Newport acquired by MKS Instruments: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $23.00 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Stock-based compensation treated as a cash expense in unlevered free cash flow.
Selected public companies (10)
Analogic Corporation · Coherent, Inc. · Finisar Corporation · GSI Group Inc. · II-VI Incorporated · IPG Photonics Corporation · Jenoptik Group · Lumentum Holdings Inc. · Rofin-Sinar Technologies Inc. · Carl Zeiss Meditec AG
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / CY2016E EPS | 11.3x | 14.7x | 22.9x | 9.5x–15.5x | $16.25–$26.75 |
| EV / CY2016E EBITDA | 6.1x | 8.5x | 12.1x | 5.5x–8.5x | $15.75–$24.25 |
Selected precedent transactions (11)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2014-04 | Zygo Corporation | AMETEK, Inc. | 8.9x EV/LTM EBITDA |
| 2013-12 | Andor Technology | Oxford Instruments plc | 14.6x EV/LTM EBITDA |
| 2013-09 | Qioptiq | Excelitas Technologies Corporation | — |
| 2012-05 | LeCroy Corporation | Teledyne Technologies Incorporated | 8.3x EV/LTM EBITDA |
| 2011-09 | Photonis Group | AXA Private Equity | 10.1x EV/LTM EBITDA |
| 2011-07 | Ophir Optronics Ltd. | Newport Corporation | 11.5x EV/LTM EBITDA |
| 2011-05 | CVI Melles Griot | IDEX Corporation | 10.8x EV/LTM EBITDA |
| 2010-08 | Veeco Metrology, Inc. | Bruker Corporation | 10.8x EV/LTM EBITDA |
| 2008-07 | Excel Technology, Inc. | GSI Group Inc. | 13.5x EV/LTM EBITDA |
| 2006-07 | Linos AG | Qioptiq Group | 8.7x EV/LTM EBITDA |
| 2005-09 | Thales Group Optical Components | Candover Investments plc | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to CY2015 EBITDA) | 8.3x | 10.8x | 14.6x | 8.5x–11.5x | $19.25–$26.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-week trading range | 52-week trading range of Company Common Stock ending February 22, 2016. | $13.42–$20.59 |
| Equity research analyst price targets | Published equity research analyst price targets for Company Common Stock prior to February 22, 2016. | $20.00–$22.50 |
| Public trading multiples using Wall Street consensus estimates - CY2016E P/E | Same 9.5x-15.5x CY2016E P/E reference range applied to publicly available Wall Street consensus estimates for the Company (reference purposes only). | $14.50–$23.75 |
| Public trading multiples using Wall Street consensus estimates - EV/CY2016E EBITDA | Same 5.5x-8.5x EV/CY2016E EBITDA reference range applied to publicly available Wall Street consensus estimates for the Company (reference purposes only). | $14.50–$22.50 |
Transaction fee of 1.25% of total transaction value; $2 million payable upon delivery of the opinion and the remainder contingent on consummation of the Merger. If the Merger is not consummated and the Company receives a break fee, J.P. Morgan receives 25% of such payment less the $2 million opinion fee, capped at the full transaction fee.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $645M | $665M | $685M | $705M | 3.0% |
| Revenue growth | 2.7% | 3.1% | 3.0% | 2.9% | |
| EBITDA | $126M | $136M | $138M | $144M | 4.6% |
| EBITDA growth | 5.0% | 7.9% | 1.5% | 4.3% | |
| EBITDA margin | 20% | 20% | 20% | 20% | |
| Implied EV / EBITDA | 7.8x | 7.2x | 7.1x | 6.8x |
Year-1 growth is against LTM at announcement ($628M revenue, $120M EBITDA); later years are year over year.
Newport management prepared standalone forecasts for FY2015-FY2020 in two scenarios: a "Base Case" (share repurchases, no acquisitions) and an "Acquisition Case" (repurchases plus acquisitions). Base Case revenue grows from $603M (FY2015A) to $705M (FY2020E), with EBITDA of $96M rising to $144M and unlevered free cash flow of $29M rising to $74M; non-GAAP EPS goes from $1.31 to $3.08. The Acquisition Case shows revenue of $606M rising to $982M and EBITDA of $96M rising to $201M. J.P. Morgan was instructed to rely only on the Base Case Forecasts (extended to 2025 for the DCF); the Acquisition Forecasts were not provided to Parent.
Process notes
Other Medical Devices and Supplies fairness opinions
- Vascular Solutions / Teleflex 2016 · 25.7x EV/EBITDA
- EndoChoice Holdings / Boston Scientific 2016
- HeartWare International / Medtronic 2016
- Hansen Medical / Auris Surgical Robotics 2016
- LDR Holding / Zimmer Biomet Holdings 2016
- Symmetry Surgical / Roundtable Healthcare Partners 2016 · 12.6x EV/EBITDA
All Medical Devices and Supplies opinions → · J.P. Morgan opinions