Fairness opinions › Physician Groups › 2011

Emergency Medical Services acquired by Clayton, Dubilier & Rice: fairness opinion by Goldman Sachs

Announced February 14, 2011 · Going-private · All cash · DEFM14A filed April 22, 2011

Physician Groups Facility-Based

Enterprise value

$3.2B

equity $2913B

EV / LTM EBITDA

10.2x

EBITDA $314M · 11% margin

EV / LTM revenue

1.12x

revenue $2.9B

DCF discount rate

9.5%–10.5%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$64.00

Premium—

Premium basis—

StructureGoing-private

Termination fee$117M (4.0% of equity)

Reverse termination fee$204M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $64.00 offer

Discounted cash flow $55.49 – $72.16

Illustrative Present Value of Future Share Price Analysis (P/E based) $52.45 – $67.17

Illustrative Present Value of Future Share Price Analysis (EBITDA based) $55.63 – $66.35

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 February 13, 2011 · Fee $12.9M ($12.4M contingent on closing)

Discounted cash flow assumptions

Discount rate9.5%–10.5%

BasisCompany's weighted average cost of capital derived using the capital asset pricing model

Terminal valuePerpetuity growth

Perpetuity growth1.5%–2.5%

Exit multiple6.4x–8.3x implied terminal value 2015E Adjusted EBITDA multiple (cross-check)

Projection period2011E-2014E with 2015 terminal value

Projections usedForecasts prepared by Company management in January 2011

Implied value per share$55.49–$72.16

Discounted to December 31, 2010 using mid-year convention and a 38.5% marginal tax rate; stock-based compensation treated as a cash expense.

Selected public companies (5)

IPC The Hospitalist Company, Inc. · Team Health Holdings, Inc. · Mednax, Inc. · Rural/Metro Corporation · Air Methods Corporation

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / 2011E EBITDA (selected hospital outsourcing companies)	8.3x	9.4x	11.8x	—	—
EV / 2011E EBITDA (selected ambulance response services companies)	7.4x	7.7x	8.1x	—	—
Price / 2011E EPS (selected hospital outsourcing companies)	14.2x	15.8x	21.9x	—	—
Price / 2011E EPS (selected ambulance response services companies)	16.1x	17.4x	18.7x	—	—

Selected precedent transactions (9)

Date	Target	Acquirer	Multiple
2010-09	NightHawk Radiology Holdings, Inc.	Virtual Radiologic Corp.	6.9x EV / LTM EBITDA
2010-08	Air Medical Group Holdings	Bain Capital	—
2010-08	Prospect Medical Holdings, Inc.	Leonard Green & Partners L.P.	6.2x EV / LTM EBITDA
2010-07	Health Grades, Inc.	Vestar Capital Partners	8.2x EV / LTM EBITDA
2010-05	Virtual Radiologic Corp.	Providence Equity Partners	8.3x EV / LTM EBITDA
2010-05	Healthscope Ltd.	TPG Capital, Carlyle Group and The Blackstone Group	7.6x EV / LTM EBITDA
2007-05	Sheridan Healthcare, Inc.	Hellman & Friedman	—
2005-10	Team Health Holdings, Inc.	The Blackstone Group	8.9x EV / LTM EBITDA
2004-12	AMR and EmCare	Onex Partners LP	5.8x EV / LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA	5.8x	7.6x	8.9x	—	—

