Covetrus acquired by Clayton, Dubilier & Rice: fairness opinion by Goldman Sachs
Announced May 24, 2022 · Going-private · All cash ·
DEFM14A filed September 13, 2022
Distribution and Equipment Services Distribution: Veterinary
Enterprise value
$4.0B
EV / LTM EBITDA
14.0x
EBITDA $285M · 6% margin
EV / LTM revenue
0.81x
revenue $4.9B
DCF discount rate
9.0%–11.5%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$21.00
Premium16.5%
Premium basisclosing price of $18.02 on May 19, 2022 (last trading day before Schedule 13D/A disclosing CD&R/TPG proposal); 37.5% premium to unaffected $15.27 closing price on May 13, 2022
StructureGoing-private
Termination fee$88.3M (2.9% of equity)
Reverse termination fee$198M
Go-shopNone
Outside dateNovember 24, 2022
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $21.00 offer
Precedent transactions — EV / LTM EBITDA (LTM Adjusted EBITDA of $250 million for twelve months ended March 31, 2022) $12.74 – $27.02
Discounted cash flow $14.76 – $27.02
Illustrative Present Value of Future Share Price Analysis $17.32 – $27.73
Premia Paid Analysis $18.92 – $25.52
Analyst Price Targets (Other Information) $16.00 – $26.00
52-Week Trading Range (Other Information) $13.39 – $29.02
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 May 24, 2022 · Fee $32.0M ($29.5M contingent on closing)
Discounted cash flow assumptions
Discount rate9.0%–11.5%
BasisWACC derived using CAPM
Terminal valuePerpetuity growth
Perpetuity growth2.5%–3.5%
Exit multiple6.5x–10.7x implied exit terminal year EV/EBITDA
Projection periodQ2-Q4 2022 and 2023-2028
Projections usedForecasts (management projections approved for Goldman Sachs' use)
Implied value per share$14.76–$27.02
Discounted to present value as of March 31, 2022; net debt of $904 million as of March 31, 2022 subtracted; fully diluted shares as of May 20, 2022 using treasury stock method.
Selected public companies (6)
Henry Schein, Inc. · McKesson Corporation · AmerisourceBergen Corporation · Patterson Companies, Inc. · Cardinal Health, Inc. · Owens & Minor, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2022E EBITDA | 8.6x | — | 12.0x | — | — |
Selected precedent transactions (11)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2021-01 | Majority of Alliance Healthcare Business from Walgreens Boots Alliance, Inc. | AmerisourceBergen Corporation | 12.0x EV/LTM EBITDA |
| 2012-10 | PSS World Medical, Inc. | McKesson Corporation | 11.9x EV/LTM EBITDA |
| 2013-10 | Celesio AG | McKesson Corporation | 11.0x EV/LTM EBITDA |
| 2015-01 | MWI Veterinary Supply, Inc. | AmerisourceBergen Corporation | 19.3x EV/LTM EBITDA |
| 2017-01 | VCA Inc. | Mars, Incorporated | 18.3x EV/LTM EBITDA |
| 2015-05 | Animal Health International, Inc. | Patterson Companies, Inc. | 16.2x EV/LTM EBITDA |
| 2013-05 | Allflex Europe UK Ltd. | BC Partners, Inc. | 13.0x EV/LTM EBITDA |
| 2014-12 | PetSmart, Inc. | BC Partners, Inc. | 9.3x EV/LTM EBITDA |
| 2018-06 | Cotiviti Holdings, Inc. | Verscend Technologies, Inc. | 18.0x EV/LTM EBITDA |
| 2021-01 | Change Healthcare, Inc. | UnitedHealth Group Incorporated | 14.9x EV/LTM EBITDA |
| 2021-12 | Cerner Corporation | Oracle Corporation | 14.8x EV/LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (LTM Adjusted EBITDA of $250 million for twelve months ended March 31, 2022) | 9.3x | — | 19.3x | 11.0x–19.3x | $12.74–$27.02 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | Reviewed trading prices/volumes Feb 8, 2019-May 19, 2022. $21.00 represented premiums of 16.5% to $18.02 (5/19/22 close), 34.8%/29.4%/25.7% to 30-/60-/90-day VWAPs ended 5/19/22 ($15.58/$16.23/$16.71), 37.5% to $15.27 (5/13/22 close), and 38.8%/30.3%/25.6% to 30-/60-/90-day VWAPs ended 5/13/22 ($15.13/$16.12/$16.71). | — |
