Kensey Nash acquired by Royal DSM: fairness opinion by Jefferies
Announced May 2, 2012 · Tender offer · All cash ·
SC 14D9 filed May 21, 2012
Medical Devices and Supplies Advanced Materials
Enterprise value
$360M
equity $361M
EV / LTM EBITDA
11.4x
EBITDA $31.6M · 35% margin
EV / LTM revenue
4.03x
revenue $89.4M
DCF discount rate
10.0%–12.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$38.50
Premium35.4%
Premium basisclosing price per share on April 30, 2012 of $28.43
StructureTender offer
Termination fee$12.6M (3.5% of equity)
Reverse termination fee—
Go-shopNone
Outside date—
FilingSC 14D9 · EDGAR index
Implied value per share by method vs. $38.50 offer
Selected companies — Enterprise Value / 2012E EBITDA $31.07 – $39.04
Selected companies — Enterprise Value / 2013E EBITDA $34.25 – $44.43
Selected companies — Price / 2012E EPS $28.72 – $36.38
Selected companies — Price / 2013E EPS $33.89 – $44.32
Precedent transactions — Enterprise Value / LTM Revenue (applied to CY2011 revenue) $28.53 – $37.65
Precedent transactions — Enterprise Value / LTM EBITDA (applied to CY2011 EBITDA) $34.53 – $42.87
Discounted cash flow $43.17 – $68.64
Premiums Paid Analysis $34.81 – $48.28
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Jefferies to the target board
Delivered May 2, 2012 · Fee $6.0M ($5.5M contingent on closing), $0.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.0%–12.0%
Basisweighted average cost of capital analysis
Terminal valuePerpetuity growth
Perpetuity growth4.0%–5.0%
Exit multiple—
Projection periodQ4 FY2012E-FY2016E (fiscal years ending June 30)
Projections usedCompany management financial projections
Implied value per share$43.17–$68.64
Implied values above the $38.50 consideration; Board discussed risks in forecasts including loss of Angio-Seal royalty stream in 2014
Selected public companies (14)
NuVasive, Inc. · Ossur Hf. · ResMed Inc. · Sirona Dental Systems Inc. · Stryker Corp. · William Demant Holding A/S · ATRION Corp. · Gerresheimer AG · Greatbatch, Inc. · ICU Medical, Inc. · RTI Biologics, Inc. · SurModics Inc. · Symmetry Medical, Inc. · West Pharmaceutical Services, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Enterprise Value / 2012E EBITDA | 5.8x | 8.6x | 14.8x | 7.5x–9.5x | $31.07–$39.04 |
| Enterprise Value / 2013E EBITDA | 4.8x | 7.5x | 13.3x | 6.5x–8.5x | $34.25–$44.43 |
| Price / 2012E EPS | 12.3x | 17.7x | 23.5x | 15.0x–19.0x | $28.72–$36.38 |
| Price / 2013E EPS | 9.4x | 15.3x | 18.6x | 13.0x–17.0x | $33.89–$44.32 |
Selected precedent transactions (39)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2012-03-12 | ZOLL Medical Corporation | Asahi Kasei Corporation | — |
| 2012-01-31 | Navilyst Medical, Inc. | AngioDynamics, Inc. | — |
| 2011-11-17 | Physio-Control, Inc. | Bain Capital, LLC | — |
| 2011-10-03 | Atrium Medical Corporation | Getinge AB | — |
| 2011-09-28 | SterilMed, Inc. | Johnson & Johnson | — |
| 2011-08-25 | Baxa Corporation | Baxter International Inc. | — |
| 2011-07-27 | Carmel Pharma, AB | Becton, Dickinson and Company | — |
| 2011-07-20 | Value Plastics, Inc. | Nordson Corporation | — |
| 2011-07-13 | Kinetic Concepts, Inc. | Apax Partners | — |
| 2011-06-22 | Astra Tech AB | DENTSPLY International Inc. | — |
| 2011-06-21 | Nucletron B.V. | Elekta AB | — |
| 2011-05-16 | Orthovita, Inc. | Stryker Corporation | — |
| 2011-04-27 | Synthes Inc. | Johnson & Johnson | — |
| 2011-04-11 | American Medical Systems, Inc. | Endo Pharmaceuticals Holdings Inc. | — |
| 2011-03-31 | NuSil Technology LLC | New Mountain Capital, LLC | — |
| 2011-02-22 | Sterigenics International, Inc. | GTCR, LLC | — |
| 2010-10-06 | Creganna-Tactx Medical | Permira LLC | — |
| 2010-09-09 | Arizant Inc. | 3M Company | — |
| 2010-08-25 | Gaymar Holding Company, LLC | Stryker Corporation | — |
| 2010-07-15 | SterilMed, Inc. | Great Hill Partners, LLC | — |
| 2009-11-30 | Ascent Healthcare Solutions, Inc. | Stryker Corporation | — |
| 2009-05-07 | VNUS Medical Technologies, Inc. | Covidien plc | — |
| 2009-01-12 | Advanced Medical Optics, Inc. | Abbott Medical Optics Inc. | — |
| 2008-07-24 | Vital Signs, Inc. | General Electric Company - GE Healthcare | — |
| 2008-01-15 | Lifecore Biomedical, Inc. | Warburg Pincus LLC | — |
| 2008-11-24 | OMRIX biopharmaceuticals LTD | Johnson & Johnson | — |
| 2008-09-15 | Datascope Corporation | Getinge AB | — |
| 2008-03-04 | Enturia Inc. | Cardinal Health Inc. | — |
