Eclipsys acquired by Allscripts-Misys Healthcare Solutions: fairness opinion by William Blair and UBS and Perella Weinberg Partners
Announced June 9, 2010 · Stock merger · All stock ·
DEFM14A filed July 14, 2010
Digital / HealthTech PM / EMR
Enterprise value
$1.3B
EV / LTM EBITDA
14.9x
EBITDA $87.0M · 17% margin
EV / LTM revenue
2.47x
revenue $526M
DCF discount rate
10.3%–11.3%
Exit multiple
Deal terms
ConsiderationAll stock
Price per share$22.10
Premium19.4%
Premium basisEclipsys closing price of $18.51 on June 8, 2010 (one-day implied price of $22.10)
StructureStock merger
Termination fee$40.0M
Reverse termination fee$40.0M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Each share of Eclipsys common stock converted into 1.2 shares of Allscripts common stock; implied value of $22.10 per share based on Allscripts closing price of $18.42 on June 8, 2010. 20-trading day average implied price was $23.06.
Implied value per share by method vs. $22.10 offer
Selected companies — Price / 2010E EPS (Eclipsys, Street Projections) (Perella Weinberg Partners) $18.51 – $19.28
Selected companies — Price / 2011E EPS (Eclipsys, Street Projections) (Perella Weinberg Partners) $18.51 – $19.49
Selected companies — Price / 2010E EPS (Eclipsys, adjusted for PV of NOLs) (Perella Weinberg Partners) $18.51 – $20.65
Selected companies — Price / 2011E EPS (Eclipsys, adjusted for PV of NOLs) (Perella Weinberg Partners) $18.51 – $20.85
Selected companies — Price / 2010E EPS (Allscripts, Street Projections as adjusted for Coniston Transactions) (Perella Weinberg Partners) $18.20 – $19.62
Selected companies — Price / 2011E EPS (Allscripts, Street Projections as adjusted for Coniston Transactions) (Perella Weinberg Partners) $18.72 – $20.80
Precedent transactions — EV / LTM EBITDA (Perella Weinberg Partners) $23.73 – $26.68
Precedent transactions — Price / LTM EPS (Perella Weinberg Partners) $24.49 – $24.88
Discounted cash flow (Perella Weinberg Partners) $18.85 – $21.28
Implied Value Per Share (Perella Weinberg Partners) $22.10 – $23.06
Historical Stock Trading and Transaction Premium Analysis (Eclipsys) (Perella Weinberg Partners) $15.72 – $21.50
Equity Research Analyst Price Targets (Eclipsys) (Perella Weinberg Partners) $18.00 – $26.00
Premiums Paid Analysis (Perella Weinberg Partners) $19.62 – $23.88
Historical Stock Price Analysis (Allscripts) (Perella Weinberg Partners) $12.69 – $22.55
Equity Research Price Target Statistics (Allscripts) (Perella Weinberg Partners) $19.00 – $26.00
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of William Blair to the acquirer board
Delivered June 8, 2010 · Fee $0.5M ($0.0M contingent on closing), $0.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate11.0%–13.0%
Basisweighted average cost of capital analysis applying the capital asset pricing model
Terminal valueExit multiple
Perpetuity growth—
Exit multiple13.0x–15.0x 2014 EBITDA
Projection periodJune 30, 2010 - December 31, 2014
Projections usedEclipsys Forecasts (FY2010 Eclipsys management as adjusted by Allscripts management; FY2011-2014 prepared by Allscripts management); parallel DCF of Allscripts used Allscripts Forecasts
Implied value per share—
Separate DCFs performed for Eclipsys and Allscripts; implied per-share ranges not disclosed.
