HealthGrades acquired by Vestar Capital Partners: fairness opinion by Citi
Announced July 28, 2010 · Tender offer · All cash ·
SC 14D9 filed August 10, 2010
Enterprise value
$294M
equity $294M
EV / LTM EBITDA
17.0x
EBITDA $17.3M · 25% margin
EV / LTM revenue
4.32x
revenue $68.0M
DCF discount rate
11.6%–13.3%
Deal terms
ConsiderationAll cash
Price per share$8.20
Premium—
Premium basis—
StructureTender offer
Termination fee$9.6M (3.3% of equity)
Reverse termination fee—
Go-shopNone
Outside date—
FilingSC 14D9 · EDGAR index
Opinion of Citi to the target board
Delivered July 27, 2010
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | Citi reviewed historical trading prices and volumes for the Shares for the two- and three-year periods ended July 23, 2010, and compared the $8.20 consideration to one-, three-, six- and 12-month VWAPs and closing prices, the 52-week high and low closing prices and the five-year high closing price. The 52-week period ended July 23, 2010 showed a trading range of $3.99 to $7.50. | $3.99–$7.50 |
3,000+ healthcare deal-level valuation multiples
The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $81.9M | $98.3M | $118M | $142M | 20.0% |
| Revenue growth | 20.4% | 20.0% | 20.0% | 19.9% | |
| EBITDA | $20.5M | $25.1M | $30.7M | $38.2M | 23.1% |
| EBITDA growth | 18.5% | 22.4% | 22.3% | 24.4% | |
| EBITDA margin | 25% | 26% | 26% | 27% | |
| Implied EV / EBITDA | 14.3x | 11.7x | 9.6x | 7.7x |
Year-1 growth is against LTM at announcement ($68.0M revenue, $17.3M EBITDA); later years are year over year.
Management prepared two sets of 2010-2014 projections: the "Forecast" (prepared for Vestar's diligence and shared with Citi), with total revenue rising from $68.0M in 2010 to $172.2M in 2014 and EBITDA from $17.3M to $62.1M (net income $9.4M to $37.3M); and the more conservative "Board Forecast" (prepared at the Board's request), with revenue of $65.5M in 2010 growing to $141.5M in 2014 and EBITDA from $16.1M to $38.2M (net income $8.7M to $21.9M). Management and the Board believed the Board Forecast more realistically reflected competitive challenges and slower product adoption; Citi reviewed both cases.
Process notes
Single financial advisor (Citi) delivering opinion to the full Board; no special committee. No formal auction was conducted — Vestar conditioned its offer on the Company not running an auction and refused a post-signing go-shop, but agreed to a fiduciary out with a $9,550,000 termination fee (~3.25% of equity value). Vestar provided an equity commitment letter (no financing contingency) and obtained support agreements from significant stockholders, including Kerry Hicks, David Hicks, Allen Dodge and Wes Crews. Deal included a Top-Up Option. Two putative stockholder class actions were filed (including Medford Bragg v. Kerry R. Hicks, et al., filed August 4, 2010). The excerpt of the opinion section is truncated; selected companies, precedent transactions and any DCF detail were not included in the sliced text.
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