Civitas Solutions acquired by Centerbridge Partners: fairness opinion by Barclays
Announced December 18, 2018 · One-step merger · All cash ·
DEFM14A filed February 14, 2019
Enterprise value
$1.4B
EV / LTM EBITDA
8.1x
EBITDA $174M · 11% margin
EV / LTM revenue
0.87x
revenue $1.6B
DCF discount rate
9.0%–9.5%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$17.75
Premium18.6%
Premium basis$14.96 closing price on December 17, 2018, the trading day prior to execution of the merger agreement
StructureOne-step merger
Termination fee$20.0M
Reverse termination fee$40.0M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $17.75 offer
Precedent transactions — EV / LTM Adjusted EBITDA (as of September 30, 2018) $11.38 – $20.56
Discounted cash flow $15.05 – $20.24
Illustrative Present Value of Future Stock Price Analysis $14.78 – $25.39
Equity Research Target Prices Analysis $17.00 – $20.00
Leveraged Acquisition Analysis $17.50 – $20.50
Historical Share Price Analysis $11.15 – $18.35
Illustrative Sensitivity Case - Discounted Cash Flow $9.93 – $14.34
Illustrative Sensitivity Case - Present Value of Future Stock Price $14.04 – $21.31
Illustrative Sensitivity Case - Leveraged Acquisition Analysis $14.75 – $17.50
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Barclays to the target board
Delivered December 18, 2018 · Fee $14.6M ($13.1M contingent on closing), $1.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate9.0%–9.5%
Basiscost of capital for Civitas derived by application of the Capital Asset Pricing Model
Terminal valuePerpetuity growth
Perpetuity growth2.0%–2.5%
Exit multiple—
Projection periodFY2019E-FY2023E (fiscal years ending September 30)
Projections usedManagement Projections (Hybrid Case Projections)
Implied value per share$15.05–$20.24
After-tax unlevered free cash flows; terminal value based on normalized unlevered FCF for FY2023 assuming D&A equals capex and a full year of cash flow contribution from FY2023 acquisitions; net debt as of September 30, 2018 subtracted.
Selected precedent transactions (11)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2018-12-10 | BrightSpring Health Services | PharMerica Corporation | — |
| 2018-07-22 | LifePoint Health Inc. | Apollo Global Management LLC | 7.3x EV / LTM EBITDA |
| 2017-12-19 | Kindred Healthcare, Inc. | TPG Capital; Welsh, Carson, Anderson & Stowe; and Humana Inc. | 8.5x EV / LTM EBITDA |
| 2015-09-03 | Providence Human Services, LLC and Providence Community Services, LLC | Molina Healthcare, Inc. | 9.8x EV / LTM EBITDA |
| 2013-04-25 | 14 facilities from Kindred Healthcare, Inc. | Vibra Healthcare, LLC | 6.4x EV / LTM EBITDA |
| 2010-09-07 | ResCare Inc. | Onex Corporation | 6.0x EV / LTM EBITDA |
| 2010-08-24 | Vista Healthcare, LLC | Kindred Healthcare, Inc. | 6.7x EV / LTM EBITDA |
| 2010-06-21 | Regency Hospital Company, L.L.C. | Select Medical Holdings Corporation | 7.6x EV / LTM EBITDA |
| 2009-11-03 | Triumph HealthCare | RehabCare Group, Inc. | 6.2x EV / LTM EBITDA |
| 2006-03-22 | National Mentor Holdings, Inc. | Vestar Capital Partners | 8.5x EV / LTM EBITDA |
| 2003-02-27 | REM, Inc. | National Mentor Holdings, Inc. | 7.0x EV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Adjusted EBITDA (as of September 30, 2018) | 6.0x | — | 9.8x | 6.5x–8.5x | $11.38–$20.56 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Illustrative Present Value of Future Stock Price Analysis | Applied EV/NTM EBITDA multiples of 6.5x-7.5x to NTM EBITDA for FY2019-FY2022 per Management Projections, discounted to present at a 14.5% cost of equity. Implied present values ranged from $14.78 (6.5x, 9/30/2019) to $25.39 (7.5x, 9/30/2022). | $14.78–$25.39 |