Selected public companies (7)
Allscripts-Misys Healthcare Solutions, Inc. · athenahealth, Inc. · Computer Programs and Systems, Inc. · Cerner Corporation · MedAssets, Inc. · Quality Systems, Inc. · Eclipsys Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue (Eclipsys analysis) | 3.4x | 3.8x | 5.4x | — | — |
| EV / 2010E Revenue (Eclipsys analysis) | 3.0x | 3.5x | 4.3x | — | — |
| EV / 2011E Revenue (Eclipsys analysis) | 2.4x | 3.1x | 3.6x | — | — |
| EV / LTM Adj. EBITDA (Eclipsys analysis) | 12.4x | 16.6x | 21.2x | — | — |
| EV / 2010E Adj. EBITDA (Eclipsys analysis) | 11.3x | 14.4x | 17.5x | — | — |
| EV / 2011E Adj. EBITDA (Eclipsys analysis) | 10.0x | 11.4x | 11.8x | — | — |
| Equity Value / LTM Net Income (Eclipsys analysis) | 26.2x | 31.3x | 54.8x | — | — |
| Equity Value / 2010E Net Income (Eclipsys analysis) | 25.3x | 27.1x | 46.1x | — | — |
| Equity Value / 2011E Net Income (Eclipsys analysis) | 18.3x | 21.7x | 26.8x | — | — |
| EV / LTM Revenue (Allscripts analysis) | 1.9x | 3.7x | 5.4x | — | — |
| EV / 2010E Revenue (Allscripts analysis) | 1.8x | 3.3x | 4.3x | — | — |
| EV / 2011E Revenue (Allscripts analysis) | 1.6x | 2.9x | 3.6x | — | — |
| EV / LTM Adj. EBITDA (Allscripts analysis) | 11.3x | 15.7x | 21.2x | — | — |
| EV / 2010E Adj. EBITDA (Allscripts analysis) | 10.9x | 13.7x | 17.5x | — | — |
| EV / 2011E Adj. EBITDA (Allscripts analysis) | 8.6x | 11.1x | 11.5x | — | — |
| Equity Value / LTM Net Income (Allscripts analysis) | 28.3x | 33.0x | 54.8x | — | — |
| Equity Value / 2010E Net Income (Allscripts analysis) | 25.3x | 26.5x | 46.1x | — | — |
| Equity Value / 2011E Net Income (Allscripts analysis) | 18.3x | 20.5x | 26.8x | — | — |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-04 | AMICAS, Inc. | Merge Healthcare Inc. | — |
| 2008-10 | Allscripts | Misys | — |
| 2008-08 | MEDecision, Inc. | Health Care Service Corp. | — |
| 2008-08 | The TriZetto Group, Inc. | Apax Partners Worldwide LLP | — |
| 2008-06 | Accuro Healthcare Solutions, Inc. | MedAssets Inc. | — |
| 2008-05 | eScription, Inc. | Nuance Communications Inc. | — |
| 2008-02 | VISICU, Inc. | Koninklijke Philips Electronics NV | — |
| 2007-04 | Netsmart Technologies, Inc. | Insight Venture Partners | — |
| 2007-01 | Per-Se Technologies Inc. | McKesson Corp. | — |
| 2007-01 | Quality Care Solutions, Inc. | The TriZetto Group Inc. | — |
| 2006-09 | Emdeon Practice Services, Inc. | Sage Software, Inc. | — |
| 2006-01 | NDCHealth Corp. | Per-Se Technologies Inc. | — |
| 2006-01 | IDX Systems, Corp. | General Electric Co. | — |
| 2005-06 | Cedara Software Corp. | Merge Technologies Inc. | — |
| 2005-04 | IMPAC Medical Systems, Inc. | Elekta AB | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue | 1.8x | 2.5x | 8.5x | — | — |
| EV / LTM Adj. EBITDA | 11.1x | 15.1x | 19.9x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums Paid Analysis | Reviewed 333 acquisitions of publicly traded domestic companies and 34 stock-for-stock transactions announced since January 1, 2006 with enterprise values between $500 million and $5 billion; implied premiums at $22.10 per share were 19.4% (1 day), 14.7% (1 week), 15.4% (10 days), 14.4% (1 month), 9.5% (60 days), 7.9% (90 days) and 17.8% (180 days), compared with percentile distributions of premiums paid. | — |
| Earnings Accretion/Dilution Analysis | Pro forma impact of the merger, Share Repurchase and Contingent Share Repurchase on Allscripts' 2H 2010 and FY2011 EBIT and EPS; indicated the transactions would be accretive to Allscripts EPS in 2H 2010 and 2011 assuming Expected Synergies and excluding one-time costs. | — |
| Contribution Analysis | Relative contributions of Allscripts and Eclipsys to pro forma revenue, EBITDA and EBIT; implied pro forma fully-diluted Eclipsys ownership of 30.9% on enterprise value, 42.0-43.0% on revenue, 33.0-34.0% on EBITDA and 29.5-36.4% on EBIT. | — |
| Black-Scholes Option Pricing Analysis | Valued the Misys option requiring Allscripts to purchase $101.6 million of additional Allscripts stock (Contingent Share Repurchase) at between $3.8 million and $9.6 million. | — |
