Magellan Health acquired by Centene: fairness opinion by Goldman Sachs and Guggenheim Securities
Announced January 4, 2021 · One-step merger · All cash ·
DEFM14A filed February 19, 2021
Managed Care Health Plans: Specialty
Enterprise value
$2.0B
EV / LTM EBITDA
15.6x
EBITDA $131M · 3% margin
EV / LTM revenue
0.45x
revenue $4.6B
DCF discount rate
7.0%–8.0%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$95.00
Premium14.7%
Premium basisclosing price of $82.84 on December 31, 2020 (last trading day before announcement)
StructureOne-step merger
Termination fee$76.5M (3.0% of equity)
Reverse termination fee—
Go-shopNone
Outside dateOctober 4, 2021
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $95.00 offer
Precedent transactions — EV / LTM EBITDA (applied to FY2020E EBITDA, excluding MCC Business Sale net proceeds) (Goldman Sachs) $59.80 – $79.09
Discounted cash flow (Goldman Sachs) $85.55 – $100.89
Illustrative Present Value of Future Share Price Analysis (Goldman Sachs) $56.61 – $98.30
Premia Paid Analysis (Goldman Sachs) $95.27 – $132.54
Selected companies — Share Price / CY2021E EPS (Guggenheim Securities) $71.25 – $85.00
Precedent transactions — Transaction EV / NTM EBITDA - Pharmacy & Specialty Benefit Managers and Behavioral Health (applied to CY2021E EBITDA) (Guggenheim Securities) $81.75 – $96.25
Discounted cash flow (Guggenheim Securities) $87.75 – $111.50
High and Low Stock Prices since MCC Business Sale Announcement (informational) (Guggenheim Securities) $57.38 – $87.52
Wall Street Equity Research Analyst Stock Price Targets (informational) (Guggenheim Securities) $92.00 – $98.00
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
Delivered January 4, 2021 · Fee $13.0M ($13.0M contingent on closing)
Discounted cash flow assumptions
Discount rate7.0%–8.0%
BasisWACC estimated via capital asset pricing model
Terminal valueExit multiple
Perpetuity growth-0.6%–1.7%
Exit multiple6.5x–8.0x terminal year EBITDA
Projection periodQ4 2020E-2024E (October 1, 2020 to December 31, 2024)
Projections usedJanuary 2021 Forecasts (Company management)
Implied value per share$85.55–$100.89
Discounted to present value as of September 30, 2020; mid-year discounting convention except end-of-year for MCC Business Sale proceeds, Part D collections and December 2020 investments. Implied perpetuity growth rates of negative 0.6% to 1.7%.
Selected precedent transactions (9)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2018-12 | Civitas Solutions, Inc. | Centerbridge Partners | 8.7x EV / LTM EBITDA |
| 2018-03 | Express Scripts Holding Company | Cigna Corporation | 9.0x EV / LTM EBITDA |
| 2017-10 | eviCore healthcare | Express Scripts Holding Company | 13.1x EV / LTM EBITDA |
| 2015-03 | Catamaran Corporation | OptumRx | 17.1x EV / LTM EBITDA |
| 2014-10 | CRC Health Group, Inc. | Acadia Healthcare Company, Inc. | 10.2x EV / LTM EBITDA |
| 2011-07 | Medco Health Solutions, Inc. | Express Scripts Holding Company | 11.5x EV / LTM EBITDA |
| 2010-05 | Psychiatric Solutions, Inc. | Universal Health Services, Inc. | 9.5x EV / LTM EBITDA |
| 2009-04 | WellPoint NextRx | Express Scripts Holding Company | 11.7x EV / LTM EBITDA |
| 2006-11 | Caremark Rx, Inc. | CVS Health Corporation | 13.3x EV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to FY2020E EBITDA, excluding MCC Business Sale net proceeds) | 8.7x | — | 17.1x | 9.5x–13.5x | $59.80–$79.09 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Premia and Multiples | Implied premia of 14.7% to 12/31/20 close of $82.84, 8.5% to 52-week high of $87.52, 18.3% to 30-day VWAP of $80.29, 19.6% to 60-day VWAP of $79.42 and 21.9% to 90-day VWAP of $77.91; implied EV/2021E EBITDA of 11.1x and EV/2022E EBITDA of 9.1x; implied price/2021E EPS of 33.5x and price/2022E EPS of 24.2x. | — |
| Illustrative Present Value of Future Share Price Analysis | Applied NTM P/E multiples of 16.0x to 24.0x to estimated EPS for 2022, 2023 and 2024 per the January 2021 Forecasts, discounted to present value as of September 30, 2020 at 8.5% cost of equity. | $56.61–$98.30 |
| Premia Paid Analysis | Reviewed premia in U.S. healthcare acquisitions (excluding biotech) announced 12/31/2010-12/31/2020 with target enterprise value of $1-5 billion; all deals median 29.2%, mean 35.2%, 25th quartile 15.4%, 75th quartile 55.4%; all-cash deals median 29.7%, mean 36.0%, 25th quartile 17.7%, 75th quartile 58.2%. Applied illustrative premia range of 15%-60% to the $82.84 current price. | $95.27–$132.54 |
Transaction fee estimated at approximately $13 million, all contingent upon completion of the Merger. Engagement letter dated January 10, 2017, reinstated and amended October 27, 2020. Goldman Sachs recognized approximately $100,000 of compensation from the Company/affiliates in the prior two years.
