Network Medical Management acquired by Apollo Medical Holdings: fairness opinion by BofA Securities and Vantage Point Advisors
Deal terms
All-stock merger; Merger Sub merges into NMM, with NMM surviving as a wholly owned subsidiary of ApolloMed. NMM shareholders receive ApolloMed common stock; BofA Merrill Lynch was directed to assume an exchange ratio of 0.07002656301 ApolloMed shares per NMM share. Roughly 80%/20% (later ~82%/18%) ownership split in favor of former NMM shareholders on a fully diluted basis. Structure also contemplated a 10% share holdback and a $25 million cash dividend.
Opinion of BofA Securities to the acquirer board
Discounted cash flow assumptions
Unlevered after-tax free cash flows discounted to present value as of September 30, 2016. Implied per share equity value ranges: 50% of NGACO $3.86-$5.06; ApolloMed (ex-50% NGACO) $3.73-$4.15; ApolloMed total $7.60-$9.20 (equity value $63.1-$77.9mm) vs. $3.99 share price on December 20, 2016. Implied equity value ranges: 50% of NGACO $32-$43mm; NMM (ex-50% NGACO) $242-$336mm; NMM total $274-$379mm.
Selected public companies (7)
DaVita Inc. · Envision Healthcare Corporation · MEDNAX Inc · Team Health Holdings Inc. · American Renal Associates LLC · Diplomat Pharmacy, Inc. · ExamWorks, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2017E EBITDA - Physician Services Sector | 8.4x | 8.9x | 10.4x | 8.0x–9.0x | $4.75–$5.20 |
| EV / 2017E EBITDA - High Growth Healthcare Services Sector | 8.7x | 9.0x | 11.1x | 8.0x–9.0x | — |
| 2016E-2018E Revenue CAGR - Physician Services Sector | 0.1x | 0.1x | 0.1x | — | — |
| 2016E-2018E Revenue CAGR - High Growth Healthcare Services Sector | 0.1x | 0.1x | 0.2x | — | — |
| 2016E-2018E EBITDA CAGR - Physician Services Sector | 0.0x | 0.1x | 0.1x | — | — |
| 2016E-2018E EBITDA CAGR - High Growth Healthcare Services Sector | 0.1x | 0.1x | 0.2x | — | — |
| 2017E EBITDA Margin - Physician Services Sector | 0.1x | 0.2x | 0.2x | — | — |
| 2017E EBITDA Margin - High Growth Healthcare Services Sector | 0.0x | 0.2x | 0.3x | — | — |
| 2016E-2018E EPS CAGR - Physician Services Sector | 0.1x | 0.1x | 0.2x | — | — |
| 2016E-2018E EPS CAGR - High Growth Healthcare Services Sector | 0.1x | 0.1x | 0.5x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Relative Valuation (implied exchange ratios) | Implied exchange ratio reference range of 0.104x-0.129x based on the Selected Publicly Traded Companies Analysis and 0.054x-0.092x based on the Discounted Cash Flow Analysis, versus the assumed exchange ratio of 0.070x. | — |
| Contribution Analysis | Relative contributions of ApolloMed and NMM of revenue, EBITDA and net income, each less NCI, for CY2017-2019. Revenue less NCI: ApolloMed 52%-53% / NMM 47%-48% implying exchange ratios of 0.021x. EBITDA less NCI: ApolloMed 11%/24%/27% vs NMM 89%/76%/73%, implying 0.122x/0.055x/0.046x. Net income less NCI: ApolloMed 10%/26%/31% vs NMM 90%/74%/69%, implying 0.138x/0.043x/0.034x. Pro forma ownership 18% ApolloMed / 82% NMM implying 0.070x. | — |
| Pro Forma Accretion/Dilution Analysis | Merger could be accretive to ApolloMed's estimated CY2017 EPS by $0.35 and dilutive to CY2018 EPS by $0.10 and CY2019 EPS by $0.33. | — |
| Other Factors - historical trading | Reviewed historical trading prices and trading volumes of ApolloMed common stock during the one-year period ended December 20, 2016. | — |
$750,000 payable on rendering of the opinion, $2,000,000 payable immediately prior to or upon closing, plus an additional discretionary fee of up to $500,000 determined in ApolloMed's sole discretion payable immediately prior to or upon closing.