| Current Put Option Market Prices Analysis | Using traded Allscripts put option prices as of June 8, 2010, implied value of the Contingent Share Repurchase option was between $6.0 million and $8.8 million. | — |
| Issuer Share Repurchase Transactions / Premium Analysis | Reviewed 13 issuer stock repurchase transactions since 1998 where a 20%+ holder fell below 20%; incremental economic premium ranged from 0.1% to 6.2%, median 3.1%. Issuers/sellers included FBR Capital Markets/Friedman Billings Ramsey, Alpharma/AL Industrier, Omega Protein/Zapata, Sotheby's/Taubman family, Middleby/Whitman family, Clorox/Henkel, Cato/Cato family, ExpressJet/Continental, Chromcraft Revington/Court Square, Interstate Bakeries/Ralston Purina, Risk Capital/XL Capital, Suburban Propane/Millennium Chemical, Salton Maxim/Windmere-Durable. | — |
| Block Trade Transactions | Reviewed 9 third-party block trades since 1998; incremental economic premium ranged from 1.5% to 32.8%, median 21.8%. Targets/acquirors included Emerson Radio/Grande Holdings, Williams Energy Partners/Madison Dearborn, Seminis/Fox Paine, Ampal-American Israel/Y.M. Noy, Convera/Allen & Company, Hexcel/Goldman Sachs, Gemstar TV Guide/News Corp, Herbalife/Rbid.com, Maui Land & Pineapple/investor group. Also analyzed 371 domestic public transactions with EVs of $0.5-$5.0 billion announced since January 1, 2006 (93.6% showed a premium to one-day price). | — |
Fee of $500,000 from Allscripts, payable regardless of the conclusions of its opinions or consummation of the transactions; William Blair previously received $200,000 in 2009 for advising Allscripts on the sale of its medication services business. Two opinions delivered (merger/Share Repurchase/Contingent Share Repurchase and Share Repurchase alone) to the Allscripts audit committee and board.
Opinion of UBS to the acquirer board
Delivered June 8, 2010 · Fee $5.0M ($3.3M contingent on closing), $1.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.0%–12.0%
BasisWACC
Terminal valueExit multiple
Perpetuity growth—
Exit multiple9.0x–11.0x CY2016E adjusted EBITDA
Projection periodJuly 1, 2010 - December 31, 2016
Projections usedAllscripts Management Estimates
Implied value per share$19.75–$24.50
Eclipsys stand-alone DCF implied $19.75-$24.50 per share, including NPV of $92 million of Eclipsys NOLs discounted at 6.5%. Allscripts stand-alone DCF (after giving effect to the Coniston Transactions) implied $16.25-$22.00 per share, including NPV of $46 million of Allscripts NOLs at 6.5%.
Selected public companies (6)
Cerner Corporation · Computer Programs and Systems, Inc. · Quality Systems, Inc. · athenahealth, Inc. · Emdeon Inc. · MedAssets, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2010E Adjusted EBITDA | 7.7x | 13.4x | 17.4x | — | — |
| EV / CY2011E Adjusted EBITDA | 6.7x | 10.2x | 11.8x | — | — |
| Price / CY2010E Adjusted EPS | 13.3x | 25.9x | 47.4x | — | — |
| Price / CY2011E Adjusted EPS | 11.0x | 19.7x | 29.6x | — | — |
Selected precedent transactions (10)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2006-11-06 | Per-Se Technologies, Inc. | McKesson Corporation | — |
| 2006-08-09 | Emdeon Practice Services, Inc. | The Sage Group plc | — |
| 2006-01-19 | A4 Health Systems, Inc. | Allscripts Healthcare Solutions, Inc. | — |
| 2005-09-29 | IDX Systems Corporation | GE Healthcare, a unit of General Electric Company | — |
| 2005-08-29 | NDCHealth Corporation | Per-Se Technologies, Inc. | — |
| 2005-01-18 | IMPAC Medical Systems, Inc. | Elekta AB | — |
| 2004-11-16 | Medical Division of VitalWorks Inc. | Cerner Corporation | — |
| 2003-07-21 | PracticeWorks, Inc. | Eastman Kodak Company | — |
| 2001-06-25 | Sunquest Information Systems, Inc. | Misys plc | — |
| 2000-05-01 | Shared Medical Systems Corporation | Siemens Medical Engineering Group | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Transaction Value / LTM Adjusted EBITDA | 9.5x | 17.5x | 26.1x | — | — |
| Transaction Value / FY+1 Adjusted EBITDA | 9.1x | 11.3x | 12.6x | — | — |
| Transaction Value / FY+2 Adjusted EBITDA | 8.3x | 9.8x | 10.3x | — | — |
| Equity Value / LTM Adjusted Net Income | 27.3x | 30.3x | 35.7x | — | — |
| Equity Value / FY+1 Adjusted Net Income | 22.5x | 29.1x | 47.9x | — | — |
