Fairness opinions › Pharmaceutical Services › 2012

eResearch Technology acquired by Genstar Capital: fairness opinion by J.P. Morgan

Announced April 10, 2012 · Going-private · All cash · DEFM14A filed May 21, 2012

Pharmaceutical Services Consulting Sponsor: Genstar Capital LLC (Genstar Capital Partners VI, L.P.)

Enterprise value

$423M

EV / LTM EBITDA

7.7x

EBITDA $55.0M · 28% margin

EV / LTM revenue

2.13x

revenue $199M

DCF discount rate

11.0%–12.0%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share—

Premium—

Premium basis—

StructureGoing-private

Termination fee$11.0M (2.8% of equity)

Reverse termination fee$20.0M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method

Selected companies — FV / EBITDA 2012E $9.20 – $12.65

Selected companies — FV / EBITDA-CapEx 2012E $6.15 – $8.70

Selected companies — P / E 2012E $6.20 – $10.95

Precedent transactions — LTM P/E $7.50 – $9.10

Precedent transactions — LTM EBITDA $6.85 – $9.55

Discounted cash flow $7.20 – $8.50

Ranges as disclosed in the banker’s summary of analyses.

Opinion of J.P. Morgan to the target board

Delivered April 9, 2012 · Fee $6.0M ($5.0M contingent on closing)

Discounted cash flow assumptions

Discount rate11.0%–12.0%

BasisAnalysis of the weighted average cost of capital of the Company

Terminal valuePerpetuity growth

Perpetuity growth2.0%–3.0%

Exit multiple—

Projection period2012E-2021E

Projections usedCompany management projections for fiscal years 2012-2014 and certain extrapolations reviewed and approved by Company management

Implied value per share$7.20–$8.50

Unlevered free cash flows from FY2012 through FY2021; terminal asset values calculated at end of 10-year period ending December 31, 2021.

Selected public companies (5)

Covance Inc. · Charles River Laboratories International, Inc. · PAREXEL International Corporation · ICON plc · Medidata Solutions, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
FV / EBITDA 2012E	7.8x	9.1x	11.5x	7.8x–11.5x	$9.20–$12.65
FV / EBITDA-CapEx 2012E	11.4x	13.9x	16.4x	11.4x–16.4x	$6.15–$8.70
P / E 2012E	13.3x	19.9x	23.4x	13.3x–23.4x	$6.20–$10.95

Selected precedent transactions (18)

Date	Target	Acquirer	Multiple
2012-03	KForce Clinical Research, Inc.	inVentiv Health, Inc.	—
2012-01	BioReliance Holdings, Inc.	Sigma-Aldrich Corporation	—
2011-10	Pharmaceutical Product Development, Inc.	The Carlyle Group	—
2011-06	Arch Chemicals	Lonza Group Ltd.	—
2011-05	MedPace Inc.	CCMP Capital Advisors	—
2011-05	PharmaNet Development Group, Inc.	inVentiv Health, Inc.	—
2011-05	Kendle International Inc.	INC Research, LLC	—
2011-04	Capsugel	KKR & Co. L.P.	—
2011-02	Lancaster Laboratories, Inc.	Eurofins Scientific SE	—
2011-01	i3	Thomas H. Lee Partners	—
2010-12	ReSearch Pharamaceutical Services, Inc.	Warburg Pincus, LLC	—
2010-08	INC Research, LLC	Avista Capital Partners	—
2010-08	United BioSource Corporation	Medco Health Solutions, Inc.	—
2010-05	inVentiv Health, Inc.	Thomas H. Lee Partners	—
2010-04	CareFusion Research Services	eResearchTechnology, Inc.	—
2010-04	Phase Forward	Oracle Corporation	—
2009-12	Marken	Apax Partners	—
2009-11	Excel PharmaStudies, Inc.	PPD, Inc.	—

Multiple	Low	Median	High	Range applied	Implied per share
LTM P/E	18.4x	20.8x	32.7x	18.5x–22.5x	$7.50–$9.10
LTM EBITDA	7.0x	10.1x	19.8x	7.0x–10.0x	$6.85–$9.55

Transaction fee of approximately $6 million; $1 million earned upon public announcement of the proposed transaction and the remainder payable upon completion. Engagement letter dated December 8, 2011, effective as of June 27, 2011; retained by the Special Committee as its and the Company's financial advisor. J.P. Morgan and affiliates had prior commercial/investment banking relationships with the Company and with Genstar and its affiliates.

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Management projections

Projection year	Year 1	Year 2	CAGR
Revenue	$220M	$240M	9.1%
Revenue growth	10.6%	9.1%
EBITDA	$63.0M	$71.0M	12.7%
EBITDA growth	14.5%	12.7%
EBITDA margin	29%	30%
Implied EV / EBITDA	6.7x	6.0x

Year-1 growth is against LTM at announcement ($199M revenue, $55.0M EBITDA); later years are year over year.

J.P. Morgan's DCF used unlevered free cash flows for fiscal years 2012 through 2021, based on financial projections for fiscal years 2012-2014 prepared by Company management, with extrapolations through 2021 reviewed and approved by management. Public trading multiples analysis relied on calendar 2012 estimated EBITDA, EBITDA less capital expenditures, and earnings (excluding transaction-related amortization). No specific revenue or EBITDA dollar figures were disclosed in the sliced sections.

Process notes

Going-private buyout of eResearchTechnology by Genstar Capital affiliates (Explorer Holdings, Inc. / Explorer Acquisition Corp.). A Special Committee retained J.P. Morgan (engagement letter dated December 8, 2011, effective June 27, 2011) as financial advisor to it and the Company; J.P. Morgan delivered an oral opinion on April 9, 2012 confirmed in writing the same date to the full board. Negotiations involved an exclusivity period with Genstar that was extended; Genstar reduced the termination fee from 3% to approximately 2.75% of transaction value ($11 million) in exchange for expense reimbursement of up to $3 million (final agreement: up to $2.9 million expense reimbursement upon failure to obtain stockholder approval). Parent termination fee of $20 million payable on failure to close due to the Financing Condition, backed by a Limited Guaranty from Genstar Capital Partners VI, L.P. capped at $20 million and expiring January 5, 2013. J.P. Morgan disclosed prior relationships with both the Company and Genstar/Catalent.

Other Pharmaceutical Services fairness opinions

Patheon / JLL Partners 2013 · 12.7x EV/EBITDA
Pharmaceutical Product Development / Hellman & Friedman and The Carlyle Group 2011 · 11.4x EV/EBITDA
Kendle International / INC Research Holdings 2011 · 9.9x EV/EBITDA
Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA
inVentiv Health / Thomas H. Lee Partners 2010 · 7.3x EV/EBITDA
ReSearch Pharmaceutical Services / Warburg Pincus 2010 · 12.4x EV/EBITDA

All Pharmaceutical Services opinions → · J.P. Morgan opinions