Genoptix acquired by Novartis AG: fairness opinion by Barclays
Announced January 24, 2011 · Tender offer · All cash ·
SC 14D9 filed January 28, 2011
Diagnostics / Life Sciences Laboratories: Genetics
Enterprise value
$470M
EV / LTM EBITDA
11.0x
EBITDA $42.9M · 22% margin
EV / LTM revenue
2.38x
revenue $197M
DCF discount rate
10.0%–13.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$25.00
Premium—
Premium basisUnaffected closing price of $17.98 on December 13, 2010, the last trading day prior to the Bloomberg Report
StructureTender offer
Termination fee—
Reverse termination fee—
Go-shopNone
Outside date—
FilingSC 14D9 · EDGAR index
Implied value per share by method vs. $25.00 offer
Selected companies — Price / Estimated 2011 EPS $15.40 – $21.32
Selected companies — EV / 2010 EBITDA $24.86 – $30.04
Precedent transactions — EV / LTM Revenue (applied to 2010 revenue) $19.26 – $33.49
Precedent transactions — EV / LTM EBITDA (applied to 2010E EBITDA) $23.80 – $29.01
Discounted cash flow $23.61 – $32.67
Historical Share Price Analysis $13.51 – $39.00
Research Price Targets Analysis $15.00 – $21.00
Transaction Premium Analysis $21.18 – $24.97
Leveraged Acquisition Analysis $23.47 – $25.39
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Barclays to the target board
Delivered January 23, 2011 · Fee $7.0M ($7.0M contingent on closing), $0.8M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.0%–13.0%
BasisAfter-tax discount rates selected based on analysis of the weighted average cost of capital of the Company and the comparable companies
Terminal valuePerpetuity growth
Perpetuity growth2.5%–3.5%
Exit multiple—
Projection period2011E-2015E
Projections usedCompany management projections
Implied value per share$23.61–$32.67
After-tax unlevered free cash flows for FY2011-2015 plus terminal value as of December 31, 2015; estimated net cash as of December 31, 2010 added to enterprise value and divided by fully diluted shares
Selected public companies (6)
Bio-Reference Laboratories, Inc. · Genomic Health, Inc. · Laboratory Corp. of America Holdings · Myriad Genetics, Inc. · Quest Diagnostics, Inc. · Sonic Healthcare Ltd.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Price / Estimated 2011 EPS | 12.7x | 15.9x | 20.1x | 13.0x–18.0x | $15.40–$21.32 |
| EV / 2010 EBITDA | 7.9x | 10.7x | 11.1x | 8.0x–10.5x | $24.86–$30.04 |
Selected precedent transactions (20)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-11-08 | CBLPath, Inc. | Sonic Healthcare Ltd. | — |
| 2010-10-22 | Clarient, Inc. | General Electric Company | — |
| 2010-09-13 | Genzyme Genetics, Inc. | Laboratory Corp. of America Holdings | — |
| 2009-06-23 | Monogram Biosciences, Inc. | Laboratory Corp. of America Holdings | — |
| 2008-06-30 | Clinical Laboratories of Hawaii LLP | Sonic Healthcare Ltd. | — |
| 2007-08-12 | Bioscientia Diagnostik GmbH | Sonic Healthcare Ltd. | — |
| 2007-07-05 | Sunrise Medical Laboratories, Inc. | Sonic Healthcare Ltd. | — |
| 2006-12-15 | American Esoteric Labs, Inc. | Sonic Healthcare Ltd. | — |
| 2006-09-08 | TriPath Imaging, Inc. | Becton Dickinson & Co. | — |
| 2006-05-18 | Focus Diagnostics, Inc. | Quest Diagnostics, Inc. | — |
| 2006-03-16 | Athena Diagnostics, Inc. | Fisher Scientific International, Inc. | — |
| 2005-09-30 | Specialty Laboratories, Inc. | AmeriPath, Inc. | — |
| 2005-08-08 | LabOne, Inc. | Quest Diagnostics, Inc. | — |
| 2005-03-30 | Esoterix, Inc. | Laboratory Corp. of America Holdings | — |
| 2004-12-14 | US Pathology Labs, Inc. | Laboratory Corp. of America Holdings | — |
| 2004-03-01 | IMPATH Physician Services | Genzyme Corp. | — |
| 2002-12-09 | AmeriPath, Inc. | Welsh, Carson, Anderson & Stowe | — |
| 2002-11-11 | Dianon Systems, Inc. | Laboratory Corp. of America Holdings | — |
| 2002-05-09 | Dynacare, Inc. | Laboratory Corp. of America Holdings | — |