Opinion of Vantage Point Advisors to the target board
Discounted cash flow assumptions
NMM: business enterprise value from operations $153.0-$176.0mm; after adding cash of $35.0mm, ApolloMed preferred stock held by NMM of $17.1mm, ApolloMed warrants of $5.5mm and NMM's 50% NGACO interest of $43.0-$50.0mm, equity value range $254.0-$284.0mm. ApolloMed: BEV $36.0-$41.0mm; equity value $79.0-$91.0mm after adding 50% NGACO interest of $43.0-$50.0mm and deducting $201 thousand related party payable. Combined entity: BEV $226.0-$274.0mm; implied combined equity value $322.0-$384.0mm; post-deal consideration to NMM of $284.0-$334.0mm after applying exchange ratio (72% immediate post-deal ownership plus PV of 10% share holdback of $30.0-$35.7mm, $25.0mm cash dividend, $3.4mm net warrant value, less $6.3mm option dilution). NGACO: BEV $86.0-$100.0mm (terminal capitalization rate 17.0%-19.0%). Terminal period capitalization rates: NMM 11.0%-13.0%; ApolloMed 15.5%-17.5%; combined 11.0%-13.0%.
Selected public companies (12)
AMN Healthcare Services, Inc. · Diversicare Healthcare Services, Inc. · Genesis Healthcare, Inc. · Kindred Healthcare, Inc. · LHC Group, Inc. · Pacific Health Care Organization, Inc. · Quorum Health Corporation · Select Medical Holdings Corporation · Surgical Care Affiliates, Inc. · Team Health Holdings, Inc. · The Ensign Group, Inc. · The Providence Service Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| BEV / LTM Revenue | 0.3x | 1.0x | 2.9x | — | — |
| BEV / LFY Revenue | 0.3x | 1.0x | 3.4x | — | — |
| BEV / Forward FY1 Revenue | 0.5x | 1.0x | 2.7x | — | — |
| BEV / Forward FY2 Revenue | 0.6x | 0.9x | 2.4x | — | — |
| BEV / LTM EBITDA | 5.0x | 10.3x | 14.6x | — | — |
| BEV / LFY EBITDA | 1.9x | 10.1x | 16.2x | — | — |
| BEV / Forward FY1 EBITDA | 4.2x | 10.3x | 25.0x | — | — |
| BEV / Forward FY2 EBITDA | 4.3x | 9.3x | 23.0x | — | — |
Selected precedent transactions (27)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-06-15 | Envision Healthcare Holdings, Inc. | <UNKNOWN> | 12.6x EV / EBITDA |
| 2016-08-29 | USMD Holdings, Inc. | <UNKNOWN> | — |
| 2016-09-23 | VEGA Medical Professionals LLC | <UNKNOWN> | 30.0x EV / EBITDA |
| 2015-09-16 | Alliance Healthcare Services, Inc. | <UNKNOWN> | 6.5x EV / EBITDA |
| 2015-11-17 | B. E. Smith, Inc. | <UNKNOWN> | — |
| 2015-12-01 | Allied Healthcare International Inc. | <UNKNOWN> | — |
| 2015-07-10 | IPC Healthcare, Inc. | <UNKNOWN> | 22.0x EV / EBITDA |
| 2015-10-13 | Recruitment Group PS | <UNKNOWN> | 26.7x EV / EBITDA |
| 2015-05-20 | Omnicare Inc. | <UNKNOWN> | 15.0x EV / EBITDA |
| 2015-03-22 | Concentra, Inc. | <UNKNOWN> | — |
| 2015-05-14 | Healthcare Business Insights, LLC | <UNKNOWN> | — |
| 2015-03-17 | Physicians Practice Plus Inc. | <UNKNOWN> | 9.1x EV / EBITDA |
| 2015-01-19 | VISTA Staffing Solutions, Inc. | <UNKNOWN> | — |
| 2014-11-26 | Athas Health, LLC | <UNKNOWN> | 20.6x EV / EBITDA |
| 2014-03-13 | Conemaugh Health System, Inc. | <UNKNOWN> | — |
| 2014-05-29 | Sheridan Healthcare, Inc. | <UNKNOWN> | 19.1x EV / EBITDA |
| 2014-06-02 | Medical Staffing Network Healthcare, LLC | <UNKNOWN> | — |
| 2014-06-10 | Phoenix Physicians, LLC | <UNKNOWN> | 15.6x EV / EBITDA |
| 2014-05-16 | Health Advocate, Inc. | <UNKNOWN> | — |
| 2014-03-31 | CDMI, LLC | <UNKNOWN> | 10.1x EV / EBITDA |
| 2014-02-27 | KnowledgePoint360 Group LLC | <UNKNOWN> | 7.2x EV / EBITDA |
| 2013-12-02 | Allied Healthcare Staffing Division | <UNKNOWN> | — |
| 2012-08-19 | Coventry Health Care Inc. | <UNKNOWN> | 6.3x EV / EBITDA |
| 2012-05-20 | HealthCare Partners, LLC | <UNKNOWN> | 8.9x EV / EBITDA |
| 2011-10-24 | HealthSpring Inc. | <UNKNOWN> | 6.2x EV / EBITDA |
| 2011-09-18 | Midwest Health Plan, Inc. | <UNKNOWN> | — |
| 2010-08-26 | Bravo Health, Inc. | <UNKNOWN> | 6.7x EV / EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / Revenue (selected transactions) | 0.1x | — | 8.6x | — | — |
