Genomic Health acquired by Exact Sciences: fairness opinion by Goldman Sachs
Deal terms
$27.50 in cash plus shares of Exact Sciences common stock equal to the exchange ratio; exchange ratio of 0.37737 calculated based on the Exact Sciences closing price of $117.92 on July 26, 2019, subject to a collar with a 15-trading day averaging period for determining the final exchange ratio. Implied value of consideration of $72.00 per share.
Implied value per share by method vs. $27.50 offer
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
Discounted cash flow assumptions
Discounted to June 30, 2019; added net cash of $244 million as of June 30, 2019.
Selected public companies (9)
Guardant Health, Inc. · Exact Sciences (EXAS) · Invitae Corporation · Myriad Genetics, Inc. · Natera, Inc. · Neogenomics, Inc. · Veracyte, Inc. · Laboratory Corporation of America Holdings · Quest Diagnostics Incorporated
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2019E Revenue (peer companies) | 2.6x | 8.8x | 21.8x | — | — |
| EV / 2020E Revenue (peer companies) | 2.5x | 6.5x | 15.3x | — | — |
| 2019E-2021E Revenue CAGR (peer companies) | 0.0x | 0.2x | 0.5x | — | — |
| EV / 2019E Revenue (diagnostic lab companies) | 1.9x | 2.1x | 2.3x | — | — |
| EV / 2020E Revenue (diagnostic lab companies) | 1.9x | 2.1x | 2.3x | — | — |
| 2019E-2021E Revenue CAGR (diagnostic lab companies) | 0.0x | 0.0x | 0.0x | — | — |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2018-06-19 | Foundation Medicine, Inc. | Roche Holding AG | — |
| 2018-05-28 | Counsyl, Inc. | Myriad Genetics, Inc. | — |
| 2017-07-06 | Ambry Genetics Corporation | Konica Minolta, Inc. | — |
| 2016-08-03 | Assurex Health, Inc. | Myriad Genetics, Inc. | — |
| 2016-07-27 | Sequenom Inc. | Laboratory Corporation of America Holdings | — |
| 2015-10-21 | Clarient, Inc. | NeoGenomics Laboratories, Inc. | — |
| 2015-06-04 | Bio-Reference Laboratories Inc. | OPKO Health, Inc. | — |
| 2014-12-02 | Ariosa Diagnostics, Inc. | Roche Holding AG | — |
| 2014-02-04 | Crescendo Bioscience, Inc. | Myriad Genetics, Inc. | — |
| 2011-10-06 | Caris Life Sciences, Inc. | Miraca Holdings Inc. | — |
| 2011-03-18 | Celera Corporation | Quest Diagnostics Incorporated | — |
| 2011-02-24 | Athena Diagnostics, Inc. | Quest Diagnostics Incorporated | — |
| 2011-01-24 | Genoptix, Inc. | Novartis AG | — |
| 2010-10-22 | Clarient, Inc. | GE Healthcare Limited | — |
| 2010-09-13 | Genzyme Genetics | Laboratory Corporation of America Holdings | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Levered aggregate consideration (excluding earnouts) / LTM Sales | 2.5x | 3.3x | 4.9x | 2.5x–4.9x | $33.19–$57.56 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | Implied consideration of $72.00 per share represented a 5% premium to the $68.66 closing price on July 26, 2019, a 34% premium to the $53.88 closing price on June 26, 2019 (one month prior), and a 22% premium to the 45-day VWAP of $59.02. | — |
| Illustrative Present Value of Future Share Price Analysis—Genomic Health Standalone | Applied EV / forward revenue multiples of 3.5x to 5.5x to management forecast revenue for FY2020-2022, added net cash, divided by fully diluted shares, and discounted future per share values back to June 30, 2019 at a 9.4% cost of equity. | $51.20–$79.66 |
| Illustrative Pro Forma Present Value of Future Share Price Analysis—Value to Genomic Health Stockholders | Applied EV / forward revenue multiples of 9.0x to 14.0x to pro forma combined company revenue (including synergies) for FY2020-2022, discounted at a 9.1% cost of equity, multiplied by the 0.37737 exchange ratio and added $27.50 cash. | $60.64–$94.39 |
| Illustrative Discounted Cash Flow Analysis—Pro Forma Value Per Share to Genomic Health Stockholders | DCF of pro forma combined company (including synergies) 2019-2026 unlevered FCF using discount rates of 8.5%-9.5% and perpetuity growth rates of 3.0%-5.0%, discounted to June 30, 2019; resulting per share equity value multiplied by the 0.37737 exchange ratio plus $27.50 cash. | $51.22–$71.57 |
| Premia Analysis—Diagnostic Services Transactions | Premia for the selected diagnostic services transactions over the last 10 years relative to target closing price one month prior: median 45.8%, 25th percentile 28.0%, 75th percentile 60.7%. Applied 28.0%-60.7% to the $53.88 one-month-prior price. | $68.97–$86.59 |
| Premia Analysis—Cash and Stock Transactions ($1-5bn EV, 5 years) | Premia for cash and stock consideration transactions during the 5-year period ended July 26, 2019 with enterprise values between $1 billion and $5 billion: median 20.1%, 25th percentile 8.6%, 75th percentile 38.2%. Applied 8.6%-38.2% to the $53.88 one-month-prior price. | $58.51–$74.46 |
Transaction fee estimated at approximately $32.7 million based on information available as of announcement, all of which is contingent upon consummation of the merger. Engagement letter dated January 23, 2018.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $512M | $570M | $630M | $720M | $818M | 12.4% |
| Revenue growth | 13.3% | 11.3% | 10.5% | 14.3% | 13.6% | |
| EBITDA | $102M | $125M | $147M | $178M | $218M | 20.9% |
| EBITDA growth | 37.8% | 22.5% | 17.6% | 21.1% | 22.5% | |
| EBITDA margin | 20% | 22% | 23% | 25% | 27% | |
| Implied EV / EBITDA | 23.3x | 19.0x | 16.2x | 13.4x | 10.9x |
Year-1 growth is against LTM at announcement ($452M revenue, $74.0M EBITDA); later years are year over year.
Genomic Health management prepared standalone forecasts for fiscal years 2019-2026 showing revenue growing from $452 million in 2019E to $939 million in 2026E, EBITDA (non-GAAP, after stock-based compensation) from $74 million to $247 million, and unlevered free cash flow from $39 million to $170 million. Management also prepared pro forma combined Exact Sciences forecasts for 2019-2026 (based on Genomic Health's forecasts plus consensus analyst estimates for Exact Sciences adjusted for diligence), showing revenue of $1,252 million in 2019E rising to $4,518 million in 2026E and EBITDA of $(117) million rising to $1,360 million, including pre-tax operating synergies of $8 million in 2020, $17 million in 2021 and $25 million per year thereafter. Both sets were provided to the Genomic Health Board and Goldman Sachs.
Process notes
Other Diagnostics / Life Sciences fairness opinions
- Abaxis / Zoetis 2018 · 41.3x EV/EBITDA
- GenMark Diagnostics / Roche 2021 · 120.8x EV/EBITDA
- Luminex / DiaSorin 2021 · 22.2x EV/EBITDA
- Advanced Accelerator Applications / Novartis 2017
- Alere / Abbott Laboratories 2017 · 14.3x EV/EBITDA
- VWR / Avantor 2017 · 12.6x EV/EBITDA
All Diagnostics / Life Sciences opinions → · Goldman Sachs opinions