Gen-Probe acquired by Hologic: fairness opinion by Morgan Stanley
Announced April 30, 2012 · One-step merger · All cash ·
DEFM14A filed June 29, 2012
Diagnostics / Life Sciences Diagnostic Tools: Genetics
Enterprise value
$3.8B
EV / LTM EBITDA
16.1x
EBITDA $234M · 36% margin
EV / LTM revenue
5.85x
revenue $644M
DCF discount rate
7.2%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$82.75
Premium—
Premium basisClosing price of $68.76 per share on April 26, 2012 was the reference price used in Morgan Stanley's analyses
StructureOne-step merger
Termination fee$128M
Reverse termination fee—
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $82.75 offer
Selected companies — Aggregate Value / 2012E Revenue $53.00 – $65.00
Selected companies — Aggregate Value / 2012E EBITDA $42.00 – $56.00
Selected companies — Stock Price / 2012E EPS $39.00 – $65.00
Selected companies — PEG Ratio $51.00 – $61.00
Precedent transactions — Aggregate Value / LTM Revenue $67.00 – $86.00
Precedent transactions — Aggregate Value / LTM EBITDA $51.00 – $86.00
Discounted cash flow $67.00 – $85.00
Trading Range Analysis $54.00 – $74.00
Discounted Securities Research Analysts' Price Targets Analysis $61.00 – $79.00
Precedent Premium Analysis $80.00 – $101.00
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Morgan Stanley to the target board
Delivered April 29, 2012 · Fee $23.9M ($21.9M contingent on closing), $2.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate7.2%
BasisCompany's weighted average cost of capital calculation
Terminal valueExit multiple
Perpetuity growth—
Exit multiple8.0x–11.0x 2016E EBITDA
Projection period2012E-2015E (unlevered free cash flows; terminal value on 2016 EBITDA)
Projections usedGen-Probe management projections
Implied value per share$67.00–$85.00
Values discounted to present values as of October 31, 2012; implied aggregate value adjusted for estimated total debt and cash as of October 31, 2012 and divided by diluted shares outstanding.
Selected public companies (11)
Alere Inc. · Becton, Dickinson and Company · bioMerieux S.A. · Bio-Rad Laboratories, Inc. · Cepheid · DiaSorin S.p.A. · Genomic Health, Inc. · Hologic, Inc. · Myriad Genetics, Inc. · Qiagen NV · Sysmex Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Aggregate Value / 2012E Revenue | 1.4x | — | 7.6x | 3.5x–4.5x | $53.00–$65.00 |
| Aggregate Value / 2012E EBITDA | 5.7x | — | 11.5x | 8.0x–11.0x | $42.00–$56.00 |
| Stock Price / 2012E EPS | 9.4x | — | 24.2x | 15.0x–25.0x | $39.00–$65.00 |
| PEG Ratio | 0.8x | — | 2.2x | 1.5x–1.8x | $51.00–$61.00 |
Selected precedent transactions (26)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2012-01 | Illumina Inc. | Roche Holding AG | 6.4x Aggregate Value / LTM Revenue |
| 2011-08 | Axis-Shield PLC | Alere Inc. | 3.8x Aggregate Value / LTM Revenue |
| 2011-07 | Immucor, Inc. | TPG Capital, L.P. | 5.1x Aggregate Value / LTM Revenue |
| 2011-05 | Phadia AB | Thermo Fisher Scientific Inc. | 6.7x Aggregate Value / LTM Revenue |
| 2011-04 | Cellestis Limited | Qiagen NV | 7.7x Aggregate Value / LTM Revenue |
| 2011-03 | Celera Corporation | Quest Diagnostics Incorporated | 2.7x Aggregate Value / LTM Revenue |
| 2011-02 | Beckman Coulter, Inc. | Danaher Corporation | 1.9x Aggregate Value / LTM Revenue |
| 2010-03 | Sebia SA | Cinven Group Ltd | 6.8x Aggregate Value / LTM Revenue |
| 2010-01 | Diagnostic Hybrids Inc. | Quidel Corporation | 3.4x Aggregate Value / LTM Revenue |
| 2009-09 | B.R.A.H.M.S. AG | Thermo Fisher Scientific Inc. | 4.4x Aggregate Value / LTM Revenue |
| 2009-02 | Olympus (Diagnostics) | Beckman Coulter, Inc. | 1.6x Aggregate Value / LTM Revenue |
| 2009-01 | Tepnel Life Sciences, PLC | Gen-Probe Incorporated | 4.0x Aggregate Value / LTM Revenue |
| 2008-06 | Applied Biosystems, Inc. | Invitrogen Corp. | 3.0x Aggregate Value / LTM Revenue |
| 2008-06 | Third Wave Technologies, Inc. | Hologic, Inc. | 16.0x Aggregate Value / LTM Revenue |
| 2007-07 | Dade Behring Holdings, Inc. | Siemens AG | 3.9x Aggregate Value / LTM Revenue |
| 2007-06 | Ventana Medical Systems, Inc. | Roche Holding AG | 12.2x Aggregate Value / LTM Revenue |
| 2007-06 | Digene Corp. | Qiagen NV | 7.4x Aggregate Value / LTM Revenue |
| 2007-05 | Cytyc Corp. | Hologic, Inc. | 9.6x Aggregate Value / LTM Revenue |
| 2007-05 | Biosite Incorporated | Inverness Medical Innovations, Inc. | 5.3x Aggregate Value / LTM Revenue |