| Illustrative Present Value of Future Share Price Analysis | Applied NTM EV/EBITDA multiples of 10.0x to 13.0x to NTM EBITDA estimates for fiscal years 2022-2024 based on the Forecasts, subtracted projected net debt, and discounted at 11.7% cost of equity (CAPM). | $17.32–$27.73 |
| Premia Paid Analysis | 36 healthcare (ex-biopharma) U.S. target acquisitions closed Jan 1, 2010-May 18, 2022 with EV of $1.0-$5.0 billion; mean premium 36.2%, 25th percentile 23.9%, 75th percentile 41.6%. Applied 23.9%-41.6% to $18.02 (5/19/22) implying $22.33-$25.52 and to unaffected $15.27 (5/13/22) implying $18.92-$21.62. | $18.92–$25.52 |
| Analyst Price Targets (Other Information) | Five publicly available Wall Street research analyst price targets as of May 19, 2022 ranged $16.00-$26.00, median $22.00. | $16.00–$26.00 |
| 52-Week Trading Range (Other Information) | 52-week intra-day trading range of Company common stock for period ending May 19, 2022. | $13.39–$29.02 |
Transaction fee estimated at approximately $32 million, $2.5 million of which became payable at announcement of the Merger and the remainder contingent upon consummation; engagement letter dated February 9, 2022. Opinion delivered to the Board and the Transaction Committee.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $5.3B | $5.8B | $6.2B | $6.6B | $6.9B | 6.7% |
| Revenue growth | 8.4% | 8.3% | 7.9% | 5.9% | 4.8% | |
| EBITDA | $349M | $397M | $459M | $500M | $537M | 11.4% |
| EBITDA growth | 22.5% | 13.8% | 15.6% | 8.9% | 7.4% | |
| EBITDA margin | 7% | 7% | 7% | 8% | 8% | |
| Implied EV / EBITDA | 11.5x | 10.1x | 8.7x | 8.0x | 7.4x |
Year-1 growth is against LTM at announcement ($4.9B revenue, $285M EBITDA); later years are year over year.
Goldman Sachs used internal financial analyses and forecasts prepared by Covetrus management and approved for its use (the "Forecasts"), covering unlevered free cash flow for the second through fourth quarters of 2022 and fiscal years 2023 through 2028, plus projected net debt and diluted shares as of December 31, 2022, 2023 and 2024. LTM Adjusted EBITDA for the twelve months ended March 31, 2022 was $250 million and net debt was $904 million as of March 31, 2022. NTM EBITDA estimates for fiscal 2022-2024 from the Forecasts were also used in the present value of future share price analysis.
Process notes
Going-private transaction (Schedule 13e-3) in which CD&R (an existing large stockholder through CD&R VFC Holdings) and TPG jointly took Covetrus private; equity commitments aggregating $1.604 billion from a CD&R affiliate and TPG affiliates, with limited guarantees covering the $197,950,000 Parent termination fee. A Transaction Committee of the Board, in addition to the full Board, received Goldman Sachs' opinion (Goldman Sachs was the sole financial advisor delivering an opinion). Company termination fee of $88,315,000 stated as approximately 2.9% of equity value. Outside date November 24, 2022, subject to an automatic three-month extension in certain circumstances. Goldman Sachs disclosed approximately $100 million of compensation from CD&R and approximately $325 million from TPG and their affiliates/portfolio companies over the prior two years, and no compensation from Covetrus.
Other Distribution and Equipment Services fairness opinions
- Apria / Owens & Minor 2022 · 12.0x EV/EBITDA
- Patterson Companies / Patient Square Capital 2024 · 12.0x EV/EBITDA
- Agiliti / Thomas H. Lee Partners 2024 · 9.4x EV/EBITDA
- Quipt Home Medical / Kingswood Capital Management / Forager Capital Management 2025 · 4.7x EV/EBITDA
- Universal Hospital Services / Federal Street Acquisition 2018 · 11.9x EV/EBITDA
- PSS World Medical / McKesson 2012 · 10.6x EV/EBITDA
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