Micrus Endovascular acquired by Johnson & Johnson: fairness opinion by Lazard
Announced July 12, 2010 · One-step merger · All cash ·
DEFM14A filed August 13, 2010
Medical Devices and Supplies Medical Devices
Enterprise value
$397M
EV / LTM EBITDA
23.1x
EBITDA $17.2M · 16% margin
EV / LTM revenue
3.70x
revenue $107M
DCF discount rate
11.0%–13.0%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$23.40
Premium—
Premium basis—
StructureOne-step merger
Termination fee$13.3M
Reverse termination fee$10.0M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $23.40 offer
Selected companies — Combined comparable companies analysis implied equity value per share $17.21 – $23.33
Precedent transactions — Combined precedent transactions analysis implied equity value per share $19.36 – $26.09
Discounted cash flow $22.11 – $28.49
Premiums Paid Analysis (applied to July 8, 2010 share price) $26.01 – $29.01
Premiums Paid Analysis (applied to May 28, 2010 share price) $23.31 – $27.72
52-Week Trading Range $7.80 – $22.50
Analyst Target Price $21.50 – $25.00
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Lazard to the target board
Delivered July 10, 2010 · Fee $5.8M ($4.8M contingent on closing), $1.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate11.0%–13.0%
BasisWeighted average cost of capital analysis of the selected comparable companies
Terminal valueExit multiple
Perpetuity growth4.9%–8.3%
Exit multiple3.0x–4.0x FY2013E Revenue
Projection periodFY2011E-FY2013E (fiscal years ended March 31)
Projections usedMicrus management projections, with guidance provided by Micrus and assuming use of net operating losses per Micrus's accountants' guidance
Implied value per share$22.11–$28.49
Standalone unlevered after-tax free cash flows; terminal value at fiscal year end 2013 using revenue exit multiple, implying perpetuity growth rate range of 4.9% to 8.3%. Equity value per share computed using treasury stock method.
Selected public companies (9)
Abiomed, Inc. · AGA Medical Holdings, Inc. · AngioDynamics, Inc. · ATS Medical, Inc. · Cyberonics, Inc. · Endologix, Inc. · ev3 Inc. · The Spectranetics Corporation · Volcano Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2010E Revenue | 1.2x | 3.5x | 3.8x | 2.8x–3.8x | — |
| EV / CY2011E Revenue | 1.1x | 3.0x | 3.3x | 2.3x–3.3x | — |
| Combined comparable companies analysis implied equity value per share | — | — | — | — | $17.21–$23.33 |
Selected precedent transactions (29)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-06 | Somanetics Corporation | Covidien plc | — |
| 2010-06 | ev3 Inc. | Covidien plc | — |
| 2010-05 | SenoRx, Inc. | C.R. Bard, Inc. | — |
| 2010-04 | ATS Medical, Inc. | Medtronic, Inc. | — |
| 2010-01 | Invatec S.p.A. | Medtronic, Inc. | — |
| 2009-01 | BioForm Medical, Inc. | Merz GmbH & Co. KGaA | — |
| 2009-11 | Advanced Bionics Corporation | Sonova Holding AG | — |
| 2009-06 | Monogram Biosciences, Inc. | Laboratory Corporation of America Holdings | — |
| 2009-05 | VNUS Medical Technologies, Inc. | Covidien plc | — |
| 2008-12 | Radi Medical Systems AB | St. Jude Medical, Inc. | — |
| 2008-09 | Datascope Corp. | Getinge AB | — |
| 2008-09 | Abbott Laboratories (Abbott Spine Business) | Zimmer Holdings, Inc. | — |
| 2008-07 | Vital Signs, Inc. | General Electric Company | — |
| 2008-03 | Enturia Inc. | Cardinal Health, Inc. | — |
| 2008-02 | Possis Medical, Inc. | Bayer AG | — |
| 2007-12 | Respironics, Inc. | Koninklijke Philips Electronics NV | — |
| 2007-11 | Tutogen Medical, Inc. | Regeneration Technologies, Inc. | — |
| 2007-07 | Kyphon, Inc. | Medtronic, Inc. | — |
| 2007-07 | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| 2007-06 | Cholestech Corp. | Inverness Medical Innovations, Inc. | — |
| 2007-06 | Digene Corp. | Qiagen NV | — |
| 2007-02 | Adeza Biomedical Corporation | Cytyc Corporation | — |
| 2007-01 | IntraLase Corp. | Advanced Medical Optics, Inc. | — |
| 2010-05 | BioSphere Medical, Inc. | Merit Medical Systems, Inc. | — |
| 2008-09 | CryoCath Technologies Inc. | Medtronic, Inc. | — |
| 2008-04 | EP Medsystems, Inc. | St. Jude Medical, Inc. | — |
| 2007-12 | Boston Scientific Corporation (Venous Access Assets) | Avista Capital Partners | — |
