LifePoint Health acquired by Apollo Global Management: fairness opinion by Goldman Sachs
Deal terms
Implied value per share by method vs. $65.00 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 target board
Discounted cash flow assumptions
Discounted to June 30, 2018 using mid-year convention; 24.5% cash tax rate; subtracted net debt of $2,785 million and minority interest of $135 million; 41.2 million fully-diluted shares. Sensitivity analyses at 7.75% discount rate and 6.75x terminal multiple showed per-share effects of $(3.40)-$3.45 (revenue growth), $(7.70)-$7.55 (EBITDA margin) and $(3.80)-$3.70 (capital expenditures).
Selected public companies (5)
LifePoint Health, Inc. · Community Health Systems Inc. · HCA Healthcare, Inc. · Tenet Healthcare Corporation · Universal Health Services, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / NTM EBITDA (as of July 20, 2018) | 7.6x | — | 9.2x | — | — |
| EV / NTM EBITDA - Hospital Services Index (as of July 20, 2018) | — | 7.9x | — | — | — |
Selected precedent transactions (5)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2006-07-24 | HCA Inc. | Hercules Holding II, LLC | 7.9x EV / LTM EBITDA |
| 2013-06-24 | Vanguard Health Systems, Inc. | Tenet Healthcare Corporation | 7.8x EV / LTM EBITDA |
| 2013-07-30 | Health Management Associates, Inc. | Community Health Systems, Inc. | 8.2x EV / LTM EBITDA |
| 2015-07-27 | Capella Healthcare, Inc. | Medical Properties Trust, Inc. | 8.1x EV / LTM EBITDA |
| 2017-05-19 | IASIS Healthcare LLC | Steward Health Care LLC | 8.2x EV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 7.8x | 8.1x | 8.2x | 7.8x–8.2x | $66.25–$72.70 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Premia and Multiple Analyses | $65.00 implied premia of 35.7% to the $47.90 closing price on July 20, 2018, (0.7)% to the 52-week high of $65.45, 31.1% to the 1-month VWAP of $49.60 and 26.3% to the 3-month VWAP of $51.45. Implied EV multiples: 7.5x 2017A EBITDA, 7.6x 2018E EBITDA (I/B/E/S) and 7.5x 2018E EBITDA (LifePoint Forecasts). | — |
| Historical Trading Multiples | For reference only: average EV/NTM EBITDA multiples as of July 20, 2018 and over 1, 2, 3 and 5-year periods - LifePoint 6.4x/6.4x/6.5x/6.7x/7.0x; CHS 9.2x/8.8x/8.2x/7.8x/7.6x; HCA 8.1x/7.6x/7.4x/7.4x/7.6x; Tenet 7.6x/7.4x/7.4x/7.6x/7.7x; UHS 7.9x/8.1x/8.3x/8.5x/8.6x; Hospital Services Index 7.9x/7.7x/7.5x/7.5x/7.6x. | — |
| Illustrative Present Value of Future Share Price Analysis | Applied EV/NTM EBITDA multiples of 6.0x to 7.0x to LifePoint Forecast EBITDA to derive theoretical future share prices as of December 31, 2018-2021, discounted to June 30, 2018 at a 9.6% cost of equity. | $42.60–$75.25 |
| Premia Paid Analysis | Reviewed all-cash acquisitions of U.S. public companies announced January 1, 2011 - July 20, 2018 with enterprise values of $2-$10 billion; annual median premia ranged from 20.1% (2018 YTD) to 46.7% (2012). Applied 20.1% to 46.7% to the $47.90 July 20, 2018 closing price. | $57.55–$70.25 |
Transaction fee estimated at approximately $31.6 million, $3.0 million of which became payable upon execution of the merger agreement and the remainder contingent upon consummation. Goldman Sachs recognized approximately $116.4 million of compensation from AGM, its affiliates and portfolio companies during the two-year period ended June 22, 2018.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $6.4B | $6.6B | $6.8B | $7.0B | 3.0% |
| Revenue growth | 1.0% | 3.0% | 3.0% | 3.0% | |
| EBITDA | $783M | $837M | $882M | $932M | 6.0% |
| EBITDA growth | 4.3% | 6.9% | 5.4% | 5.7% | |
| EBITDA margin | 12% | 13% | 13% | 13% | |
| Implied EV / EBITDA | 7.2x | 6.7x | 6.3x | 6.0x |
Year-1 growth is against LTM at announcement ($6.3B revenue, $751M EBITDA); later years are year over year.
Goldman Sachs used the "LifePoint Forecasts," internal financial analyses and forecasts for LifePoint prepared by management and approved for Goldman Sachs' use, covering the period from July 1, 2018 through December 31, 2022 (unlevered free cash flow) with future share price analysis extending through calendar 2021. Implied EV/2018E EBITDA based on the LifePoint Forecasts was 7.5x (versus 7.6x on I/B/E/S estimates). A 24.5% cash tax rate was assumed and stock-based compensation was treated as a cash expense; specific revenue/EBITDA dollar figures are not shown in the sliced sections.
Process notes
Other Hospitals fairness opinions
- Kindred Healthcare / Humana/TPG/WCAS 2017 · 8.0x EV/EBITDA
- Health Management Associates / Community Health Systems 2013 · 9.1x EV/EBITDA
- Vanguard Health Systems / Tenet Healthcare 2013 · 8.1x EV/EBITDA
- Select Medical / WCAS, et. al. 2026 · 8.0x EV/EBITDA