| EV / EBITDA (selected transactions) | 6.2x | — | 30.0x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Guideline Company Analysis - NMM | Trailing and forward revenue and EBITDA multiples from 12 guideline companies produced unadjusted business enterprise values of $207.0-$222.0mm for NMM; after adding cash of $35.0mm, ApolloMed preferred stock of $18.0mm, warrants of $6.1mm and NMM's 50% NGACO interest of $43.0-$50.0mm, equity value range of $309.0-$331.0mm. | — |
| Guideline Company Analysis - ApolloMed | Revenue and FY2 EBITDA multiples produced unadjusted business enterprise values of $40.0-$48.0mm; after adjustments (zero cash, less $201 thousand related party payable, plus 50% NGACO interest of $43.0-$50.0mm), equity value range of $83.0-$98.0mm. | — |
| Guideline Company Analysis - Combined entity | Enterprise value range of $247.0-$270.0mm; adding $10.0mm cash and NGACO value of $86.0-$100.0mm implied combined equity value of $343.0-$380.0mm; post-deal consideration to NMM of $301.0-$331.0mm. | — |
| Market Transaction Analysis - NMM | 31 recent transactions in healthcare services, healthcare facilities and managed healthcare produced unadjusted business enterprise value of $208.0-$224.0mm; after adjustments (cash $35.0mm, ApolloMed preferred $18.1mm, warrants $6.1mm, 50% NGACO interest $43.0-$50.0mm), equity value range of $310.0-$333.0mm. | — |
| Market Transaction Analysis - ApolloMed | Unadjusted business enterprise value of $40.0-$49.0mm; after adjustments, equity value range of $83.0-$99.0mm. | — |
| Market Transaction Analysis - Combined entity | Enterprise value range of $248.0-$273.0mm; adding $10.0mm cash and NGACO value of $86.0-$100.0mm implied combined equity value of $344.0-$383.0mm; post-deal consideration to NMM of $302.0-$333.0mm. | — |
| Public Stock Price consideration | Vantage Point concluded ApolloMed's public stock price was not a good indicator of value due to lack of public information on the ACO, lack of trading liquidity, small public float outside insiders and no equity analyst coverage. | — |
Aggregate fee of $410,000; fee was not contingent on issuance of a favorable fairness opinion. Vantage Point received no other compensation from NMM or its affiliates during the prior two years. Oral opinion rendered December 20, 2016, confirmed by written opinion signed and dated December 21, 2016.
Management projections
BofA Merrill Lynch used NMM management forecasts for NMM and ApolloMed management forecasts plus separate NGACO forecasts (and cost savings and NOL utilization projections) for ApolloMed, covering the last quarter of 2016 through calendar year 2025. Vantage Point relied on NMM management's stand-alone projections for the years ending December 31, 2016 through December 31, 2019 (adding one smoothing year with 2020 EBITDA of $35.0 million), ApolloMed management's probability-adjusted projections for fiscal years ending March 31, 2017 through March 31, 2019 (adding two smoothing years with 2021 EBITDA of $11.0 million), and a combined-entity forecast with 2020 EBITDA of $48.0 million. NMM's projected 2016E-2018E revenue CAGR was 8.0%, EBITDA CAGR 19.4%, 2017E EBITDA margin 14.4% and EPS CAGR 22.5%, versus ApolloMed's 291.7% revenue CAGR, 145.9% EBITDA CAGR, 2.9% 2017E EBITDA margin and 151.9% EPS CAGR.
Process notes
Other Physician Groups fairness opinions
- Team Health Holdings / Blackstone 2016 · 11.5x EV/EBITDA
- Envision Healthcare Holdings / AmSurg 2016 · 11.2x EV/EBITDA
- USMD Holdings / WellMed Medical Management 2016 · 15.5x EV/EBITDA
- ExamWorks Group / Leonard Green & Partners 2016 · 11.5x EV/EBITDA
- IPC Healthcare / TeamHealth 2015 · 22.5x EV/EBITDA
- Envision Healthcare Holdings / KKR 2018 · 10.0x EV/EBITDA
All Physician Groups opinions → · BofA Securities opinions · Vantage Point Advisors opinions