| Equity Research Target Prices Analysis | Reviewed one-year forward price targets from the four equity research firms covering Civitas as of December 17, 2018: range $17.00-$20.00, average $18.50. | $17.00–$20.00 |
| Leveraged Acquisition Analysis | Assumed pro forma total debt / Adjusted EBITDA of 5.5x, a 20% IRR on equity over a five-year period and terminal Adjusted EBITDA multiple of 7.0x-8.0x, based on Management Projections. | $17.50–$20.50 |
| Historical Share Price Analysis | Closing prices from December 18, 2017 to December 17, 2018 ranged from $11.15 to $18.35; 30-day and 90-day VWAPs ending December 17, 2018 were $13.88 and $14.62. | $11.15–$18.35 |
| Illustrative Sensitivity Case - Discounted Cash Flow | Assumed organic revenue and EBITDA growth beginning FY2020 were 50% less than in the Management Projections with acquisition spending unchanged; same DCF methodology. | $9.93–$14.34 |
| Illustrative Sensitivity Case - Present Value of Future Stock Price | Same present value of future share price methodology with 50% reduced organic revenue/EBITDA growth beginning FY2020. | $14.04–$21.31 |
| Illustrative Sensitivity Case - Leveraged Acquisition Analysis | Same leveraged acquisition methodology with 50% reduced organic revenue/EBITDA growth beginning FY2020. | $14.75–$17.50 |
| Comparable Companies Analysis (not performed) | Barclays did not perform a comparable companies analysis because it did not believe there was any publicly traded company sufficiently comparable to Civitas. | — |
$1.5 million Opinion Fee paid on delivery of the opinion and execution of the merger agreement, not contingent on the conclusion of the opinion or consummation; approximately $13.1 million additional payable on completion. Barclays received ~$1.2 million from Civitas, ~$6.2 million from Vestar and ~$34.4 million from Centerbridge for investment banking services in the prior two years.
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.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $1.7B | $1.9B | $2.1B | $2.2B | $2.4B | 8.2% |
| Revenue growth | 8.9% | 9.1% | 8.9% | 7.5% | 7.3% | |
| EBITDA | $187M | $210M | $238M | $271M | $304M | 12.9% |
| EBITDA growth | 7.6% | 12.3% | 13.3% | 13.9% | 12.2% | |
| EBITDA margin | 11% | 11% | 11% | 12% | 13% | |
| Implied EV / EBITDA | 7.5x | 6.7x | 5.9x | 5.2x | 4.6x |
Year-1 growth is against LTM at announcement ($1.6B revenue, $174M EBITDA); later years are year over year.
Management prepared unaudited forecasts for fiscal years ending September 30, 2019 through 2023 in two cases. The Base Case Projections (shared with bidders including Centerbridge) showed net revenue growing from $1,745M in FY2019 to $2,391M in FY2023, Adjusted EBITDA from $187M to $304M, and free cash flow from $62M to $137M. The Hybrid Case Projections (provided only to the Board and Barclays and used as the "Management Projections" for the fairness opinion) showed net revenue of $1,736M in FY2019 rising to $2,370M in FY2023, Adjusted EBITDA of $185M to $295M, and free cash flow of $65M to $134M.
Process notes
Sole fairness opinion from Barclays Capital Inc. to the Civitas Board; no comparable companies analysis was performed. Vestar Stockholders, holding ~54% of outstanding shares, entered a voting agreement with Parent supporting the merger. Barclays disclosed substantial prior fees from both Vestar (~$6.2M) and Centerbridge (~$34.4M) over the prior two years. The Board declined to include a go-shop; termination fee negotiated down to $20 million with a $40 million reverse termination fee guaranteed by CCP III (limited guarantee capped at $45 million). Competing bidders referred to as Party A and Party H participated in the process.
Other Behavioral Health fairness opinions
- ResCare / Onex 2010 · 5.3x EV/EBITDA
- Psychiatric Solutions / Universal Health Services 2010 · 8.7x EV/EBITDA