Opinion of Guggenheim Securities to the target board
Delivered January 4, 2021 · Fee $13.0M ($13.0M contingent on closing)
Discounted cash flow assumptions
Discount rate7.5%–8.5%
BasisWACC estimated via capital asset pricing model
Terminal valuePerpetuity growth
Perpetuity growth1.0%–2.0%
Exit multiple—
Projection period2020E-2024E
Projections usedJanuary 2021 Forecasts (Company management)
Implied value per share$87.75–$111.50
Perpetual growth rates applied to terminal year unlevered free cash flow; terminal values cross-checked against implied terminal year EBITDA multiples. Reference range rounded to nearest $0.25.
Selected public companies (10)
Providence Service Corporation · Tivity Health, Inc. · Option Care Health, Inc. · UnitedHealth Group · CVS Health Corporation · Cigna Corporation · Anthem, Inc. · Humana, Inc. · Centene Corporation · Molina Healthcare, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Share Price / CY2021E EPS | 9.1x | 14.4x | 25.2x | 13.0x–18.0x | $71.25–$85.00 |
Selected precedent transactions (23)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2019-12-09 | Diplomat Pharmacy, Inc. | OptumRx | 11.5x Transaction EV / NTM EBITDA |
| 2019-06-06 | Beacon Health Options | Anthem, Inc. | — |
| 2018-12-11 | BrightSpring Health Services | KKR / PharMerica Corporation | — |
| 2018-03-08 | Express Scripts Holding Corporation | Cigna Corporation | 8.7x Transaction EV / NTM EBITDA |
| 2017-11-15 | LDI Integrated Pharmacy Services | Diplomat Pharmacy, Inc. | 11.9x Transaction EV / NTM EBITDA |
| 2017-10-10 | eviCore Healthcare | Express Scripts Holding Corporation | 10.7x Transaction EV / NTM EBITDA |
| 2015-03-30 | Catamaran Corporation | OptumRx | 14.4x Transaction EV / NTM EBITDA |
| 2015-02-11 | EnvisionRx | Rite Aid Corporation | 11.3x Transaction EV / NTM EBITDA |
| 2014-10-29 | CRC Health Group, Inc | Acadia Healthcare Company, Inc. | — |
| 2012-04-18 | Catalyst Health Solutions, Inc. | SXC Health Solutions Corp. | 18.2x Transaction EV / NTM EBITDA |
| 2011-07-21 | Medco Health Solutions, Inc. | Express Scripts Holding Company | 10.2x Transaction EV / NTM EBITDA |
| 2010-05-18 | Psychiatric Solutions, Inc. | Universal Health Services, Inc. | 9.1x Transaction EV / NTM EBITDA |
| 2009-04-13 | WellPoint NextRx | Express Scripts Holding Company | — |
| 2007-07-09 | American Imaging Management | WellPoint, Inc. | 7.5x Transaction EV / NTM EBITDA |
| 2006-11-01 | Caremark Rx, Inc. | CVS Health Corporation | 12.7x Transaction EV / NTM EBITDA |
| 2006-01-31 | National Imaging Associates, Inc. | Magellan Health Inc. | 7.8x Transaction EV / NTM EBITDA |
| 2019-03-27 | WellCare Health Plans, Inc. | Centene Corporation | 14.6x Transaction EV / NTM EBITDA (managed care) |
| 2017-12-03 | Aetna Inc. | CVS Health Corporation | 13.1x Transaction EV / NTM EBITDA (managed care) |
| 2016-11-17 | Universal American Corp. | WellCare Health Plans, Inc. | 17.6x Transaction EV / NTM EBITDA (managed care) |
| 2015-07-02 | Health Net, Inc. | Centene Corporation | 11.2x Transaction EV / NTM EBITDA (managed care) |
| 2012-08-20 | Coventry Health Care Inc. | Aetna Inc. | 7.9x Transaction EV / NTM EBITDA (managed care) |
| 2012-07-09 | AmeriGroup Corporation | WellPoint, Inc. | 12.3x Transaction EV / NTM EBITDA (managed care) |
| 2011-10-24 | HealthSpring, Inc. | Cigna Corporation | 7.6x Transaction EV / NTM EBITDA (managed care) |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Transaction EV / NTM EBITDA - Pharmacy & Specialty Benefit Managers and Behavioral Health (applied to CY2021E EBITDA) | 7.5x | 11.0x | 18.2x | 9.0x–11.0x | $81.75–$96.25 |