| 2007-11 | Boston Scientific Corporation (Cardiovascular Surgery Assets) | Getinge AB | — |
| 2007-07 | Arrow International, Inc. | Teleflex Incorporated | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| High Growth Transactions: Transaction Value / Prior Year Revenue | 2.5x | 4.0x | 8.1x | — | — |
| High Growth Transactions: Transaction Value / Forward Year Revenue | 2.2x | 3.6x | 6.0x | — | — |
| Vascular Transactions: Transaction Value / Prior Year Revenue | 2.5x | 4.0x | 11.1x | — | — |
| Vascular Transactions: Transaction Value / Forward Year Revenue | 2.2x | 3.6x | 7.9x | — | — |
| Applied: Transaction Value / FY2010 (prior year) Revenue | — | — | — | 3.5x–4.8x | — |
| Applied: Transaction Value / FY2011E (forward year) Revenue | — | — | — | 3.0x–4.3x | — |
| Combined precedent transactions analysis implied equity value per share | — | — | — | — | $19.36–$26.09 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums Paid Analysis (applied to July 8, 2010 share price) | Premiums paid in U.S. public medical device M&A transactions since January 2007 with transaction value in excess of $100 million, measured vs. 1-day prior close, 1-month and 3-month average closes and 52-week high. Median premiums ranged from 16% to 43%; mean premiums 17% to 52%. Median premiums applied to Micrus share price as of July 8, 2010. | $26.01–$29.01 |
| Premiums Paid Analysis (applied to May 28, 2010 share price) | Median premiums from the same transaction set applied to Micrus's share price as of May 28, 2010, the business day before ev3 Inc. announced its agreement to be acquired, after which Micrus's share price rose relative to peer and market indices. | $23.31–$27.72 |
| 52-Week Trading Range | Intraday trading price of Micrus common stock over the 52-week period ending July 9, 2010 ranged from approximately $7.80 to $22.50. Weighted average prices: 1-month $21.22, 2-month $20.20, 3-month $20.01, 6-month $19.74, 9-month $18.62, 12-month $17.13. | $7.80–$22.50 |
| Analyst Target Price | Most recent Wall Street research equity analyst per share target prices for Micrus common stock ranged from $21.50 to $25.00 per share. | $21.50–$25.00 |
Fee of 1.35% of aggregate consideration, approximately $5.8 million; $1.0 million payable upon rendering of the opinion and the remainder upon consummation of the merger. Expense reimbursement and indemnification also provided.
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 | CAGR |
|---|---|---|---|
| Revenue | $128M | $153M | 19.2% |
| Revenue growth | 19.3% | 19.2% | |
| EBITDA | $25.9M | $35.3M | 36.3% |
| EBITDA growth | 50.6% | 36.3% | |
| EBITDA margin | 20% | 23% | |
| Implied EV / EBITDA | 15.3x | 11.2x |
Year-1 growth is against LTM at announcement ($107M revenue, $17.2M EBITDA); later years are year over year.
Micrus management projections for fiscal years ending March 31, 2011, 2012 and 2013 were provided to Parent, other potential buyers, the Micrus board and its financial advisors. Revenue was projected to grow from $107.2 million in FY2011 to $152.5 million in FY2013, with EBITDA of $17.2 million rising to $35.3 million, EBIT of $15.7 million to $34.3 million, net income of $14.7 million to $25.7 million and EPS of $0.88 to $1.53. Key assumptions included coil revenue growth of 13-14% per year, increased balloon sales, launch of revascularization/clot retrieval technology and a liquid embolic product, and tax rates of 11% in FY2011 and 25% thereafter.
Process notes
Single financial advisor (Lazard) to the Micrus board; no special committee. Lazard reported that extensive discussions were held with various other potential acquirers but Parent was the only interested party. Board directed management to negotiate the lowest possible termination fee; final fee of $13.25 million was lower than Parent initially requested. Premiums paid, 52-week trading range and analyst target price analyses were presented for informational purposes only and were not material to Lazard's opinion.
Other Medical Devices and Supplies fairness opinions
- Osteotech / Medtronic 2010 · 11.8x EV/EBITDA
- Somanetics / Covidien 2010 · 20.5x EV/EBITDA
- ev3 / Covidien 2010 · 27.9x EV/EBITDA
- 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
All Medical Devices and Supplies opinions → · Lazard opinions