| Equity Value / FY+2 Adjusted Net Income | 22.2x | 26.4x | 30.9x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Pro Forma Combined Discounted Cash Flow Analysis | DCF of Allscripts pro forma for the merger using Allscripts Management Estimates, with revenue synergies terminal value at 9.0x-11.0x CY2016E adjusted EBITDA and cost synergies terminal value at 2.0%-3.0% perpetuity growth, discount rates of 10.0%-12.0%; implied $18.00-$24.00 per pro forma share versus $16.25-$22.00 stand-alone, an increase of approximately 9% to 11%. | $18.00–$24.00 |
| Contribution Analysis | Pro forma equity ownership 63% Allscripts / 37% Eclipsys; Eclipsys contribution to non-GAAP net income 25%-29% (CY2009A-CY2012E) and to adjusted EBITDA with synergies 28%-35%; enterprise value at transaction 72% Allscripts / 28% Eclipsys. | — |
| Accretion/Dilution Analysis | Merger accretive to Allscripts estimated non-GAAP EPS by $0.06 (6.4%) in 2011E and $0.06 (5.6%) in 2012E after giving effect to the Coniston Transactions, the Contingent Share Repurchase and expected synergies. | — |
Aggregate fee estimated at approximately $5.0 million: $1 million payable in connection with the opinion, $750,000 upon adoption of the merger agreement by Eclipsys stockholders, $3.25 million contingent on consummation; Allscripts may pay an additional discretionary fee. UBS may also provide financing/underwriting services for the Coniston Transactions.
Opinion of Perella Weinberg Partners to the target board
Delivered June 8, 2010 · Fee $9.0M ($7.8M contingent on closing), $1.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.3%–11.3%
Basisestimated weighted average cost of capital of Eclipsys, based on Beta and capital structure of Healthcare IT public companies
Terminal valueExit multiple
Perpetuity growth—
Exit multiple11.0x–12.0x terminal year EBITDA
Projection periodQ2 FY2010 - FY2014
Projections usedEclipsys Street Projections (IBES median) for FY2010-2012; FY2013-2014 extrapolated at 5.0% revenue growth with FY2012 margins
Implied value per share$18.85–$21.28
Included present value of estimated NOL carry-forward balance. Separate Allscripts DCF used 10.0%-11.0% discount rates and 15.8x-17.8x terminal EBITDA multiples, implying $20.54-$24.11 per Allscripts share.
Selected public companies (6)
Allscripts-Misys Healthcare Solutions, Inc. · athenahealth, Inc. · Cerner Corporation · MedAssets, Inc. · Quality Systems, Inc. · Eclipsys Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Price / 2010E EPS (Eclipsys, Street Projections) | — | — | — | 25.0x–26.1x | $18.51–$19.28 |
| Price / 2011E EPS (Eclipsys, Street Projections) | — | — | — | 20.1x–21.2x | $18.51–$19.49 |
| Price / 2010E EPS (Eclipsys, adjusted for PV of NOLs) | — | — | — | 22.9x–25.3x | $18.51–$20.65 |
| Price / 2011E EPS (Eclipsys, adjusted for PV of NOLs) | — | — | — | 18.4x–21.0x | $18.51–$20.85 |
| Price / 2010E EPS (Allscripts, Street Projections as adjusted for Coniston Transactions) | — | — | — | 26.2x–28.3x | $18.20–$19.62 |
| Price / 2011E EPS (Allscripts, Street Projections as adjusted for Coniston Transactions) | — | — | — | 21.1x–23.4x | $18.72–$20.80 |
Selected precedent transactions (7)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2008-04-11 | The Trizetto Group, Inc. | Investor Group | — |
| 2006-11-05 | Per-Se Technologies, Inc. | McKesson Corporation | — |
| 2005-09-29 | IDX Systems Corporation | General Electric Company | — |
| 2005-08-29 | NDCHealth Corporation | Per-Se Technologies, Inc. | — |
| 2005-01-18 | IMPAC Medical Systems, Inc. | Elekta AB | — |
| 2003-07-21 | PracticeWorks, Inc. | Eastman Kodak Company | — |
| 2000-05-01 | Shared Medical Systems Corporation | Siemens AG | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | — | — | — | 15.4x–17.6x | $23.73–$26.68 |
| Price / LTM EPS | — | — | — | 37.1x–37.7x | $24.49–$24.88 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Value Per Share | 1.2 exchange ratio times Allscripts closing price of $18.42 on June 8, 2010 implied $22.10 per share (One-Day Implied Price); times 20-trading-day average price of $19.21 implied $23.06 (20-Trading Day Implied Price). | $22.10–$23.06 |
