Fairness opinions › Medical Devices and Supplies › 2018

Cogentix Medical acquired by Laborie: fairness opinion by Duff & Phelps

Announced March 12, 2018 · Tender offer · All cash · SC 14D9 filed March 26, 2018

Medical Devices and Supplies Medical Devices Sponsor: Patricia Industries AB / Investor AB (Laborie's owner)

Enterprise value

$214M

equity $242M

EV / LTM EBITDA

101.9x

EBITDA $2.1M · 4% margin

EV / LTM revenue

3.65x

revenue $58.6M

DCF discount rate

14.5%–16.5%

Exit multiple

Deal terms

ConsiderationAll cash

Price per share$3.85

Premium14.0%

Premium basisclosing price on March 9, 2018 (one day prior)

StructureTender offer

Termination fee$8.4M (3.5% of equity)

Reverse termination fee$14.3M

Go-shopNone

Outside dateSeptember 7, 2018

FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $3.85 offer

Selected companies — Selected Public Companies / M&A Transactions Analysis - concluded (per share) $2.89 – $3.38

Discounted cash flow $3.13 – $3.37

Valuation Analysis Conclusions (blended DCF and market approach) $3.01 – $3.38

Historical Stock Trading Analysis $2.88

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

Opinion of Duff & Phelps to the target board

Delivered March 11, 2018 · Fee $0.3M, $0.2M on delivery of the opinion

Discounted cash flow assumptions

Discount rate14.5%–16.5%

BasisWACC based on Capital Asset Pricing Model using information derived from the selected public companies and estimated capital structure of the selected public companies

Terminal valueExit multiple

Perpetuity growth—

Exit multiple3.0x 2022E Revenue (terminal value $322 million, implying 19.3x 2022E EBITDA)

Projection period2018E-2022E

Projections usedManagement Projections

Implied value per share$3.13–$3.37

Enterprise value range $164.9-$179.0 million excluding PV of NOLs; after adding PV of NOL carryforwards ($3.6-$4.0m), cash of $27.2m, $1.9m Vensica JV investment, option proceeds of $3.0-$3.7m, less $3.1m one-time expenses and $0.8m pension/earnout, equity value range $196.9-$211.8 million. 28% tax rate used per management (table shows 27.0%). Based on 60.906 million shares plus in-the-money options.

Selected public companies (13)

Accuray Incorporated · AngioDynamics, Inc. · Apex Biotechnology Corp. · Boule Diagnostics AB (publ) · Cardiovascular Systems, Inc. · Create Medic Co., Ltd. · Daiken Medical Co., Ltd. · Ellex Medical Lasers Limited · Hamilton Thorne Ltd. · i3system Inc. · InfuSystem Holdings Inc. · LeMaitre Vascular, Inc. · Surmodics, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / 2017 Pro Forma (LTM) Revenue	0.7x	2.4x	7.1x	3.0x–3.5x	—
EV / 2018E Revenue	1.4x	2.7x	6.5x	2.5x–3.0x	—
EV / 2019E Revenue	1.2x	2.5x	5.9x	2.3x–2.8x	—
EV / LTM EBITDA	6.2x	13.1x	28.7x	—	—
EV / 2018E EBITDA	9.3x	12.5x	22.2x	—	—
EV / 2019E EBITDA	7.6x	12.4x	18.8x	—	—
Selected Public Companies / M&A Transactions Analysis - concluded (per share)	—	—	—	—	$2.89–$3.38

Selected precedent transactions (13)

Date	Target	Acquirer	Multiple
2018-02	LifeHealthcare Group Limited	Pacific Equity Partners	1.6x EV / LTM Revenue
2017-11	MGC Diagnostics Corporation	Altus Capital Partners	1.1x EV / LTM Revenue
2017-10	Exactech, Inc.	TPG Capital, L.P.	2.7x EV / LTM Revenue
2016-12	Vascular Solutions, Inc.	Teleflex Incorporated	6.0x EV / LTM Revenue
2016-04	Symmetry Surgical Inc.	RoundTable Healthcare Management	1.5x EV / LTM Revenue
2015-11	Delta Med Spa	DB Private Equity GmbH; Augens Capital S.r.l.	1.2x EV / LTM Revenue
2015-07	X-spine Systems, Inc.	Bacterin International Holdings, Inc.	2.0x EV / LTM Revenue
2015-05	Synergetics USA, Inc.	Valeant Pharmaceuticals International	2.6x EV / LTM Revenue
2015-01	Charter Medical, Ltd.	Solesis Medical Technologies, Inc.	1.5x EV / LTM Revenue
2014-08	N.G.C. Medical S.r.l.	Medtronic, Inc.	3.9x EV / LTM Revenue
2014-03	Vitalitec International S.A.	Péters Surgical SAS	1.8x EV / LTM Revenue
2016-09	EndoChoice Holdings, Inc.	Boston Scientific Corporation	2.6x EV / LTM Revenue (Tier 2)
2016-08	Laborie Medical Technologies, Inc.	Patricia Industries AB	5.6x EV / LTM Revenue (Tier 2)

