ev3 acquired by Covidien: fairness opinion by J.P. Morgan and Piper Sandler
Deal terms
Implied value per share by method vs. $22.50 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Perpetual revenue growth rates of 2.0%-4.0% applied assuming constant operating margin as of 12/31/2019. Unlevered FCF from 3/31/2010 through 12/31/2019; taxes at 36% through 2012 and 33% thereafter; less an assumed $75 million contingent payment to Chestnut Medical in 2011. Projected annual NOL tax savings were valued separately and added.
Selected public companies (9)
Align Technology, Inc. · American Medical Systems Holdings, Inc. · Edwards Lifesciences Corporation · Integra LifeSciences Holdings Corporation · Masimo Corporation · NuVasive, Inc. · ResMed Inc. · Thoratec Corporation · Volcano Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / 2010E Revenue (Street forecasts) | 2.1x | 3.9x | 6.6x | 2.8x–4.3x | $13.40–$20.30 |
| Firm Value / 2010E Revenue (Management forecasts) | 2.1x | 3.9x | 6.6x | 2.8x–4.3x | $13.45–$20.35 |
| Firm Value / 2011E EBITDA (Street forecasts) | 9.3x | 12.5x | 24.7x | 10.0x–17.5x | $11.80–$19.60 |
| Firm Value / 2011E EBITDA (Management forecasts) | 9.3x | 12.5x | 24.7x | 10.0x–17.5x | $12.60–$20.95 |
| Price / 2011E EPS (Street forecasts) | 16.5x | 21.3x | 62.3x | 20.0x–30.0x | $13.70–$20.55 |
| Price / 2011E EPS (Management forecasts) | 16.5x | 21.3x | 62.3x | 20.0x–30.0x | $15.70–$23.55 |
Selected precedent transactions (11)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-01 | Invatec S.p.A. | Medtronic, Inc. | — |
| 2009-05 | VNUS Medical Technologies, Inc. | Covidien plc | — |
| 2008-07 | Vital Signs, Inc. | General Electric Company | — |
| 2008-02 | Possis Medical, Inc. | Medrad (Bayer HealthCare) | — |
| 2007-12 | Respironics, Inc. | Philips Holding USA Inc. | — |
| 2007-07 | Arrow International, Inc. | Teleflex Incorporated | — |
| 2007-07 | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| 2007-07 | DJO Incorporated | Blackstone (ReAble Therapeutics, Inc.) | — |
| 2007-05 | VIASYS Healthcare Inc. | Cardinal Health | — |
| 2007-01 | IntraLase Corp. | Advanced Medical Optics, Inc. | — |
| 2006-06 | Laserscope | American Medical Systems Holdings, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / LTM Revenue | 2.4x | 4.0x | 5.8x | 2.4x–5.8x | $10.75–$23.75 |
| Firm Value / FTM Revenue | 2.3x | 3.5x | 4.9x | 2.3x–4.8x | $11.45–$23.05 |
| Firm Value / LTM EBITDA | 15.5x | 18.3x | 53.1x | 15.5x–28.5x | $11.90–$20.70 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis / premiums | Reviewed Share price performance through May 28, 2010 versus S&P 500 and a composite index of the selected companies. Offer Price of $22.50 represented an 18.9% premium to the 5/28/2010 closing price of $18.92, a 23.8% premium to the 30-trading-day average, a 13.0% premium to the 52-week high closing price and a 150.6% premium to the 52-week low closing price. | — |
At an Offer Price of $22.50, JPMorgan will receive fees of approximately $21.8 million, $2,000,000 of which is payable upon delivery of its opinion and the remainder upon consummation of the Offer. JPMorgan previously advised ev3 on the Chestnut Medical acquisition and advised Covidien on its acquisitions of Aspect Medical Systems and VNUS Medical Technologies.
Opinion of Piper Sandler to the target board
Discounted cash flow assumptions
Free cash flows from March 31, 2010 to December 31, 2019 discounted back to March 31, 2010; taxes at 36% through 2012 and 33% from 2013-2019; capex included an additional annual $2 million purchase of patents and licenses; less an assumed $37.5 million Chestnut milestone cash payment in 2011. Perpetuity growth rates of 2.5%-3.5% applied to projected CY2019 free cash flow.
