Kinetic Concepts acquired by Apax Partners, CPPIB and PSP Investments: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $68.50 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
Using 2010 as the base year, unlevered free cash flows from 2H 2011 through fiscal 2021 discounted to present value; terminal asset value at end of 10.5-year period ending December 31, 2021. Implied ranges: Case 1 $35.50-$46.35; Case 2 $47.40-$61.55; Case 3 $68.45-$87.45. Present values adjusted for estimated debt and cash as of June 30, 2011.
Selected public companies (8)
Hologic, Inc. · American Medical Systems Holdings, Inc. · Smith & Nephew plc · Coloplast A/S · Teleflex Incorporated · CareFusion Corporation · Hill-Rom Holdings, Inc. · Integra LifeSciences Holdings Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / CY2011E EBITDA | 7.9x | 9.9x | 10.9x | 7.5x–11.0x | $54.85–$80.65 |
| Price / CY2011E Cash EPS (net income plus amortization) | 14.1x | 16.0x | 19.6x | 12.0x–19.5x | $58.70–$95.40 |
Selected precedent transactions (11)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-03 | CaridianBCT Holding Corp. | Terumo Corporation | 14.4x Firm Value / LTM EBITDA |
| 2009-01 | Advanced Medical Optics, Inc. | Abbott Laboratories | 10.7x Firm Value / LTM EBITDA |
| 2008-12 | Mentor Corporation | Johnson & Johnson | 13.3x Firm Value / LTM EBITDA |
| 2008-05 | ConvaTec Inc. | Nordic Capital and Avista Capital Partners | 10.2x Firm Value / LTM EBITDA |
| 2007-11 | Boston Scientific Corp.'s Cardiac Surgery Business | Getinge AB | 10.4x Firm Value / LTM EBITDA |
| 2007-07 | Arrow International, Inc. | Teleflex Incorporated | 15.8x Firm Value / LTM EBITDA |
| 2007-05 | Bausch & Lomb Incorporated | Warburg Pincus LLC | 12.6x Firm Value / LTM EBITDA |
| 2007-01 | Mölnlycke Health Care Group | Investor AB | 12.4x Firm Value / LTM EBITDA |
| 2005-05 | Sirona Group | Madison Dearborn Partners, LLC | 11.3x Firm Value / LTM EBITDA |
| 2005-04 | Mölnlycke Health Care AB | Apax Partners | 9.7x Firm Value / LTM EBITDA |
| 2004-12 | SOLA International Inc. | Carl Zeiss AG and EQT III | 11.1x Firm Value / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / LTM EBITDA | 9.7x | 11.3x | 15.8x | 9.5x–12.5x | $65.30–$86.60 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical trading price reference | J.P. Morgan compared implied per share values to the $68.50 Merger Consideration, the $56.49 one-month average closing price for the period ending July 5, 2011 and the $58.78 closing price on July 5, 2011 (last trading day before published reports about a potential sale of KCI). | $56.49–$58.78 |
Transaction fee of approximately $34 million, $3 million earned upon delivery of the opinion and the remainder payable upon completion of the Merger; expenses reimbursed and indemnification provided. Engagement letter dated June 17, 2011, effective as of March 29, 2011.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $2.2B | $2.3B | $2.5B | $2.6B | 6.2% |
| Revenue growth | 5.2% | 6.4% | 6.1% | 6.0% | |
| EBITDA | $710M | $732M | $782M | $833M | 5.5% |
| EBITDA growth | 8.9% | 3.1% | 6.7% | 6.6% | |
| EBITDA margin | 32% | 31% | 32% | 32% | |
| Implied EV / EBITDA | 8.9x | 8.6x | 8.1x | 7.6x |
Year-1 growth is against LTM at announcement ($2.1B revenue, $652M EBITDA); later years are year over year.
KCI management prepared three financial cases (Case 1, Case 2, Case 3) with forecasts for fiscal years 2011 through 2015 plus management-approved extrapolations through 2021, reflecting different assumptions on market demand, pricing and competitive dynamics. Case 1 assumed 2010-2015 revenue growth of 2.6% with EBITDA margin change of -80 basis points; Case 2 assumed 5.4% revenue growth with +180 bps margin improvement; Case 3 assumed 9.3% revenue growth with +450 bps margin improvement. The board viewed Case 3 as somewhat aspirational and not the most likely future results.
Process notes
Other Medical Devices and Supplies fairness opinions
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
- SonoSite / FUJIFILM Holdings 2011 · 21.1x EV/EBITDA
- Synovis Life Technologies / Baxter International 2011 · 17.1x EV/EBITDA
- American Medical Alert / Tunstall Healthcare Group 2011 · 8.5x EV/EBITDA
- Orthovita / StrykerCorp. 2011 · 18.1x EV/EBITDA
- American Medical Systems / Endo Pharmaceuticals 2011 · 15.2x EV/EBITDA
All Medical Devices and Supplies opinions → · J.P. Morgan opinions