Fairness opinions › Outsourced Services › 2012

Mmodal acquired by One Equity Partners: fairness opinion by Macquarie Capital

Announced July 2, 2012 · Tender offer · All cash · SC 14D9 filed July 17, 2012

Outsourced Services Transcription / Interpretation Sponsor: One Equity Partners V, L.P. (OEP)

Enterprise value

$1.1B

EV / LTM EBITDA

8.1x

EBITDA $136M · 26% margin

EV / LTM revenue

2.11x

revenue $522M

DCF discount rate

10.4%–11.4%

Perpetuity growth and exit multiple

Deal terms

ConsiderationAll cash

Price per share$14.00

Premium7.9%

Premium basisClosing price of $12.98 per share on June 29, 2012, the last full trading day before announcement

StructureTender offer

Termination fee—

Reverse termination fee$57.5M

Go-shopNone

Outside date—

FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $14.00 offer

Selected companies — EV / CY2012E EBITDA (Wall Street consensus) $10.48 – $16.90

Precedent transactions — EV / LTM Revenue (overall mean 2.1x; weighted mean 1.8x; MTSO mean/median 1.7x; HCIT mean 2.2x / median 2.1x) $8.40 – $14.19

Precedent transactions — EV / LTM Adjusted EBITDA (overall mean 11.2x; weighted mean 9.2x; MTSO mean/median 8.4x; HCIT mean 12.2x / median 12.4x) $11.05 – $15.07

Discounted cash flow $13.83 – $19.18

Historical Stock Price Analysis $6.52 – $13.82

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

Opinion of Macquarie Capital to the target board

Delivered July 2, 2012 · Fee $9.5M ($7.6M contingent on closing), $1.9M on delivery of the opinion

Discounted cash flow assumptions

Discount rate10.4%–11.4%

BasisWACC for Base MTSO Business of 10.4%-11.4% (implied WACC 10.9%); 30.0%-40.0% for High Growth Business (implied WACC 32.4%), based on cost of debt, CAPM and risk adjustments

Terminal valuePerpetuity growth and exit multiple

Perpetuity growth-0.3%–0.3%

Exit multiple6.0x–8.0x 2016E Adjusted EBITDA (High Growth Business terminal multiple)

Projection period2H2012E-2016E

Projections usedCompany management projections (Base MTSO Business and High Growth Business standalone)

Implied value per share$13.83–$19.18

Sum-of-the-parts DCF: Base MTSO Business enterprise value $856.4-$966.4mm (perpetuity growth) plus High Growth Business $250.0-$453.8mm (exit multiple), total EV $1,106.4-$1,420.1mm, less net debt of $260.2mm and contingency payments of $34.9mm, over 58.6mm fully diluted shares. Macquarie assigned less weight to the DCF given the high growth rate assumed for the High Growth Business. Unlevered FCF = Adjusted EBITDA less capex, less cost of legal proceedings, less cash taxes, plus net change in working capital.

Selected public companies (7)

Nuance Communications, Inc. · Allscripts Healthcare Solutions, Inc. · Cerner Corporation · McKesson Corporation · MedAssets, Inc. · Accenture plc · Cognizant Technology Solutions Corporation

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2012E EBITDA (Wall Street consensus)	6.3x	8.8x	17.0x	7.3x–10.3x	$10.48–$16.90
EV / LTM 3/31/12 Revenue	0.2x	2.5x	6.0x	—	—
EV / LTM 3/31/12 EBITDA	7.3x	9.3x	19.8x	—	—
EV / CY2012E Revenue	0.2x	2.2x	5.4x	—	—
EV / CY2013E Revenue	0.2x	1.9x	4.8x	—	—
EV / CY2013E EBITDA	6.6x	7.9x	14.5x	—	—

Selected precedent transactions (21)

Date	Target	Acquirer	Multiple
2012-03-07	Transcend Services, Inc.	Nuance Communications, Inc.	11.6x EV/LTM EBITDA
2011-07-14	Webmedx, Inc.	Nuance Communications, Inc.	1.7x EV/LTM Revenue
2010-02-03	Spheris Inc.	MedQuist Inc.	3.8x EV/LTM EBITDA
2008-05-22	MedQuist Holdings	CBay Systems Ltd.	5.2x EV/LTM EBITDA
2011-08-03	Emdeon Business Services LLC	Blackstone Group L.P.	12.4x EV/LTM EBITDA
2011-03-03	System C Healthcare Ltd.	McKesson Corp.	15.9x EV/LTM EBITDA
2010-12-20	Sunquest Information Systems Inc.	Huntsman Gay Global Capital	—
2010-11-01	US Oncology, Inc.	McKesson Corp.	9.5x EV/LTM EBITDA
2010-10-01	Chamberlin Edmonds & Associates, Inc.	Emdeon Inc.	—
2010-09-14	The Broadlane Group, Inc.	MedAssets, Inc.	16.9x EV/LTM EBITDA
2010-08-19	Phase Forward, Inc.	Oracle Corp.	13.2x EV/LTM EBITDA
2010-06-22	NetSmart Technologies Inc.	Genstar Capital	—
2010-06-09	Eclipsys Corp.	Allscripts Healthcare Solutions, Inc.	11.6x EV/LTM EBITDA
2010-06-06	inVentiv Health Inc.	Thomas H. Lee Partners LP	7.8x EV/LTM EBITDA
2010-05-17	Virtual Radiologic Corp.	Providence Equity Partners, Inc.	7.5x EV/LTM EBITDA
2010-01-22	AMICAS, Inc.	Merge Healthcare, Inc.	13.6x EV/LTM EBITDA
2010-01-07	Healthvision Solutions Inc.	Lawson Software	—
2009-09-21	Free & Clear, Inc.	Alere, Inc.	19.9x EV/LTM EBITDA
2009-12-08	QuadraMed Corp.	Francisco Partners Management LLC	7.3x EV/LTM EBITDA
2008-10-10	Allscripts Healthcare Solutions, Inc.	Misys plc	10.5x EV/LTM EBITDA
2008-08-04	The TriZetto Group, Inc.	Apax Partners Worldwide LLP	12.6x EV/LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Revenue (overall mean 2.1x; weighted mean 1.8x; MTSO mean/median 1.7x; HCIT mean 2.2x / median 2.1x)	0.6x	—	5.2x	1.8x–2.5x	$8.40–$14.19
EV / LTM Adjusted EBITDA (overall mean 11.2x; weighted mean 9.2x; MTSO mean/median 8.4x; HCIT mean 12.2x / median 12.4x)	3.8x	—	19.9x	8.0x–10.0x	$11.05–$15.07