Selected public companies (13)
AGA Medical Holdings, Inc. · C.R. Bard, Inc. · Edwards Lifesciences Corporation · Thoratec Corporation · Volcano Corporation · Micrus Endovascular Corporation · Align Technology, Inc. · Alphatec Holdings, Inc. · Conceptus, Inc. · Masimo Corporation · NuVasive, Inc. · ResMed, Inc. · Zoll Medical Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue (selected vascular public companies; ev3 at Offer Price 5.4x) | 2.2x | 3.7x | 6.1x | — | — |
| EV / 2010E Revenue (selected vascular public companies; ev3 4.8x) | 2.0x | 3.3x | 6.0x | — | — |
| EV / 2011E Revenue (selected vascular public companies; ev3 4.1x) | 1.8x | 2.9x | 5.6x | — | — |
| EV / LTM EBITDA (selected vascular public companies; ev3 25.5x) | 8.4x | 13.7x | 23.1x | — | — |
| EV / 2010E EBITDA (selected vascular public companies; ev3 21.1x) | 8.4x | 11.0x | 18.6x | — | — |
| EV / 2011E EBITDA (selected vascular public companies; ev3 17.0x) | 7.2x | 12.2x | 33.3x | — | — |
| Price / 2010E EPS (selected vascular public companies; ev3 57.0x) | 14.2x | 24.2x | 35.6x | — | — |
| Price / 2011E EPS (selected vascular public companies; ev3 40.3x) | 12.1x | 18.7x | 59.5x | — | — |
| EV / LTM Revenue (selected financial profile public companies; ev3 5.4x) | 1.4x | 4.0x | 4.5x | — | — |
| EV / 2010E Revenue (selected financial profile public companies; ev3 4.8x) | 1.3x | 3.3x | 4.0x | — | — |
| EV / 2011E Revenue (selected financial profile public companies; ev3 4.1x) | 1.2x | 2.8x | 3.5x | — | — |
| EV / LTM EBITDA (selected financial profile public companies; ev3 25.5x) | 12.5x | 17.0x | 27.4x | — | — |
| EV / 2010E EBITDA (selected financial profile public companies; ev3 21.1x) | 10.8x | 16.4x | 18.8x | — | — |
| EV / 2011E EBITDA (selected financial profile public companies; ev3 17.0x) | 9.8x | 11.1x | 33.3x | — | — |
| Price / 2010E EPS (selected financial profile public companies; ev3 57.0x) | 21.8x | 29.3x | 32.9x | — | — |
| Price / 2011E EPS (selected financial profile public companies; ev3 40.3x) | 18.8x | 21.2x | 59.5x | — | — |
Selected precedent transactions (25)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| — | ATS Medical, Inc. | Medtronic, Inc. | — |
| — | Invatec S.p.A. | Medtronic, Inc. | — |
| — | VNUS Medical Technologies, Inc. | Covidien plc | — |
| — | CoreValve, Inc. | Medtronic, Inc. | — |
| — | Radi Medical AB | St. Jude Medical, Inc. | — |
| — | CryoCath Technologies Inc. | Medtronic, Inc. | — |
| — | Datascope Corp. | Getinge AB | — |
| — | Possis Medical, Inc. | MEDRAD, Inc. (Bayer AG) | — |
| — | Arrow International, Inc. | Teleflex Incorporated | — |
| — | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| — | Conor Medsystems | Johnson & Johnson | — |
| — | Guidant Corporation (certain non-CRM assets) | Abbott Laboratories | — |
| — | Ascent Healthcare Solutions | Stryker Corporation | — |
| — | LifeCell Corporation | Kinetic Concepts, Inc. | — |
| — | Respironics, Inc. | Koninklijke Philips Electronics N.V. | — |
| — | Kyphon | Medtronic, Inc. | — |
| — | Cytyc Corporation | Hologic, Inc. | — |
| — | IntraLase Corp. | Advanced Medical Optics, Inc. | — |
| — | GN Store Nord A/S | Phonak Holding | — |
| — | Intermagnetics General Corporation | Koninklijke Philips Electronics N.V. | — |
| — | Lifeline Systems, Inc. | Koninklijke Philips Electronics N.V. | — |
| — | Inamed Corporation | Allergan, Inc. | — |
| — | Advanced Neuromodulation Systems | St. Jude Medical, Inc. | — |
| — | Knowles Electronics Holdings, Inc. | Dover Corporation | — |
