysis of Implied Premiums	Implied premiums of arrangement consideration to: closing price on March 27, 2015 of $48.32 (27.3%); 30-Day VWAP $49.99 (23.0%); 60-Day VWAP $50.44 (21.9%); 6-Month VWAP $48.28 (27.4%); 12-Month VWAP $45.51 (35.1%). For informational purposes only.	—
Equity Analyst Price Targets Analysis	Median Wall Street forward price target for Catamaran common shares of $57.00, with a high of $66.00 and a low of $50.00. For informational purposes only.	$50.00–$66.00

Engagement letter dated October 15, 2014, as amended. Aggregate transaction fee of $35 million, of which $5 million became payable upon delivery of the opinion and the remainder contingent upon consummation. An additional discretionary fee of up to $5 million may be payable at Catamaran's sole discretion. Expense reimbursement and indemnification also provided.

3,000+ healthcare deal-level valuation multiples

The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.

See the Valuation database →

Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$25B	$27B	$29B	$31B	7.6%
Revenue growth	9.1%	8.9%	8.0%	6.0%
EBITDA	$1.0B	$1.2B	$1.3B	$1.4B	10.7%
EBITDA growth	13.7%	12.2%	11.0%	8.9%
EBITDA margin	4%	4%	4%	5%
Implied EV / EBITDA	13.4x	11.9x	10.8x	9.9x

Year-1 growth is against LTM at announcement ($23B revenue, $919M EBITDA); later years are year over year.

Catamaran management prepared "management case projections" for fiscal years 2015-2019, which were provided to the Board and to Blackstone (and, for 2015-2017 only, to UnitedHealth Group). The management case shows revenue of $22,915 million in 2015E growing to $31,167 million in 2019E, EBITDA of $919 million in 2015E rising to $1,417 million in 2019E, and unlevered free cash flow (calculated by Blackstone) of $556 million in 2015E to $862 million in 2019E. An illustrative "sensitivity case" assumed flat 2016 EBITDA versus 2015 ($919 million) with EBITDA of $1,254 million by 2019E; projections included Salveo but excluded Healthcare Solutions, Inc., and were prepared before Catamaran learned of the loss of two large customers.

Process notes

Canadian plan of arrangement requiring approval by two-thirds of votes cast by common shareholders; Catamaran is a Canadian (Yukon) company listed on NASDAQ and TSX. Single financial advisor, Blackstone Advisory Partners L.P., which delivered its opinion to the Catamaran Board on March 29, 2015; opinion approved by a Blackstone fairness committee. Blackstone received no fees from Catamaran or UnitedHealth Group in the prior two years. Termination fee of $450 million described as approximately 3.5% of aggregate equity value; no reverse termination fee was included in the final agreement (the board noted regulatory risk without the possibility of a reverse termination fee). Management case projections were prepared before Catamaran became aware of the loss of two large customers with a projected negative EBITDA impact. Process involved multiple parties (Party 1, Party 2, Party 3) before UnitedHealth Group's bilateral "best and final" offer.

Other Managed Care fairness opinions

Health Net / Centene 2015 · 9.3x EV/EBITDA
Apollo Medical Holdings / Network Medical Management 2016
Universal American / WellCare Health Plans 2016 · 9.3x EV/EBITDA
Aetna / CVS Health 2017 · 12.1x EV/EBITDA
Express Scripts Holding / Cigna 2018 · 11.6x EV/EBITDA
Coventry Health Care / Aetna 2012 · 8.9x EV/EBITDA

All Managed Care opinions → · Blackstone Advisory Partners opinions