| Transaction EV / NTM EBITDA - Managed Care | 7.6x | 12.3x | 17.6x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Merger-Implied Premia and Multiples | Premium of 14.7% to unaffected 12/31/20 stock price of $82.84, 8.5% to 52-week high of $87.52, 18.3%/19.6%/21.9% to 30-/60-/90-day VWAPs of $80.29/$79.42/$77.91; transaction EV/CY2021E EBITDA of 10.8x and CY2022E of 8.9x; merger consideration/CY2021E EPS of 33.5x and CY2022E of 24.2x. | — |
| High and Low Stock Prices since MCC Business Sale Announcement (informational) | Trading range of Magellan common stock from April 30, 2020 (MCC Business Sale announcement) through December 31, 2020. | $57.38–$87.52 |
| Wall Street Equity Research Analyst Stock Price Targets (informational) | Selected Wall Street analyst price targets for Magellan published prior to December 31, 2020. | $92.00–$98.00 |
Cash transaction fee entirely contingent upon consummation of the Merger, estimated at approximately $13 million as of the announcement date; plus expense reimbursement and indemnity. Oral opinion rendered at January 3, 2021 Board meeting, confirmed in writing as of January 4, 2021.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $5.0B | $5.4B | $5.8B | $6.2B | 7.5% |
| Revenue growth | 8.3% | 9.0% | 6.4% | 7.1% | |
| EBITDA | $208M | $254M | $284M | $317M | 15.1% |
| EBITDA growth | 58.8% | 22.1% | 11.8% | 11.6% | |
| EBITDA margin | 4% | 5% | 5% | 5% | |
| Implied EV / EBITDA | 9.8x | 8.0x | 7.2x | 6.4x |
Year-1 growth is against LTM at announcement ($4.6B revenue, $131M EBITDA); later years are year over year.
Three sets of management forecasts were disclosed (July 2020, October 2020 and January 2021 Forecasts), all excluding the MCC Business. Both financial advisors were directed to use and rely only on the January 2021 Forecasts, which projected revenue of $4,578M in 2020E rising to $5,942M in 2024E, EBITDA of $131M in 2020E rising to $300M in 2024E, Adjusted EPS of $2.84 in 2021E to $5.34 in 2024E, and unlevered free cash flow of $38M in 2021E to $140M in 2024E (plus $1,058M in Q4 2020E reflecting MCC sale proceeds). The January 2021 Forecasts revised the October 2020 Forecasts downward for the Medi-Cal PBA delay, a PBM contract scope reduction and a PBM contract non-renewal; Guggenheim used adjusted CY2021E EPS of $2.80 excluding MCC-proceeds interest income.
Process notes
Two fairness opinions delivered to the Magellan Board: Goldman Sachs (written opinion dated January 4, 2021) and Guggenheim Securities (oral opinion January 3, 2021, confirmed in writing as of January 4, 2021). Each advisor's fee is approximately $13 million, wholly contingent on closing. Neither advisor solicited third-party interest in connection with this transaction; an earlier 2019 sale process had produced proposals from a sponsor and others and led to the April 30, 2020 sale of the MCC Business to Molina. The Board sought a price above $95.00 but Centene did not raise its offer; the Board negotiated the termination fee down to $76,530,000 (~3% of equity value), eliminated a 'no vote' expense reimbursement and added a 'clear markets' provision restricting Centene acquisitions. Outside date of October 4, 2021, extendable to January 4, 2022 for regulatory conditions. Equity awards (other than director RSAs) roll over into Centene awards using a Stock Award Exchange Ratio.
Other Managed Care fairness opinions
- WellCare Health Plans / Centene 2019 · 14.5x EV/EBITDA
- Dental Care Plus Group / DentaQuest 2019 · 10.4x EV/EBITDA
- NeueHealth / New Enterprise Associates 2024 · 54.7x EV/EBITDA
- Express Scripts Holding / Cigna 2018 · 11.6x EV/EBITDA
- Performant Healthcare / Machinify 2025 · 43.2x EV/EBITDA
- Aetna / CVS Health 2017 · 12.1x EV/EBITDA
All Managed Care opinions → · Goldman Sachs opinions · Guggenheim Securities opinions