IMS Health acquired by Quintiles: fairness opinion by Barclays
Deal terms
Each share of IMS Health common stock converted into 0.3840 of a share of Surviving Corporation (Quintiles, reincorporated in Delaware) common stock; cash in lieu of fractional shares based on five-day VWAP of Quintiles common stock. IMS Health stockholders expected to own approximately 51.5% and Quintiles shareholders approximately 48.5% of the combined company.
Implied value per share by method
Ranges as disclosed in the banker’s summary of analyses.
Opinion of Barclays to the acquirer board
Discounted cash flow assumptions
Separate DCFs of Quintiles and IMS Health, terminal value as of December 31, 2020; net debt as of December 31, 2015 subtracted. Resulting implied exchange ratio range of 0.266x - 0.394x versus the 0.3840x merger exchange ratio. Quintiles projected cash flows 2016-2020: $493, $581, $643, $711, $785 million; IMS Health: $157, $469, $525, $572, $623 million.
Selected public companies (12)
INC Research Holdings, Inc. · PRA Health Sciences, Inc. · IMS Health · PAREXEL International Corporation · ICON plc · Gartner, Inc. · Inovalon Holdings, Inc. · Verisk Analytics, Inc. · FactSet Research Systems Inc. · Experian plc · The Advisory Board Company · Nielsen Holdings plc
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Quintiles: Firm Value / 2016E EBITDA | — | — | — | 10.0x–14.0x | — |
| Quintiles: Firm Value / 2017E EBITDA | — | — | — | 9.0x–12.0x | — |
| Quintiles: Share Price / 2016E EPS | — | — | — | 16.0x–20.0x | — |
| Quintiles: Share Price / 2017E EPS | — | — | — | 14.0x–17.0x | — |
| IMS Health: Firm Value / 2016E EBITDA | — | — | — | 12.0x–16.0x | — |
| IMS Health: Firm Value / 2017E EBITDA | — | — | — | 11.0x–15.0x | — |
| IMS Health: Share Price / 2016E EPS | — | — | — | 18.0x–23.0x | — |
| IMS Health: Share Price / 2017E EPS | — | — | — | 16.0x–21.0x | — |
| Implied exchange ratio from Firm Value / EBITDA analysis (vs. 0.3840x) | — | — | — | — | $0.26–$0.63 |
| Implied exchange ratio from Share Price / P/E analysis (vs. 0.3840x) | — | — | — | — | $0.34–$0.58 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis | Reviewed daily average share prices and VWAPs of Quintiles and IMS Health common stock for the 1-year, 180-, 90-, 30-, 20- and 10-trading-day periods ended May 2, 2016. Implied historical exchange ratios: May 2, 2016 0.389x daily/0.383x VWAP; 10 days 0.383x/0.384x; 20 days 0.380x/0.380x; 30 days 0.386x/0.386x; 90 days 0.388x/0.388x; 180 days 0.400x/0.402x; LTM 0.407x/0.407x. 52-week implied exchange ratio range 0.364x - 0.469x, versus merger ratio of 0.3840x. | $0.36–$0.47 |
| Equity Research Price Targets Analysis | Considered publicly available analyst price targets for Quintiles and IMS Health common stock; implied exchange ratio range of 0.284x - 0.552x versus merger ratio of 0.3840x. | $0.28–$0.55 |
| Contribution Analysis | Analyzed relative contributions of Quintiles and IMS Health to the Surviving Corporation based on I/B/E/S consensus estimates of leverage-adjusted EBITDA and net income from operations for 2016 and 2017. Implied exchange ratios: 2016E EBITDA 0.342x; 2017E EBITDA 0.336x; 2016E Net Income 0.380x; 2017E Net Income 0.387x; low-high range 0.336x - 0.387x versus merger ratio of 0.3840x. | $0.34–$0.39 |
Quintiles paid Barclays $5 million upon delivery of its opinion; additional $15 million payable on completion of the merger. Barclays affiliate also entered into a Commitment Letter to provide a portion of the committed financing for refinancing Quintiles' existing debt, for customary fees. In the past two years Barclays received ~$10 million in fees from Quintiles, ~$5.9 million from IMS Health and ~$37.7 million from TPG Capital Management and its affiliates/portfolio companies.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $3.4B | $3.6B | $3.8B | $4.0B | $4.3B | 5.9% |
| Revenue growth | 5.5% | 5.7% | 5.8% | 6.0% | 6.2% | |
| EBITDA | $1.0B | $1.1B | $1.2B | $1.3B | $1.4B | 7.2% |
| EBITDA growth | 6.6% | 7.0% | 7.1% | 7.3% | 7.5% | |
| EBITDA margin | 31% | 31% | 31% | 32% | 32% | |
| Implied EV / EBITDA | 12.7x | 11.9x | 11.1x | 10.3x | 9.6x |
Year-1 growth is against LTM at announcement ($3.2B revenue, $974M EBITDA); later years are year over year.
Stand-alone, pre-transaction unaudited forecasts for fiscal years 2016-2021 were prepared for each company. The 2016-2021 forecasts for IMS Health (derived by extrapolating I/B/E/S consensus) show revenue of $3,217 million in 2016E growing to $4,270 million in 2021E, Adjusted EBITDA of $974 million to $1,373 million and Adjusted Diluted EPS of $1.60 to $2.66. The 2016-2021 forecasts for Quintiles show revenue of $4,651 million in 2016E growing to $6,684 million in 2021E, Adjusted EBITDA of $940 million to $1,501 million and Adjusted Diluted EPS of $4.28 to $7.85. Jointly prepared Estimated Synergies included 100-200 bps of incremental revenue growth (over $400 million incremental revenue by year four), $100 million of annual run-rate cost savings by end of year three, and ~$35 million of annual cash tax savings through 2020 from IMS Health tax assets.
Process notes
Other Pharmaceutical Services fairness opinions
- Quintiles / IMS Health 2016 · 10.8x EV/EBITDA
- Albany Molecular Research / Carlyle Group / GTCR 2017 · 11.5x EV/EBITDA
- Parexel International / Pamplona Capital Management 2017 · 13.9x EV/EBITDA
- Patheon NV / Thermo Fisher Scientific 2017 · 16.4x EV/EBITDA
- Juniper Pharmaceuticals / Catalent 2018 · 9.9x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA