Fairness opinions › Digital / HealthTech › 2019

Medidata Solutions acquired by Dassault Systemes: fairness opinion by Morgan Stanley

Announced June 12, 2019 · One-step merger · All cash · DEFM14A filed July 19, 2019

Digital / HealthTech Pharma / Life Sciences Software

Enterprise value

$5.8B

EV / LTM EBITDA

32.4x

EBITDA $179M · 24% margin

EV / LTM revenue

7.84x

revenue $740M

DCF discount rate

8.9%–9.9%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$92.25

Premium—

Premium basis—

StructureOne-step merger

Termination fee$207M

Reverse termination fee—

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $92.25 offer

Selected companies — AV / CY2019E Revenue $60.00 – $83.00

Selected companies — AV / CY2020E Revenue $62.00 – $89.00

Selected companies — AV / CY2019E EBITDAO $65.00 – $79.00

Selected companies — AV / CY2020E EBITDAO $71.00 – $88.00

Precedent transactions — AV / NTM Revenue (NTM as of June 30, 2019 of $817 million) $78.00 – $104.00

Discounted cash flow $63.00 – $94.00

Discounted Equity Value Analysis $71.00 – $98.00

Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.

Opinion of Morgan Stanley to the target board

Delivered June 11, 2019

Discounted cash flow assumptions

Discount rate8.9%–9.9%

BasisMedidata's estimated weighted average cost of capital; market data as of April 18, 2019 except risk-free rate as of June 7, 2019

Terminal valuePerpetuity growth

Perpetuity growth2.0%–4.0%

Exit multiple—

Projection periodQ3 2019-2023 financial forecast plus 2024E-2033E extrapolated forecast

Projections usedMedidata management financial forecast; extrapolations prepared by Morgan Stanley with management guidance and approval

Implied value per share$63.00–$94.00

Present values as of June 30, 2019 using mid-year discount convention; terminal value at December 31, 2033 based on normalized 2033 unlevered free cash flow; net cash of $127 million and ~64 million fully diluted shares (treasury stock method).

Selected public companies (14)

2U, Inc. · AppFolio, Inc. · Aspen Technology, Inc. · Autodesk, Inc. · Blackbaud, Inc. · Constellation Software Inc. · Guidewire Software, Inc. · RealPage, Inc. · SS&C Technologies Holdings, Inc. · Tyler Technologies, Inc. · CompuGroup Medical SE · Inovalon Holdings, Inc. · IQVIA Holdings, Inc. · Veeva Systems

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
AV / CY2019E Revenue	3.2x	—	23.7x	5.0x–7.0x	$60.00–$83.00
AV / CY2020E Revenue	2.6x	—	20.0x	4.5x–6.5x	$62.00–$89.00
AV / CY2019E EBITDAO	12.7x	—	42.5x	22.5x–27.5x	$65.00–$79.00
AV / CY2020E EBITDAO	11.8x	—	52.1x	20.0x–25.0x	$71.00–$88.00

Selected precedent transactions (20)

Date	Target	Acquirer	Multiple
2014-09-02	Compuware	Thoma Bravo	3.0x AV/NTM Revenue
2014-09-18	Concur	SAP	10.3x AV/NTM Revenue
2014-09-29	TIBCO Software	Vista Equity Partners	3.9x AV/NTM Revenue
2015-02-02	Advent Software	SS&C Technologies	6.4x AV/NTM Revenue
2015-04-07	Informatica	Permira	4.3x AV/NTM Revenue
2015-06-15	DealerTrack	Cox Automotive	3.8x AV/NTM Revenue
2015-09-13	Solera	Vista Equity Partners	4.6x AV/NTM Revenue
2015-10-21	Solarwinds	Silver Lake + Thoma Bravo	7.8x AV/NTM Revenue
2016-06-01	Demandware	Salesforce	8.9x AV/NTM Revenue
2016-06-02	Qlik Technologies	Thoma Bravo	3.5x AV/NTM Revenue
2016-06-13	LinkedIn	Microsoft	6.8x AV/NTM Revenue
2016-07-28	NetSuite	Oracle	9.1x AV/NTM Revenue
2016-08-01	Fleetmatics	Verizon	6.3x AV/NTM Revenue
2016-11-20	LifeLock	Symantec	3.3x AV/NTM Revenue
2018-01-29	Callidus	SAP	8.3x AV/NTM Revenue
2018-07-11	CA Technologies	Broadcom	4.3x AV/NTM Revenue
2018-10-28	Red Hat	IBM	9.4x AV/NTM Revenue
2018-11-12	Athenahealth	Veritas Capital + Evergreen Coast Capital	3.9x AV/NTM Revenue
2019-02-04	Ultimate Software	Consortium led by Hellman & Friedman	8.0x AV/NTM Revenue
2019-02-12	Ellie Mae	Thoma Bravo	6.7x AV/NTM Revenue

Multiple	Low	Median	High	Range applied	Implied per share
AV / NTM Revenue (NTM as of June 30, 2019 of $817 million)	3.0x	—	10.3x	6.0x–8.0x	$78.00–$104.00

Other analyses

Analysis	Summary	Implied per share
Discounted Equity Value Analysis	Applied a 5.0x-7.0x revenue multiple to Medidata's NTM revenue as of December 31, 2020 to derive a future implied aggregate value, subtracted projected net cash of $212 million as of December 31, 2020, divided by ~64 million fully diluted shares, and discounted back to June 30, 2019 at Medidata's assumed mid-point cost of equity of 9.5%.	$71.00–$98.00

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$861M	$1.0B	$1.2B	$1.3B	15.8%
Revenue growth	16.4%	16.5%	15.1%	15.8%
EBITDA	$221M	$278M	$332M	$402M	22.1%
EBITDA growth	23.5%	25.8%	19.4%	21.1%
EBITDA margin	26%	28%	29%	30%
Implied EV / EBITDA	26.2x	20.9x	17.5x	14.4x

Year-1 growth is against LTM at announcement ($740M revenue, $179M EBITDA); later years are year over year.

Medidata management prepared non-public financial forecasts for fiscal years 2019-2023 (the "financial forecast"): revenue of $740 million in 2019E growing to $1,336 million in 2023E, EBITDAO of $179 million in 2019E to $402 million in 2023E, and net income of $43 million to $180 million. Morgan Stanley derived unlevered free cash flow from the forecast, ranging from $(8) million in 2019E to $152 million in 2023E. At management's direction, Morgan Stanley also prepared an extrapolated forecast for 2024E-2033E assuming revenue growth declining linearly to 3.0% by 2033 (2033E revenue of $3,238 million, EBITDAO of $1,169 million, unlevered free cash flow of $625 million).

Process notes

Single financial advisor (Morgan Stanley) engaged by the Medidata board on February 22, 2019; no special committee, although non-management directors met separately throughout the process. A financial sponsor bidder ("Financial Bidder") participated in the process but Morgan Stanley believed its valuation would be below $90 per share. Dassault Systèmes' final proposal was conditioned on no reverse breakup fee and a termination fee of 3.5% of transaction value ($207 million). Filing excerpt does not disclose Morgan Stanley's fee arrangement, equity/enterprise value, or premium figures.

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