| 2002-02-07 | American Medical Laboratories, Inc. | Quest Diagnostics, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue (applied to 2010 revenue) | 1.1x | 2.1x | 5.8x | 1.1x–2.5x | $19.26–$33.49 |
| EV / LTM EBITDA (applied to 2010E EBITDA) | 6.2x | 9.5x | 13.6x | 7.5x–10.0x | $23.80–$29.01 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis | For December 13, 2009 to December 13, 2010 (last trading day prior to the Bloomberg Report), intraday share price ranged from $13.51 to $39.00; 20-day VWAP $17.45 and 200-day VWAP $20.91. Share price decreased 51.8% vs. S&P Small-Cap 600 +30.3% and selected company composite -3.6%. | $13.51–$39.00 |
| Research Price Targets Analysis | Publicly available research price targets as of December 13, 2010: low $15.00, mean $17.13, high $21.00; $25.00 consideration above the range. | $15.00–$21.00 |
| Transaction Premium Analysis | One-day premiums paid in 66 selected U.S. transactions valued $300-$600 million from January 1, 2007 to present; quartile ranges 6.8%-66.8%. Applied second and third quartile premiums of 17.8%-38.9% to the unaffected closing price of $17.98 on December 13, 2010. | $21.18–$24.97 |
| Leveraged Acquisition Analysis | Assumed debt capital structure of 3.75x Debt / 2010 EBITDA, equity return of approximately 25%-30% over 5 years, and exit in 2015 at a 7.5x EBITDA multiple, applied to management projections. | $23.47–$25.39 |
$750,000 paid upon delivery of the opinion; additional compensation of approximately $7 million payable on completion of the transaction, against which the opinion fee is credited. Barclays disclosed prior/ongoing financing work for Novartis and that Barclays' Chairman Hans-Joerg Rudloff sits on the Novartis board.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $225M | $259M | $298M | $328M | $361M | 12.5% |
| Revenue growth | 14.3% | 15.0% | 15.0% | 10.0% | 10.0% | |
| EBITDA | $43.6M | $55.7M | $70.6M | $77.7M | $85.4M | 18.3% |
| EBITDA growth | 1.7% | 27.8% | 26.8% | 10.1% | 9.9% | |
| EBITDA margin | 19% | 21% | 24% | 24% | 24% | |
| Implied EV / EBITDA | 10.8x | 8.4x | 6.7x | 6.0x | 5.5x |
Year-1 growth is against LTM at announcement ($197M revenue, $42.9M EBITDA); later years are year over year.
Barclays relied on financial projections prepared by Genoptix management, using them in its DCF (after-tax unlevered free cash flows for fiscal years 2011 through 2015 with a terminal value as of December 31, 2015) and in applying multiple ranges to 2010 revenue, 2010/2010E EBITDA and estimated 2011 EPS. The filing sections provided do not disclose the specific revenue or EBITDA dollar figures in the management projections.
Process notes
Cash tender offer at $25.00 per share by Novartis; single fairness opinion from Barclays Capital to the Genoptix board, delivered orally January 23, 2011 and confirmed in writing. Barclays disclosed significant ongoing relationships with Novartis (bookrunner on multiple Novartis bond issuances, CP/MTN dealer, revolver participant) and that Barclays Chairman Hans-Joerg Rudloff is a Novartis director. Barclays did not ascribe a single valuation range to the shares. Termination fee negotiated at 3.5% of fully diluted equity value (Novartis initially sought 4%, the Company proposed 3%); dollar amount not stated in the sliced sections. Process included solicitation of third-party interest (a Bloomberg report on December 14, 2010 disclosed the sale process) and re-engagement of "Company C." All directors and executive officers (approximately 1% of shares) signed tender and support agreements.
Other Diagnostics / Life Sciences fairness opinions
- Beckman Coulter / Danaher 2011 · 8.4x EV/EBITDA
- Gen-Probe / Hologic 2012 · 16.1x EV/EBITDA
- MEDTOX Scientific / Laboratory Corporation of America 2012 · 12.7x EV/EBITDA
- Dionex / Thermo Fisher Scientific 2010 · 17.8x EV/EBITDA
- Corgenix Medical / Orgentec Diagnostika 2014 · 8.4x EV/EBITDA
- Clarient / NeoGenomics 2015 · 14.4x EV/EBITDA
All Diagnostics / Life Sciences opinions → · Barclays opinions