inVentiv Health acquired by Thomas H. Lee Partners: fairness opinion by Goldman Sachs
Deal terms
Implied value per share by method vs. $26.00 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 special committee
Discounted cash flow assumptions
Unlevered free cash flows for 2H2010 and 2011-2014 discounted to July 1, 2010 using a mid-year convention. Sensitivity analysis on post-2011 revenue growth of 2.0%-8.0%, discount rates 9.5%-10.5% and a 1.0% perpetuity growth rate produced $23.79-$32.03 per share.
Selected public companies (10)
Covance Inc. · Pharmaceutical Product Development, Inc. · PAREXEL International · Kendle International Inc. · WPP · Omnicom Group Inc. · Havas · Publicis Groupe · The Interpublic Group of Companies, Inc. · IMS Health Incorporated
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2010E EBITDA (median of CROs) | — | 8.5x | — | — | — |
| EV / 2010E EBITDA (median of Advertising) | — | 8.4x | — | — | — |
| EV / 2010E EBITDA (CSO/Strategy & Analytics - IMS) | — | 7.1x | — | — | — |
| EV / 2010E EBITDA (Company) | — | 5.6x | — | — | — |
| P / 2011E EPS (median of CROs) | — | 15.9x | — | — | — |
| P / 2011E EPS (median of Advertising) | — | 13.3x | — | — | — |
| P / 2011E EPS (CSO/Strategy & Analytics - IMS) | — | 9.3x | — | — | — |
| P / 2011E EPS (Company) | — | 10.7x | — | — | — |
| LTM EV / EBITDA 1-yr average (Company 5.4x; CROs 7.1x; Advertising ex-Havas 7.0x) | — | — | — | — | — |
| LTM EV / EBITDA 5-yr average (Company 9.5x; CROs 11.8x; Advertising ex-Havas 8.8x) | — | — | — | — | — |
| FY+2 P/E 1-yr average (Company 10.0x; CROs 13.8x; Advertising ex-Havas 15.6x) | — | — | — | — | — |
| FY+2 P/E 5-yr average (Company 14.8x; CROs 19.0x; Advertising ex-Havas 17.4x) | — | — | — | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premia Paid Analysis | Median premia for U.S. target acquisitions with aggregate consideration of $500m-$1.5b announced since 1/1/2006: 23.6% (1-day) and 26.0% (1-week); since 1/1/2008: 27.2% and 30.0%. Healthcare transactions ($500m-$1.5b): 34.8%/35.5% since 2006 and 32.0%/36.2% since 2008. Healthcare services transactions (>$150m): 24.6%/25.4% since 2006 and 32.7%/30.1% since 2008. | — |
| Implied Premia and Transaction Multiples | $26.00 represented a 51.6% premium to the 3/25/2010 close of $17.15 and a 7.2% premium to the 5/5/2010 close of $24.25. At $26.00: EV/2009A EBITDA 7.8x and EV/2010E EBITDA 7.3x (Forecasts); 8.3x and 7.7x (market estimates); P/2010E EPS 17.4x and P/2011E EPS 16.1x (Forecasts); 17.7x and 16.3x (market estimates). 2009 management EBITDA adjusted for $6.4 million of one-time expenses; EBITDA did not add back stock compensation expense. | — |
| Illustrative Present Value of Future Stock Price Analysis | Applied forward P/E multiples of 9.7x to 13.7x to management EPS estimates for 2011-2014 and discounted back to July 1, 2010 at an 11.0% cost of equity. | $13.82–$19.99 |
| Illustrative Leveraged Buyout Analysis | Assumed hypothetical financial buyer purchase prices of $25.00-$27.00 per share with an assumed capital structure/blended cost of debt achievable for a healthcare LBO; based on 2014 EBITDA exit multiples of 5.5x-7.0x, implied IRRs of 12.3%-27.7%. Post-2011 revenue growth sensitivity (2.0%-8.0%) at $26.00 produced IRRs of 7.9%-26.9%; blended cost of new acquisition debt sensitivity (6.5%-8.0%) at $26.00 produced IRRs of 14.0%-25.0%. | — |
Transaction fee of approximately $11,000,000, of which approximately $10,000,000 is contingent upon consummation of the merger; plus expense reimbursement and indemnification. Engagement letter dated March 17, 2008, as amended March 3, 2010.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $1.1B | $1.1B | $1.2B | $1.3B | 6.6% |
| Revenue growth | 6.7% | 6.5% | 6.6% | 6.7% | |
| EBITDA | $174M | $190M | $206M | $221M | 8.4% |
| EBITDA growth | 7.1% | 9.3% | 8.5% | 7.5% | |
| EBITDA margin | 16% | 17% | 17% | 17% | |
| Implied EV / EBITDA | 6.8x | 6.2x | 5.8x | 5.4x |
Year-1 growth is against LTM at announcement ($1.0B revenue, $162M EBITDA); later years are year over year.
Management prepared non-public financial forecasts (the "Forecasts") for 2010E-2014E that were provided to THL, the board, the special committee and its advisors. Net revenue was projected to grow from $1,005.2 million in 2010E to $1,298.0 million in 2014E; EBITDA (excluding stock compensation expense) from $162.0 million to $221.3 million; net income from $52.2 million to $80.3 million; and EPS from $1.49 to $2.17 (THL did not receive the EPS figures). Assumptions included no new acquisitions, no impact from healthcare reform or other legislative changes, business-unit growth rates based on then-known conditions, and no significant change in cost structure. Goldman Sachs also used market/IBES estimates as a cross-check and ran sensitivity cases on post-2011 revenue growth of 2.0%-8.0%.
Process notes
Other Pharmaceutical Services fairness opinions
- ReSearch Pharmaceutical Services / Warburg Pincus 2010 · 12.4x EV/EBITDA
- Pharmaceutical Product Development / Hellman & Friedman and The Carlyle Group 2011 · 11.4x EV/EBITDA
- Kendle International / INC Research Holdings 2011 · 9.9x EV/EBITDA
- eResearch Technology / Genstar Capital 2012 · 7.7x EV/EBITDA
- Patheon / JLL Partners 2013 · 12.7x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA
All Pharmaceutical Services opinions → · Goldman Sachs opinions