Other analyses

Analysis	Summary	Implied per share
Illustrative Present Value of Future Share Price Analysis (P/E based)	Applied forward P/E multiples of 14.4x (Undisturbed Date 12/13/10 price) and 16.5x (historical one-year average forward P/E) to FY2011-FY2014 estimated EPS from the January 2011 Forecasts, discounted to 12/31/2010 at 10.5%-11.5% cost of equity.	$52.45–$67.17
Illustrative Present Value of Future Share Price Analysis (EBITDA based)	Applied forward Adjusted EBITDA multiples of 7.1x (Undisturbed Date price) and 7.5x (historical one-year average forward multiple) to forward Adjusted EBITDA for FY2011-FY2014, discounted to 12/31/2010 at 10.5%-11.5% cost of equity.	$55.63–$66.35
Illustrative Leveraged Buyout Analysis	Assumed $64.00 per share purchase price, pro forma debt / financeable pro forma 2010 Adjusted EBITDA of 6.7x, retirement of certain Company debt and approximately $2.3 billion of debt financing; exit at end of 2014 at one-year forward exit Adjusted EBITDA multiples of 7.1x-7.5x and pro forma leverage of 6.5x-6.75x, producing illustrative equity IRRs of 18.1% to 22.6%.	—

Transaction fee currently estimated at approximately $12.95 million, $500,000 payable upon execution of the merger agreement and the balance payable upon completion of the merger; expenses reimbursed and indemnification provided. Engagement letter dated December 14, 2010.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$3.2B	$3.4B	$3.8B	$4.1B	$4.5B	9.5%
Revenue growth	10.4%	7.9%	10.3%	9.9%	9.8%
EBITDA	$363M	$398M	$442M	$487M	$538M	10.3%
EBITDA growth	15.8%	9.6%	11.0%	10.2%	10.4%
EBITDA margin	11%	12%	12%	12%	12%
Implied EV / EBITDA	8.8x	8.0x	7.2x	6.6x	6.0x

Year-1 growth is against LTM at announcement ($2.9B revenue, $314M EBITDA); later years are year over year.

Management prepared five-year forecasts for fiscal years 2011-2015 in November 2010, revised in January 2011 for actual 2010 results and revised acquisition timing; the January 2011 revised case (the "Forecasts" used by Goldman Sachs) shows revenue growing from $3,161.1 million in 2011E to $4,542.7 million in 2015E and Adjusted EBITDA from $361.8 million to $536.3 million, with diluted EPS of $3.63 rising to $6.07 and free cash flow of $212.2 million rising to $298.8 million. The initial November 2010 case showed 2011E revenue of $3,167.4 million and Adjusted EBITDA of $363.3 million, rising to $4,546.8 million and $537.6 million in 2015E. Assumptions included organic growth of 10%-11% at EmCare and 3%-4% at AMR for 2012-2015 with consistent EmCare margins and slight AMR margin improvement.

Process notes

Going-private LBO by CD&R; Goldman Sachs was the sole provider of a fairness opinion, delivered to the Company's board of directors. Onex Affiliates, holding LP exchangeable units representing ~31.0% of total equity and ~81.5% of voting power, signed a unitholders agreement to vote in favor, so stockholder approval was assured absent termination for a superior proposal. A special committee participated in the auction process (bids from CD&R and "Party B"); CD&R's bid rose from $63.00 to $63.75 to $64.00 per share while the board sought $64.50. Break-up fee of $116,505,000 equals ~4.0% and reverse termination fee of $203,884,000 equals ~7.0% of transaction equity value; CD&R Fund VIII provided a limited guarantee capped at the reverse fee. Goldman Sachs disclosed that BofA Merrill Lynch (also a Company financial advisor) affiliates were contemplated as a potential debt financing source, and that GS-managed funds hold ~1.8% of CD&R Fund VIII; CD&R paid Goldman fees over the prior two years exceeding its merger fee. Equity value of approximately $2.9 billion implied from the 4%/7% fee percentages (not stated directly in the filing).

Other Physician Groups fairness opinions

Continucare / Metropolitan Health Networks 2011 · 9.2x EV/EBITDA
Metropolitan Health Networks / Humana 2012 · 8.2x EV/EBITDA
Nighthawk Radiology Holdings / Virtual Radiologic 2010 · 12.9x EV/EBITDA
Virtual Radiologic / Providence Equity Partners 2010 · 9.5x EV/EBITDA
IPC Healthcare / TeamHealth 2015 · 22.5x EV/EBITDA
Network Medical Management / Apollo Medical Holdings 2016 · 9.5x EV/EBITDA

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