Fairness opinions › Digital / HealthTech › 2023

NextGen Healthcare acquired by Thoma Bravo: fairness opinion by Morgan Stanley

Announced September 5, 2023 · One-step merger · All cash · DEFM14A filed October 6, 2023

Digital / HealthTech PM / EMR

Enterprise value

$1.8B

EV / LTM EBITDA

16.1x

EBITDA $112M · 17% margin

EV / LTM revenue

2.76x

revenue $653M

DCF discount rate

8.9%–10.6%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$23.95

Premium—

Premium basis—

StructureOne-step merger

Termination fee$41.2M (2.5% of equity)

Reverse termination fee$98.8M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $23.95 offer

Selected companies — AV / CY2024E Adjusted EBITDA (Street Consensus) $17.50 – $24.50

Selected companies — AV / CY2024E Adjusted EBITDA (Projections) $17.75 – $25.25

Precedent transactions — AV / LTM (6/30/2023) Adjusted EBITDA $20.25 – $33.00

Discounted cash flow $19.50 – $28.00

Illustrative Leveraged Buyout Analysis (reference only) $17.50 – $22.75

Historical Trading Range (reference only) $15.23 – $21.99

Unaffected Broker Price Targets (reference only) $14.50 – $22.75

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 September 5, 2023 · Fee $29.0M ($24.0M contingent on closing), $5.0M on delivery of the opinion

Discounted cash flow assumptions

Discount rate8.9%–10.6%

BasisWACC estimated using CAPM: 6% market risk premium, 4.2% risk-free rate (10-year U.S. Treasury as of September 1, 2023), 1.04 beta

Terminal valuePerpetuity growth

Perpetuity growth2.0%–3.0%

Exit multiple—

Projection period2023-2028 (management estimates through 2024; extrapolations 2025-2028)

Projections usedNextGen management Projections (Unaudited Prospective Financial Information)

Implied value per share$19.50–$28.00

Cash flows discounted to present value as of June 30, 2023. Net debt treated convertible note as debt of $278.9-$304.0 million assumed repaid in full following closing, plus fair value of earnout obligations; net cash assumed $185.6 million (June 30, 2023 cash adjusted for $31.3 million DOJ settlement payment and $1.2 million legal fees).

Selected public companies (2)

R1 RCM Inc. · Veradigm Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
AV / CY2024E Adjusted EBITDA (Street Consensus)	7.7x	10.2x	12.6x	9.0x–12.5x	$17.50–$24.50
AV / CY2024E Adjusted EBITDA (Projections)	7.7x	10.2x	12.6x	9.0x–12.5x	$17.75–$25.25

Selected precedent transactions (7)

Date	Target	Acquirer	Multiple
2017-07	WebMD Health Corp.	Internet Brands (KKR & Co. L.P. Portfolio Company)	12.3x AV/LTM Adj. EBITDA
2018-06	Cotiviti Holdings, Inc.	Verscend Technologies, Inc. (Veritas Capital Backed)	18.1x AV/LTM Adj. EBITDA
2018-11	athenahealth, Inc.	Veritas Capital, Evergreen Coast Capital	15.2x AV/LTM Adj. EBITDA
2020-07	MultiPlan, Inc.	Churchill Capital Corp III	15.4x AV/LTM Adj. EBITDA
2020-12	HMS Holdings Corp.	Gainwell Technologies (Veritas Capital Backed)	21.2x AV/LTM Adj. EBITDA
2021-01	Change Healthcare Inc.	UnitedHealth Group Incorporated	14.5x AV/LTM Adj. EBITDA
2021-08	Inovalon Holdings, Inc.	Nordic Capital, Insight Partners, 22C Capital	29.3x AV/LTM Adj. EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
AV / LTM (6/30/2023) Adjusted EBITDA	12.3x	15.4x	29.3x	12.5x–20.0x	$20.25–$33.00

Other analyses

Analysis	Summary	Implied per share
Illustrative Leveraged Buyout Analysis (reference only)	Hypothetical LBO assuming transaction date of June 30, 2023, 4.76-year investment period ending March 31, 2028, leverage of 6.0x LTM adjusted EBITDA, target IRRs of 17.5%-22.5%, and exit multiples of 9.0x-11.0x LTM adjusted EBITDA.	$17.50–$22.75
Historical Trading Range (reference only)	52-week trading range through August 22, 2023 (day prior to news reports of a potential transaction): intraday low of $15.23 and high of $21.99.	$15.23–$21.99
Unaffected Broker Price Targets (reference only)	Analyst price targets published on or before September 1, 2023 ranged from $16.00 to $25.00; discounted back 12 months at a 10.4% cost of equity to imply $14.50-$22.75 per share.	$14.50–$22.75

Aggregate fee of approximately $29 million; approximately $5 million earned upon the earlier of advising the Board it was prepared to render its opinion and the rendering of the opinion, and approximately $24 million contingent on consummation of the Merger. In the prior two years Morgan Stanley received aggregate fees of approximately $20-40 million from entities affiliated with Thoma Bravo.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$717M	$775M	$839M	$908M	$983M	8.2%
Revenue growth	9.7%	8.2%	8.2%	8.2%	8.3%
EBITDA	$132M	$152M	$179M	$210M	$244M	16.5%
EBITDA growth	18.5%	14.9%	17.4%	17.5%	16.1%
EBITDA margin	18%	20%	21%	23%	25%
Implied EV / EBITDA	13.6x	11.8x	10.1x	8.6x	7.4x

Year-1 growth is against LTM at announcement ($653M revenue, $112M EBITDA); later years are year over year.

NextGen management prepared unaudited prospective financial information covering the second, third and fourth quarters of fiscal 2023 and fiscal years 2024 through 2028, on a risk-adjusted basis, including Adjusted EBITDA, EBIT, NOPAT and unlevered free cash flow. Management estimates ran through 2024 with extrapolations for 2025-2028 based on management assumptions, all reviewed and approved for Morgan Stanley's use. Key figures disclosed include CY2024E adjusted EBITDA of $146.1 million under the Projections (versus $143.0 million under Street Consensus) and LTM (6/30/2023) adjusted EBITDA of $118.2 million. The Projections were not provided to Thoma Bravo or any other bidder.

Process notes

Going-private sale of NextGen Healthcare to Thoma Bravo at $23.95 per share in cash; single financial advisor (Morgan Stanley) delivering one opinion to the full Board (no special committee). Morgan Stanley disclosed significant prior relationships with Thoma Bravo (approximately $20-40 million of fees in the prior two years, lender/administrative agent to Thoma Bravo portfolio companies, and possible investments in Thoma Bravo funds). Termination fee was negotiated down from 4.0% to 2.5% of equity value ($41.179 million) and a reverse termination fee of 6.0% of equity value ($98.829 million) was added; Thoma Bravo Fund limited guaranty capped at $98.829 million. Transaction funded entirely with equity financing. LBO, historical trading range and analyst price target analyses were presented for reference only and not as part of the fairness analysis.

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SOC Telemed / Patient Square Capital 2022
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