Fairness opinions › Digital / HealthTech › 2021

Cerner acquired by Oracle: fairness opinion by Centerview Partners

Announced December 20, 2021 · Tender offer · All cash · SC 14D9 filed January 19, 2022

Digital / HealthTech PM / EMR

Enterprise value

$29B

equity $28B

EV / LTM EBITDA

15.2x

EBITDA $1.9B · 33% margin

EV / LTM revenue

5.00x

revenue $5.8B

DCF discount rate

7.2%–8.5%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$95.00

Premium—

Premium basis—

StructureTender offer

Termination fee$950M (3.4% of equity)

Reverse termination fee—

Go-shopNone

Outside date—

FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $95.00 offer

Selected companies — EV / 2022E EBITDA $64.00 – $99.00

Precedent transactions — EV / LTM EBITDA $87.00 – $113.00

Discounted cash flow $76.00 – $116.00

Historical Stock Price Trading (52-week period ended December 16, 2021) $68.00 – $83.00

Analyst Price Targets $72.00 – $91.00

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 December 20, 2021 · Fee $35.0M ($35.0M contingent on closing)

Discounted cash flow assumptions

Discount rate7.2%–8.5%

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

Terminal valuePerpetuity growth

Perpetuity growth2.5%–3.5%

Exit multiple—

Projection period2022E-2030E

Projections usedForecasts prepared by Cerner management (Internal Data)

Implied value per share$76.00–$116.00

Unlevered free cash flows discounted to present value as of December 31, 2021; net debt as of December 31, 2021 subtracted; fully diluted shares as of December 16, 2021 (treasury stock method).

Selected public companies (6)

Allscripts Healthcare Solutions, Inc. · Computer Programs and Systems Inc. · NextGen Healthcare, Inc. · HealthEquity, Inc. · HealthStream Inc. · R1 RCM Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / 2022E EBITDA	8.6x	11.9x	20.1x	9.5x–14.5x	$64.00–$99.00

Selected precedent transactions (17)

Date	Target	Acquirer	Multiple
2021-11	athenahealth, Inc.	Bain Capital and Hellman & Friedman	—
2021-10	TransUnion Healthcare, Inc.	nThrive, Inc.	20.3x EV / LTM EBITDA (2021 EBITDA per transaction press release)
2021-08	Inovalon Holdings, Inc.	Nordic Capital	29.3x EV / LTM EBITDA
2021-01	Change Healthcare Inc.	UnitedHealth Group Incorporated	14.4x EV / LTM EBITDA
2020-12	HMS Holdings Corp.	Gainwell Acquisition Corp.	21.1x EV / LTM EBITDA
2018-11	athenahealth, Inc.	Veritas Capital Fund Management, L.L.C.	15.2x EV / 2018 EBITDA
2018-06	Cotiviti Holdings, Inc.	Verscend Technologies, Inc.	18.0x EV / LTM EBITDA
2018-03	ABILITY Network Inc.	Inovalon Holdings, Inc.	16.6x EV / LTM EBITDA
2017-10	eviCore healthcare	Express Scripts Holding Company	13.6x EV / LTM EBITDA
2016-08	Press Ganey Holdings, Inc.	EQT Partners Inc.	17.5x EV / LTM EBITDA
2016-04	Verscend Technologies, Inc.	Veritas Capital	10.0x EV / 2015 EBITDA
2016-02	Brightree LLC	ResMed Inc.	18.6x EV / 2016 EBITDA
2016-02	Truven Health Analytics, Inc.	International Business Machines Corporation	16.9x EV / LTM EBITDA
2015-11	MedAssets, Inc.	Pamplona Capital Management LLP	11.5x EV / LTM EBITDA
2015-08	Merge Healthcare, Inc.	International Business Machines Corporation	19.0x EV / LTM EBITDA
2015-07	Altegra Health, Inc.	Emdeon Inc.	15.5x EV / LTM EBITDA
2014-08	Siemens Health Services, Inc.	Cerner Health Services, Inc.	10.5x EV / LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA	10.0x	16.9x	29.3x	14.0x–18.0x	$87.00–$113.00

Other analyses

Analysis	Summary	Implied per share
Historical Stock Price Trading (52-week period ended December 16, 2021)	Low and high closing prices for the Shares during the 52-week period ended December 16, 2021 (last trading day before WSJ report) were $68 and $83 per Share, respectively. Noted for informational purposes only.	$68.00–$83.00
Analyst Price Targets	Wall Street research analyst price targets for the Shares as of December 16, 2021 ranged from $72 to $91 per Share. Noted for informational purposes only.	$72.00–$91.00

Aggregate fee estimated at $35 million as of December 20, 2021, all contingent upon consummation of the Transactions; plus expense reimbursement and indemnification.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$6.1B	$6.4B	$6.7B	$7.1B	$7.5B	5.2%
Revenue growth	4.9%	4.9%	4.9%	5.4%	5.8%
EBITDA	$2.1B	$2.3B	$2.4B	$2.6B	$2.7B	6.8%
EBITDA growth	9.4%	8.0%	7.6%	5.8%	5.7%
EBITDA margin	34%	35%	36%	36%	36%
Implied EV / EBITDA	13.9x	12.9x	12.0x	11.3x	10.7x

Year-1 growth is against LTM at announcement ($5.8B revenue, $1.9B EBITDA); later years are year over year.

Cerner management prepared the "Forecasts" covering fiscal years 2021E-2030E, which were provided to Goldman Sachs and Centerview and used by Centerview in its DCF. Revenue grows from $5,807 million in 2021E to $8,705 million in 2030E, Adjusted EBITDA from $1,906 million to $3,199 million, and unlevered free cash flow from $855 million in 2021E to $1,770 million in 2030E. Additional forecasts included adjusted operating earnings and capital expenditures for 2021E-2024E (provided to Oracle) and adjusted diluted EPS/dividends per share for 2021E-2026E (EPS $3.31 rising to $5.85).

Process notes

Tender offer structure; Centerview delivered the only fairness opinion described in the sliced sections, to the Cerner Board. Goldman Sachs also acted as a financial advisor to Cerner and attended board meetings (its own analysis/opinion, if any, is not included in these slices). Market data based on December 16, 2021, the last trading day before The Wall Street Journal reported Oracle was in discussions to acquire Cerner. Cerner and Oracle entered into an exclusivity agreement dated December 4, 2021; the Cerner Board initially sought a 45-day go-shop with a 1.5% fee, but the final agreement contained no go-shop and a $950 million termination fee (~3.4% of equity value). Tender and Support Agreements signed by the CEO, CFO and each director covering 229,263 shares (<1%).

Other Digital / HealthTech fairness opinions

Inovalon Holdings / Nordic Capital / Insight Partners 2021 · 26.9x EV/EBITDA
Nuance Communications / Microsoft 2021 · 45.9x EV/EBITDA
Change Healthcare / Optum 2021 · 13.8x EV/EBITDA
Benefitfocus / Voya Financial 2022 · 11.6x EV/EBITDA
SOC Telemed / Patient Square Capital 2022
Castlight Health / Vera Whole Health 2022 · 30.4x EV/EBITDA

All Digital / HealthTech opinions → · Centerview Partners opinions