| 2007-02 | Dako Denmark A/S | EQT | 4.3x Aggregate Value / LTM Revenue |
| 2007-01 | Molecular Devices Corporation | MDS Inc. | 3.2x Aggregate Value / LTM Revenue |
| 2007-01 | Abbott (Diagnostics) | General Electric Co. | 3.0x Aggregate Value / LTM Revenue |
| 2006-08 | Tripath Imaging Inc. | Becton, Dickinson and Company | 3.7x Aggregate Value / LTM Revenue |
| 2006-06 | Bayer Healthcare Diagnostics | Siemens AG | 3.0x Aggregate Value / LTM Revenue |
| 2006-04 | Diagnostic Products Corporation | Siemens AG | 3.4x Aggregate Value / LTM Revenue |
| 2005-01 | Kendro Laboratory Products | Thermo Electron Corporation | 2.3x Aggregate Value / LTM Revenue |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Aggregate Value / LTM Revenue | 1.6x | — | 16.0x | 5.1x–6.7x | $67.00–$86.00 |
| Aggregate Value / LTM EBITDA | — | — | — | 11.6x–21.0x | $51.00–$86.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Trading Range Analysis | 52-week intraday high/low prior to April 26, 2012 (excluding the Rumor Period) of $54-$74; Rumor Period (April 28, 2011 to June 7, 2011) intraday high/low of $68-$87. | $54.00–$74.00 |
| Discounted Securities Research Analysts' Price Targets Analysis | Equity analyst price targets of $62 to $81 discounted to present value as of October 31, 2012 using a 7.5% discount rate based on the Company's cost of equity, resulting in implied values of $61 to $79 per share. | $61.00–$79.00 |
| Precedent Premium Analysis | Premiums paid in all-cash acquisitions of U.S. public companies with market caps of $1-$10 billion announced between January 1, 2011 and April 26, 2012; 25th-75th percentile premium to 1-day prior close of 17%-47% implied $80-$101 per share, and premium to 4-week average close of 23%-49% implied $81-$99 per share. | $80.00–$101.00 |
Fee of approximately $23.85 million, $2.0 million of which became payable upon rendering of the financial opinion; remainder payable upon closing of the merger. In the two years prior to the opinion, Morgan Stanley provided financial advisory services to the Company for which it received no fees, and had not provided services to Hologic.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $719M | $831M | $918M | $1.0B | 12.1% |
| Revenue growth | 11.6% | 15.6% | 10.5% | 10.3% | |
| EBITDA | $274M | $334M | $374M | $420M | 15.3% |
| EBITDA growth | 17.1% | 21.9% | 12.0% | 12.3% | |
| EBITDA margin | 38% | 40% | 41% | 41% | |
| Implied EV / EBITDA | 13.7x | 11.3x | 10.1x | 9.0x |
Year-1 growth is against LTM at announcement ($644M revenue, $234M EBITDA); later years are year over year.
Gen-Probe management prepared non-public standalone financial forecasts for 2012-2016, provided to Hologic for due diligence and to Morgan Stanley for its fairness opinion. Projected revenue grows from $644 million in 2012E to $1,013 million in 2016E, with non-GAAP EBITDA of $209 million in 2012E rising to $390 million in 2016E (Adjusted EBITDA $234 million to $420 million) and non-GAAP diluted EPS of $2.56 in 2012E rising to $4.66 in 2016E. Total free cash flows were projected at $128 million in 2012E growing to $241 million in 2016E.
Process notes
Single financial advisor, Morgan Stanley, retained April 7, 2012 and rendering its opinion to the Gen-Probe board on April 29, 2012. Since July 2011, Morgan Stanley was not authorized to solicit, and did not solicit, interest from other parties; it negotiated only with Hologic. Background discussion references negotiation between $83.00 and $84.00 per share before settling at $82.75. Expense reimbursement caps: Gen-Probe to Hologic up to $20 million; Hologic to Gen-Probe up to $10 million. Hologic may owe a financing failure fee under specified circumstances (amount not stated in the sliced sections). Morgan Stanley's analyses used a $68.76 reference closing price as of April 26, 2012.
Other Diagnostics / Life Sciences fairness opinions
- MEDTOX Scientific / Laboratory Corporation of America 2012 · 12.7x EV/EBITDA
- Beckman Coulter / Danaher 2011 · 8.4x EV/EBITDA
- Genoptix / Novartis AG 2011 · 11.0x EV/EBITDA
- Corgenix Medical / Orgentec Diagnostika 2014 · 8.4x EV/EBITDA
- Dionex / Thermo Fisher Scientific 2010 · 17.8x EV/EBITDA
- Clarient / NeoGenomics 2015 · 14.4x EV/EBITDA
All Diagnostics / Life Sciences opinions → · Morgan Stanley opinions