| — | CTI Molecular Imaging, Inc. | Siemens AG | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue (selected vascular M&A; ev3 at Offer Price 5.4x) | 2.6x | 4.0x | 4.4x | — | — |
| EV / FTM Revenue (selected vascular M&A; ev3 4.6x) | 2.4x | 3.6x | 8.4x | — | — |
| EV / LTM EBITDA (selected vascular M&A; ev3 25.5x) | 10.5x | 15.0x | 25.0x | — | — |
| EV / FTM EBITDA (selected vascular M&A; ev3 19.0x) | 10.0x | 14.8x | 23.8x | — | — |
| EV / LTM Revenue (selected financial profile M&A; ev3 5.4x) | 2.4x | 4.6x | 9.4x | — | — |
| EV / FTM Revenue (selected financial profile M&A; ev3 4.6x) | 2.0x | 4.0x | 7.7x | — | — |
| EV / LTM EBITDA (selected financial profile M&A; ev3 25.5x) | 11.5x | 21.5x | 38.4x | — | — |
| EV / FTM EBITDA (selected financial profile M&A; ev3 19.0x) | 11.5x | 17.3x | 31.4x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums Paid Analysis | Reviewed 58 M&A transactions since January 1, 2005 involving public medical device targets with EV > $50 million and acquirers seeking more than 85% of shares. Selected transaction premiums: 1-day low 4%, median 32%, mean 43%, high 259%; 1-week low 5%, median 31%, mean 47%, high 277%; 4-week low 11%, median 34%, mean 55%, high 308%. Offer Price implied premiums of 20% (1 day, vs $18.81 on 5/27/2010), 21% (1 week, vs $18.55 on 5/21/2010) and 18% (4 weeks, vs $19.13 on 4/30/2010), within the range of premiums paid. | — |
Piper Jaffray received a fee of $1,000,000 for providing its fairness opinion; the fee was not contingent upon consummation of the Offer and Merger or the conclusions reached. Retained pursuant to an engagement letter dated May 25, 2010 solely to deliver the opinion.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $620M | $731M | $878M | $1.1B | $1.2B | 18.9% |
| Revenue growth | 17.2% | 18.0% | 20.0% | 20.2% | 17.4% | |
| EBITDA | $120M | $177M | $229M | $296M | $353M | 31.0% |
| EBITDA growth | 32.3% | 47.5% | 29.7% | 29.2% | 19.1% | |
| EBITDA margin | 19% | 24% | 26% | 28% | 28% | |
| Implied EV / EBITDA | 21.1x | 14.3x | 11.0x | 8.5x | 7.2x |
Year-1 growth is against LTM at announcement ($529M revenue, $90.6M EBITDA); later years are year over year.
ev3 management prepared internal non-public five-year standalone forecasts (the "Five-Year Projections") that were provided to potential bidders including Covidien, and ten-year standalone forecasts (the "Ten-Year Projections," extending five years beyond December 31, 2014) that were provided to the ev3 Board, JPMorgan and Piper Jaffray for use in their fairness opinions. The Five-Year Projections were substantially equivalent to the Ten-Year Projections other than the additional five years. Both banks used the management projections for calendar years 2010 through 2019 in their DCF analyses; JPMorgan additionally used a "Street" case based on Wall Street consensus estimates alongside the "Management" case in its trading multiples analysis. Specific revenue/EBITDA dollar figures were not included in the sliced text.
Process notes
Other Medical Devices and Supplies fairness opinions
- Osteotech / Medtronic 2010 · 11.8x EV/EBITDA
- Micrus Endovascular / Johnson & Johnson 2010 · 23.1x EV/EBITDA
- Somanetics / Covidien 2010 · 20.5x EV/EBITDA
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
- SonoSite / FUJIFILM Holdings 2011 · 21.1x EV/EBITDA
- Synovis Life Technologies / Baxter International 2011 · 17.1x EV/EBITDA
All Medical Devices and Supplies opinions → · J.P. Morgan opinions · Piper Sandler opinions