Kendle International acquired by INC Research Holdings: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $15.25 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Free cash flows from March 31, 2011 through December 31, 2020; terminal value as of December 31, 2020. Firm value adjusted for net debt of ~$124 million as of 3/31/2011 and present value of federal NOLs of $49.2 million as of 12/31/2010 (37.5% tax rate); ~15 million fully diluted shares using treasury stock method.
Selected public companies (9)
Pharmaceutical Product Development, Inc. · ICON plc · PAREXEL International Corporation · Covance Inc. · Charles River Laboratories International, Inc. · WuXi PharmaTech (Cayman) Inc. · ShangPharma Corporation · Medidata Solutions, Inc. · eResearchTechnology, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| FV / EBITDA 2011E - Late-stage CROs | — | 8.7x | — | — | — |
| FV / EBITDA 2011E - Early-stage CROs | — | 10.6x | — | — | — |
| FV / EBITDA 2011E - Other CROs | — | 9.1x | — | — | — |
| FV / EBITDA 2011E - Blended Selected Companies | — | 9.7x | — | — | — |
| FV / EBITDA 2011E (Base Case, ~$37mm EBITDA) | — | — | — | 6.5x–8.5x | $7.65–$12.45 |
| FV / EBITDA 2011E (I/B/E/S Case, ~$33mm EBITDA) | — | — | — | 6.5x–8.5x | $5.80–$10.05 |
Selected precedent transactions (5)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-01 | i3 (Subsidiary of Ingenix) | Thomas H. Lee Partners, L.P. | — |
| 2010-12 | Research Pharmaceutical Services | Warburg Pincus LLC | 14.1x TV/LTM EBITDA |
| 2010-08 | INC Research, LLC | Avista Capital Partners, L.P., Ontario Teachers Pension Plan Board | — |
| 2009-02 | PharmaNet Development Group, Inc. | JLL Partners, Inc. | 8.6x TV/LTM EBITDA |
| 2010-05 | inVentiv Health, Inc. | Thomas H. Lee Partners, L.P. | 8.4x TV/LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| TV / LTM EBITDA (LTM ended 3/31/2011 of ~$26mm) | 8.4x | — | 14.1x | 9.5x–12.5x | $7.95–$13.05 |
| TV / LTM EBITDA at RPS/Warburg Pincus multiple of 14.1x | — | — | — | 14.1x | $15.60 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis | Reviewed Kendle's stock price performance for periods ending May 3, 2011 on a standalone basis and versus the S&P 500 and a composite index of the selected companies. $15.25 represented a 53.9% premium to the $9.91 closing price on May 3, 2011; 64.3% premium to the $9.28 closing price on March 23, 2011 (last full trading day before news article on a potential sale); 51.1% premium to the 30-trading-day average through May 3, 2011; 40.8% premium to the 52-week average; an 11.8% discount to the 52-week high closing price; and a 94.8% premium to the 52-week low closing price. J.P. Morgan noted historical stock trading and analyst price target analyses are not valuation methodologies and were presented for informational purposes only. | — |
Fee of 1.47% of total consideration, or approximately $5,000,000; $750,000 payable upon delivery of opinion, remainder contingent on consummation of the merger. Expense reimbursement and indemnification also provided.
Management projections
Kendle management, which had stopped issuing public guidance in April 2009, prepared revised projected financial information provided to J.P. Morgan and Parent; the forecast provided to Parent covered only fiscal 2011, showing net revenues of $334.3 million and EBITDA of $36.9 million for the year ending December 31, 2011. For its analyses, J.P. Morgan used a "Base Case" composite prepared by J.P. Morgan at the direction of management from various management forecasts covering fiscal years 2011 through 2020 (2011E EBITDA of approximately $37 million), and an "I/B/E/S Case" based on the mean of Wall Street analyst estimates as of May 3, 2011 (2011E EBITDA of approximately $33 million).
Process notes
Other Pharmaceutical Services fairness opinions
- Pharmaceutical Product Development / Hellman & Friedman and The Carlyle Group 2011 · 11.4x EV/EBITDA
- eResearch Technology / Genstar Capital 2012 · 7.7x EV/EBITDA
- inVentiv Health / Thomas H. Lee Partners 2010 · 7.3x EV/EBITDA
- ReSearch Pharmaceutical Services / Warburg Pincus 2010 · 12.4x EV/EBITDA
- Patheon / JLL Partners 2013 · 12.7x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA
All Pharmaceutical Services opinions → · J.P. Morgan opinions