Fairness opinions › Medical Devices and Supplies › 2013

Conceptus acquired by Bayer HealthCare: fairness opinion by Goldman Sachs

Announced April 29, 2013 · Tender offer · All cash · SC 14D9 filed May 7, 2013

Medical Devices and Supplies Medical Devices

Enterprise value

$1.1B

equity $1.1B

EV / LTM EBITDA

28.0x

EBITDA $39.3M · 24% margin

EV / LTM revenue

6.79x

revenue $162M

DCF discount rate

9.0%–12.0%

Exit multiple

Deal terms

ConsiderationAll cash

Price per share$31.00

Premium19.7%

Premium basisclosing price one day prior to announcement (April 26, 2013)

StructureTender offer

Termination fee$37.3M (3.3% of equity)

Reverse termination fee—

Go-shopNone

Outside date—

FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $31.00 offer

Selected companies — EV / CY2013E Revenue $20.22 – $28.56

Precedent transactions — EV / LTM Sales (applied to 2012 actual sales) $17.43 – $26.18

Precedent transactions — EV / LTM EBITDA (applied to 2012 actual Adjusted EBITDA) $21.00 – $27.98

Precedent transactions — Premium to 1 Day Prior $31.08 – $37.56

Discounted cash flow $22.00 – $36.30

Illustrative Present Value of Future Share Price Analysis $21.36 – $37.24

Premiums Paid (within Selected Transactions Analysis) $31.08 – $37.56

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

Opinion of Goldman Sachs to the target board

Delivered April 28, 2013 · Fee $15.0M ($15.0M contingent on closing)

Discounted cash flow assumptions

Discount rate9.0%–12.0%

Basisweighted average cost of capital

Terminal valueExit multiple

Perpetuity growth—

Exit multiple3.0x–5.0x 2017E revenue

Projection period2013-mid-2017

Projections usedBase Case Forecasts (Company management), plus Tax Analyses for NOLs

Implied value per share$22.00–$36.30

Excluding value of NOLs: $22.00-$36.30 per share; including present value of future estimated net operating loss carryforwards (Tax Analyses, mid-year convention, 9.0%-12.0% discount rates): $23.55-$38.00 per share.

Selected public companies (16)

Abaxis, Inc. · Abiomed, Inc. · Cepheid · The Cooper Companies, Inc. · Cyberonics, Inc. · DexCom, Inc. · Globus Medical, Inc. · Hologic, Inc. · Insulet Corporation · MAKO Surgical Corp. · Mindray Medical International Limited · NxStage Medical, Inc. · OraSure Technologies, Inc. · Thoratec Corporation · Tornier N.V. · Volcano Corporation

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2013E Revenue	1.6x	3.6x	8.5x	4.0x–6.0x	$20.22–$28.56
EV / CY2013E EBITDA	8.5x	12.7x	28.5x	—	—

Selected precedent transactions (15)

Date	Target	Acquirer	Multiple
2012-12	Gambro AB	Baxter International Inc.	—
2012-11	Healthpoint Biotherapeutics	Smith & Nephew plc	—
2012-04	Oridion Systems Ltd.	Covidien Plc	—
2012-03	Zoll Medical Corporation	Asahi Kasei Corporation	—
2011-12	SonoSite, Inc.	Fujifilm Holdings Corp.	—
2011-12	Synovis Life Technologies Inc.	Baxter International Inc.	—
2011-05	Orthovita, Inc.	Stryker Corporation	—
2011-04	American Medical Systems Holdings Inc.	Endo Pharmaceuticals Holdings Inc.	—
2010-10	AGA Medical Holdings Inc.	St. Jude Medical Inc.	—
2010-07	Micrus Endovascular Corp.	Johnson & Johnson	—
2010-06	Somanetics Corporation	Covidien Plc	—
2010-06	ev3 Inc.	Covidien Plc	—
2010-05	SenoRx, Inc.	C.R. Bard, Inc.	—
2010-04	ATS Medical Inc.	Medtronic Inc.	—
2009-05	VNUS Medical Technologies Inc.	Covidien Plc	—