Other analyses

Analysis	Summary	Implied per share
Historical Stock Price Analysis	Common Stock traded between $6.52 and $13.82 over the one-year period ending June 29, 2012. $14.00 represented premiums of 7.9% to the $12.98 June 29, 2012 close; 11.0% to the 5-day VWAP ($12.61); 9.8% to the 30-day VWAP ($12.74); 10.6% to the 60-day VWAP ($12.66); 13.4% to the 90-day VWAP ($12.35); 19.6% to the 180-day VWAP ($11.71); 33.6% to the one-year VWAP ($10.48); 1.3% to the 52-week high close of $13.82; and 114.7% to the 52-week low close of $6.52.	$6.52–$13.82
Benchmarking Analysis	Compared the Company's 2010, 2011 and 2012E revenue growth, EBITDA growth, EBITDA margin and EBIT margin (per management and per research) against the selected companies.	—

Approximately $1.9 million payable as a result of delivery of the fairness opinion; an additional approximately $7.6 million payable if the Offer or Merger is consummated. Expense reimbursement and indemnification also provided. In certain circumstances Macquarie is entitled to a portion of any termination fee received by the Company.

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.

See the Valuation database →

Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	CAGR
Revenue	$671M	$729M	$826M	$1.0B	14.8%
Revenue growth	28.5%	8.6%	13.4%	22.8%
EBITDA	$200M	$219M	$266M	$366M	22.3%
EBITDA growth	46.6%	9.8%	21.4%	37.4%
EBITDA margin	30%	30%	32%	36%
Implied EV / EBITDA	5.5x	5.0x	4.1x	3.0x

Year-1 growth is against LTM at announcement ($522M revenue, $136M EBITDA); later years are year over year.

Company management provided standalone non-public projections for fiscal 2012-2016 on a consolidated basis and separately for the Base MTSO Business and the High Growth Business. Consolidated total revenue was projected to grow from $522.0 million in 2012E to $1,014.9 million in 2016E, with Adjusted EBITDA growing from $136.2 million to $365.2 million and Total Unlevered Pre-Tax Free Cash Flow from $42.5 million to $279.0 million. On a segment basis, Base MTSO revenue was projected at $482.8 million (2012E) to $505.9 million (2016E) with Adjusted EBITDA of $128.9 million to $181.1 million, while High Growth Business revenue grows from $39.2 million to $508.9 million with Adjusted EBITDA of $7.3 million to $184.0 million.

Process notes

Tender offer by One Equity Partners affiliates with equity commitment of up to $447.0 million from OEP V and a limited guaranty capped at $57,473,750 (which corresponds to the reverse termination fee). A Transaction Committee of the Board ran the process; a competing strategic bidder ('Party A') offered up to $17.00 per share (70% cash / 30% stock) but the Board viewed the antitrust risk and timeline (and Party A's proposed $140.0 million antitrust reverse termination fee versus the Company's $200.0 million request) as unacceptable. RBC Capital Markets (RBCCM) had been an advisor but was excluded from further committee meetings once RBC became a financing source for OEP; only Macquarie Capital delivered a fairness opinion. S.A.C. PCG Funds (~31% holder) signed a support agreement. Macquarie may be entitled to a portion of any termination fee the Company receives. Macquarie disclosed extensive prior relationships with the Company, OEP affiliates, S.A.C. and Siris Capital.

Other Outsourced Services fairness opinions

SRI Surgical Express / Synergy Health 2012 · 7.6x EV/EBITDA
Transcend Services / Nuance Communications 2012 · 10.8x EV/EBITDA
Landauer / Fortive 2017 · 18.2x EV/EBITDA
Advisory Board Healthcare / Optum 2017 · 10.3x EV/EBITDA
BioTelemetry / Philips 2020 · 23.7x EV/EBITDA
Sharps Compliance / Aurora Capital Partners 2022 · 25.2x EV/EBITDA

All Outsourced Services opinions → · Macquarie Capital opinions