| 2007-12-20 | Respironics, Inc. | Royal Philips Electronics | — |
| 2007-11-19 | Gyrus Group plc | The Olympus Corporation | — |
| 2007-11-05 | Boston Scientific Corporation | Getinge AB | — |
| 2007-07-24 | Arrow International, Inc. | Teleflex Incorporated | — |
| 2007-07-21 | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| 2007-07-15 | DJO, Inc. | ReAble Therapeutics, Inc. | — |
| 2007-05-11 | VIASYS Healthcare Inc. | Cardinal Health, Inc. | — |
| 2007-02-11 | Adeza Medical Corporation | Cytyc Corporation | — |
| 2006-12-22 | Gibaud SAS | Ossur hf. | — |
| 2006-12-18 | Biomet, Inc. | The Blackstone Group L.P. | — |
| 2006-06-30 | ReAble Therapeutics, Inc. | The Blackstone Group L.P. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Enterprise Value / LTM Revenue (applied to CY2011 revenue) | 1.9x | 3.3x | 9.3x | 3.0x–4.0x | $28.53–$37.65 |
| Enterprise Value / LTM EBITDA (applied to CY2011 EBITDA) | 9.9x | 15.4x | 26.4x | 10.0x–12.5x | $34.53–$42.87 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums Paid Analysis | Reviewed premiums in 104 selected healthcare transactions completed and pending from January 1, 2006 to April 20, 2012 with cash consideration of $100-500 million; 1-day premiums 25th/median/75th percentile of 23%/35%/61%, 1-week 25%/38%/62%, 1-month 26%/43%/65%. Applied 25th to 75th percentile reference ranges to Kensey Nash closing prices 1 day, 1 week, and 1 month prior to April 30, 2012. | $34.81–$48.28 |
| Transaction Overview / Premium Analysis | $38.50 per share represented premiums of 35.4% over the April 30, 2012 closing price of $28.43, 35.0% over 1-week VWAP, 34.9% over 30-day VWAP, 43.0% over 90-day VWAP, 53.4% over six-month VWAP and 50.7% over one-year VWAP. Implied equity value ~$360.5 million and enterprise value ~$350.0 million. | — |
Aggregate fee estimated at approximately $6.0 million; $500,000 payable upon delivery of opinion, remainder contingent upon consummation of the Offer. No portion of the opinion fee contingent on conclusion expressed.
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 | $102M | $123M | $136M | $170M | 18.4% |
| Revenue growth | 14.1% | 20.4% | 11.0% | 24.4% | |
| EBITDA | $38.6M | $51.0M | $55.8M | $80.1M | 27.6% |
| EBITDA growth | 22.2% | 32.1% | 9.4% | 43.5% | |
| EBITDA margin | 38% | 42% | 41% | 47% | |
| Implied EV / EBITDA | 9.3x | 7.1x | 6.5x | 4.5x |
Year-1 growth is against LTM at announcement ($89.4M revenue, $31.6M EBITDA); later years are year over year.
Company management prepared five-year standalone forecasts for fiscal years ending June 30, 2012E-2016E, provided to DSM and Jefferies. Revenue grows from $89.4 million in FY2012E to $169.5 million in FY2016E, with EBITDA (non-GAAP) of $31.6 million in FY2012E rising to $80.1 million in FY2016E, and EPS of $1.68 to $5.15. Jefferies calculated unlevered free cash flows from these forecasts ($3.0 million for Q4 FY2012E rising to $35.4 million in FY2016E) using a 35% tax rate; calendar-year adjusted figures included CY2012E EBITDA of $35.1 million, CY2013E EBITDA of $44.8 million, CY2011 revenue of $80.3 million and CY2011 EBITDA of $29.4 million.
Process notes
Two-step tender offer/merger with a top-up option; no go-shop, but a "window-shop" provision and a minimum two-week window between signing and launch of the offer allowed other bidders time. Termination fee negotiated down from an initial 4.5% request to 3.5% of equity value ($12.6 million); the voting and tender agreement initially requested by DSM was dropped. The Board noted Jefferies' DCF range ($43.17-$68.64) exceeded the $38.50 offer price and discussed at length the risks in management's forecasts, including loss of the Angio-Seal royalty stream in 2014, early-stage pipeline uncertainty and customer concentration. Jefferies' opinion was delivered at the May 2, 2012 Board meeting after presenting its analyses on May 1, 2012.
Other Medical Devices and Supplies fairness opinions
- Young Innovations / Linden 2012 · 10.5x EV/EBITDA
- Solta Medical / Valeant Pharmaceuticals International 2013 · 11.2x EV/EBITDA
- Rochester Medical / C. R. Bard 2013 · 13.1x EV/EBITDA
- Theragenics / Juniper Investment 2013 · 9.6x EV/EBITDA
- Conceptus / Bayer HealthCare 2013 · 28.0x EV/EBITDA
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
All Medical Devices and Supplies opinions → · Jefferies opinions