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Sales (applied to 2012 actual sales)	2.4x	4.1x	6.2x	4.0x–6.5x	$17.43–$26.18
EV / LTM EBITDA (applied to 2012 actual Adjusted EBITDA)	16.1x	26.4x	31.9x	25.0x–35.0x	$21.00–$27.98
Premium to 1 Day Prior	0.1x	0.3x	0.8x	0.2x–0.5x	$31.08–$37.56
Premium to 1 Month Prior	0.2x	0.4x	0.8x	—	—
Premium to 1 Month Average	0.1x	0.4x	0.7x	—	—

Other analyses

Analysis	Summary	Implied per share
Illustrative Present Value of Future Share Price Analysis	Applied forward sales multiples of 4.00x to 6.00x to Base Case Forecast sales for fiscal 2014-2016, less net debt, divided by diluted shares, discounted back at an 11.0% cost of equity. Implied present values: $21.36-$31.29 (2014), $22.99-$33.35 (2015), $25.92-$37.24 (2016).	$21.36–$37.24
Premiums Paid (within Selected Transactions Analysis)	Applied premium percentages of 20% to 45% to the Company's closing share price on April 26, 2013, yielding $31.08 to $37.56 per share. Proposed transaction premiums: 19.7% (1 day), 27.7% (1 month prior), 24.4% (1-month average).	$31.08–$37.56

Aggregate fee of approximately $15 million for advisory services, all contingent upon consummation of the Transactions. Goldman received ~$1.5 million from the Company and ~$1 million from Parent and affiliates for services during the two years ended April 28, 2013.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$196M	$239M	$296M	$366M	23.1%
Revenue growth	20.9%	22.2%	23.5%	23.7%
EBITDA	$55.9M	$77.7M	$102M	$139M	35.4%
EBITDA growth	42.4%	39.0%	30.9%	36.4%
EBITDA margin	29%	32%	34%	38%
Implied EV / EBITDA	19.7x	14.2x	10.8x	7.9x

Year-1 growth is against LTM at announcement ($162M revenue, $39.3M EBITDA); later years are year over year.

Goldman used the Company management "Base Case Forecasts" approved for its use, covering 2013 through mid-2017, together with management-prepared "Tax Analyses" relating to the Company's net operating losses and related savings. Goldman also used an updated full-year 2013E forecast (midpoint of $168.5 million of sales) based on first-quarter performance provided by management. Terminal value in the DCF was based on 3.0x-5.0x projected 2017 revenues.

Process notes

Single financial advisor (Goldman, Sachs & Co.) delivering opinion to the Conceptus board; opinion dated April 28, 2013 at $31.00 per share cash. Transaction structured as a tender offer by a Bayer subsidiary with a top-up option and second-step merger. Termination fee of $37.3 million stated to be approximately 3.25% of the transaction equity value (implying equity value of roughly $1.15 billion). Goldman had prior relationships with both Conceptus (~$1.5 million of fees over two years; placement agent for $50.04 million convertible notes in December 2011) and Bayer (~$1 million; lender under Bayer AG's €3.5 billion revolving credit facility). Notably, the proposed transaction multiples (7.9x LTM sales, 39.4x LTM adjusted EBITDA) exceeded the precedent transaction ranges, while premiums paid were below the precedent medians.

Other Medical Devices and Supplies fairness opinions

Solta Medical / Valeant Pharmaceuticals International 2013 · 11.2x EV/EBITDA
Rochester Medical / C. R. Bard 2013 · 13.1x EV/EBITDA
Theragenics / Juniper Investment 2013 · 9.6x EV/EBITDA
CareFusion / Becton Dickinson 2014 · 13.0x EV/EBITDA
Covidien / Medtronic 2014 · 17.5x EV/EBITDA
Symmetry Medical OEMS Business / Tecomet 2014 · 8.5x EV/EBITDA

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