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Revenue (Tier 1)	1.1x	1.8x	6.0x	—	—
EV / LTM EBITDA (Tier 1)	5.6x	16.4x	44.7x	—	—
EV / LTM Revenue (Tier 2 - GI/urology)	2.6x	4.1x	5.6x	—	—

Other analyses

Analysis	Summary	Implied per share
Valuation Analysis Conclusions (blended DCF and market approach)	Selected enterprise value of $157.5-$179.3 million plus PV of tax attributes of $3.6-$4.0 million yields enterprise value conclusion of $161.1-$183.3 million; after cash, JV investment, option proceeds and deductions, aggregate equity value of $189.2-$212.1 million, or $3.01-$3.38 per share versus $3.85 transaction consideration (implying 4.31x 2017 PF revenue, 3.63x 2018E revenue, 3.07x 2019E revenue at the transaction price).	$3.01–$3.38
Historical Stock Trading Analysis	Reviewed historical trading prices and volume of the Shares from April 1, 2016 to March 9, 2018; noted the two largest stockholders held nearly 60% of Shares, average daily trading volume of 62,300 shares (approx. 0.10% of shares outstanding) over the LTM, and research coverage from three firms. 30-day trailing average closing price as of March 6, 2018 implied $2.88 per share on a comparable basis.	$2.88
Historical Premium Analysis (premiums paid)	Premiums paid in acquisitions of North American publicly traded medical device companies (20 transactions) March 2013-March 2018 showed median premiums of 38% (1-day), 36% (1-week) and 41% (1-month); all U.S. public company acquisitions (1,272 transactions) showed medians of 25%, 28% and 31%. Cogentix implied premiums were 14% (1-day, vs March 9), 25% (1-week, vs March 3) and 40% (1-month, vs February 10, 2018).	—
Valuation of Net Operating Losses	Valued NOL carryforwards subject to IRC Section 382 limitation separately, discounting the tax shield at the Company's estimated cost of equity (CAPM); present value of $3.634-$3.970 million ($3.6-$4.0 million).	—

$350,000 total fee: $175,000 payable upon signing the engagement letter and $175,000 payable upon notification that Duff & Phelps was prepared to deliver its Opinion; no portion contingent on consummation. Plus expense reimbursement and indemnification.

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	$69.1M	$80.5M	$93.1M	$107M	15.8%
Revenue growth	17.9%	16.5%	15.7%	15.3%
EBITDA	$5.2M	$8.5M	$12.2M	$16.7M	47.5%
EBITDA growth	147.6%	63.5%	43.5%	36.9%
EBITDA margin	8%	11%	13%	16%
Implied EV / EBITDA	41.2x	25.2x	17.5x	12.8x

Year-1 growth is against LTM at announcement ($58.6M revenue, $2.1M EBITDA); later years are year over year.

Duff & Phelps used the Management Projections for fiscal years 2018 through 2022, adjusted to exclude discontinued operations and to deduct stock-based compensation from EBITDA. Revenue was projected to grow from $58.55 million in 2018 to $107.33 million in 2022, with EBITDA growing from $2.115 million (3.6% margin) in 2018 to $16.69 million (15.5% margin) in 2022. Free cash flow was projected at $0.221 million in 2018 rising to $8.281 million in 2022, using a 27-28% tax rate.

Process notes

Single financial advisor (Duff & Phelps) engaged February 17, 2018 to provide an opinion to the Company Board; written presentation delivered March 9, 2018 and oral opinion March 11, 2018, confirmed in writing same date. Duff & Phelps' valuation conclusion range of $3.01-$3.38 per share was below the $3.85 transaction consideration. Tender and Support Agreements with Mr. Pell and Accelmed (two largest stockholders held nearly 60% of shares). Reverse termination fee of $14.34 million (6% of equity value), reducible to $9.56 million (4%) in certain circumstances; outside date September 7, 2018 extendable to March 11, 2019. Duff & Phelps previously advised a special committee of the Company Board in 2016 on a note exchange and capital raise. Duff & Phelps did not derive a valuation directly from the precedent M&A transactions analysis, using it only to evaluate selected multiples.

Other Medical Devices and Supplies fairness opinions

K2M Group Holdings / StrykerCorp. 2018 · 92.0x EV/EBITDA
Invuity / StrykerCorp. 2018
Analogic / Altaris 2018 · 13.8x EV/EBITDA
Wright Medical Group / StrykerCorp. 2019 · 14.6x EV/EBITDA
CAS Medical Systems / Edwards Lifesciences 2019
Osiris Therapeutics / Smith & Nephew 2019 · 28.8x EV/EBITDA

All Medical Devices and Supplies opinions → · Duff & Phelps opinions