| Historical Stock Trading and Transaction Premium Analysis (Eclipsys) | 52-week intraday range for Eclipsys of $15.72-$21.50. One-Day Implied Price premiums of 19.4% to June 8, 2010 close of $18.51, 14.6% to one-week average of $19.29 and 14.9% to 20-trading-day average of $19.24; 20-Trading Day Implied Price premiums of 24.6%, 19.5% and 19.8%. Historical exchange ratios of 1.005x (spot), 1.013x (one week) and 1.002x (20 days) implying premiums of 19.4%, 18.5% and 19.8%. | $15.72–$21.50 |
| Equity Research Analyst Price Targets (Eclipsys) | Undiscounted analyst price targets published May 4 - June 8, 2010 ranged from approximately $18.00 to $26.00 per Eclipsys share. | $18.00–$26.00 |
| Premiums Paid Analysis | Premiums paid since 2000 in technology (14%-28%), software (14%-29%), Healthcare IT (20%-28%) and structurally similar transactions (6%-26%) applied to the Eclipsys June 8, 2010 closing price, implying $19.62-$23.88 per share. | $19.62–$23.88 |
| Contribution Analysis | Eclipsys contributed 43%-44% of revenue, 39%-41% of gross profit, 33%-43% of adjusted EBITDA, 28%-31% of adjusted net income and 33%-47% of free cash flow for 2009A/2010E; equity value 28% and enterprise value 25%. Pro forma ownership of the combined company by Eclipsys stockholders calculated at 36.7%. | — |
| Historical Stock Price Analysis (Allscripts) | 52-week intraday range for Allscripts of $12.69-$22.55 versus $18.94 close on June 4, 2010. | $12.69–$22.55 |
| Equity Research Price Target Statistics (Allscripts) | Undiscounted analyst price targets for Allscripts published April 8 - June 4, 2010 ranged from approximately $19.00 to $26.00 per share. | $19.00–$26.00 |
$200,000 upon execution of the engagement letter, $1 million upon delivery of the opinion, and $9 million upon consummation of the merger (reduced by amounts already paid), i.e. $7.8 million incremental contingent on closing.
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Management projections
William Blair and UBS relied on management forecasts: the Allscripts Forecasts (FY2010-2014 prepared by Allscripts senior management) and the Eclipsys Forecasts (FY2010 prepared by Eclipsys management as adjusted by Allscripts management, FY2011-2014 prepared by Allscripts management), plus Expected Synergies estimated by both managements. UBS extended its DCF horizon to December 31, 2016 using the "Allscripts Management Estimates," including NOL carryforwards of $92 million (Eclipsys), $46 million (Allscripts) and $135 million (pro forma combined). Perella Weinberg was not given management projections for either company and instead used IBES median "Street Projections" for FY2010-2012, extrapolating FY2013-2014 at a 5.0% revenue growth rate with FY2012 margins; Eclipsys LTM EBITDA was approximately $80 million and LTM EPS approximately $0.66.
Process notes
All-stock merger of equals-style combination: 1.2 Allscripts shares per Eclipsys share, implied $22.10 per share. Three fairness opinions, all dated June 8, 2010: William Blair (two opinions, to the Allscripts audit committee and board, addressing fairness to Allscripts holders other than Misys and its affiliates, of consideration in the merger, Share Repurchase and Contingent Share Repurchase), UBS (to the Allscripts board, exchange ratio fair to Allscripts), and Perella Weinberg (to the Eclipsys board, exchange ratio fair to Eclipsys holders other than Allscripts and its affiliates). Blackstone also advised the Allscripts audit committee and provided an opinion/analysis regarding the related Coniston Transactions/Share Repurchase from Misys (that section was not in the sliced material, but Blackstone's dual-class recapitalization and third-party acquisition analyses were referenced and relied on by William Blair). The merger was conditioned on the Coniston Transactions (Misys share repurchase/separation) and was accompanied by Misys and ValueAct voting agreements. Termination fees are two-tiered and reciprocal: approximately $17.7 million (limited by London Stock Exchange rules) before closing of the Coniston Transactions and $40 million afterward, plus expense reimbursement up to $5 million. Perella Weinberg was not authorized to solicit indications of interest.
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