Nuance Communications acquired by Microsoft: fairness opinion by Evercore
Deal terms
Implied value per share by method vs. $56.00 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Evercore to the target board
Discounted cash flow assumptions
Unlevered free cash flows for the second half of fiscal 2021 and fiscal years 2022-2025, discounted to present value as of March 31, 2021; net debt as of December 31, 2020.
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| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Vertical Software: TEV / CY21E Revenue | — | 11.5x | — | 11.0x–13.0x | $44.59–$52.76 |
| Vertical Software: TEV / CY21E Adjusted EBITDA | — | 30.0x | — | 30.0x–40.0x | $36.83–$49.23 |
| Vertical Software: TEV / CY21E Adjusted EBITDA (reduced by STIP) | — | 30.0x | — | 30.0x–40.0x | $31.70–$42.39 |
| Vertical Software: MEV / CY21E LFCF | — | 43.7x | — | 40.0x–50.0x | $33.83–$42.29 |
| Vertical Software: MEV / CY21E LFCF (reduced by STIP) | — | 43.7x | — | 40.0x–50.0x | $27.92–$34.90 |
| HC & ENT: TEV / CY21E Revenue | — | 6.8x | — | 8.0x–11.0x | $32.33–$44.59 |
| HC & ENT: TEV / CY21E Adjusted EBITDA | — | 18.6x | — | 20.0x–30.0x | $24.43–$36.83 |
| HC & ENT: TEV / CY21E Adjusted EBITDA (reduced by STIP) | — | 18.6x | — | 20.0x–30.0x | $20.74–$31.70 |
| HC & ENT: MEV / CY21E LFCF | — | 28.7x | — | 30.0x–40.0x | $25.37–$33.83 |
| HC & ENT: MEV / CY21E LFCF (reduced by STIP) | — | 28.7x | — | 30.0x–40.0x | $22.77–$27.92 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Sum-of-the-Parts Discounted Cash Flow Analysis | SOTP DCF of 2H FY2021 and FY2022-2025 unlevered free cash flows. Nuance ex-DAX terminal value used perpetuity growth rates of 3.5%-4.5% with discount rates of 8.0%-9.0%; DAX terminal value used a revenue multiple of 15.0x-20.0x with discount rates of 17.5%-22.5%. Referenced for informational purposes only. | $33.34–$52.10 |
| Last 52-Week Trading Range | Low and high closing prices of Nuance common stock during the 12-month period ended April 8, 2021. | $16.99–$50.51 |
| Equity Research Analyst Price Targets | Range of publicly available equity research analyst price targets as of April 8, 2021. | $45.00–$65.00 |
| Premiums Paid Analysis - 20%-40% premium to $45.22 (April 8, 2021 close) | Reviewed 80 transactions/announced bids for control of U.S. public targets with aggregate transaction value greater than $10 billion announced January 1, 2010 to April 1, 2021. Median premiums: 23.3% (1 day), 33.9% (4 weeks), 4.2% (52-week high); mean: 28.7%, 40.0%, 7.7%. Applied 20.0%-40.0% premium to the April 8, 2021 closing price of $45.22. | $54.26–$63.31 |
| Premiums Paid Analysis - 20%-40% premium to $44.21 (March 11, 2021 close) | Applied 20.0%-40.0% premium range to the $44.21 closing price on March 11, 2021, the last trading day prior to receipt of the $56.00 per share offer. | $53.29–$62.17 |
| Premiums Paid Analysis - 0%-15% premium to 52-week high of $50.51 (February 8, 2021) | Applied a 0.0%-15.0% premium range to the 52-week high closing price of $50.51 on February 8, 2021. | $50.51–$58.09 |
Fee estimated as of the date of the merger agreement at approximately $70 million, of which $7 million was paid upon delivery of the opinion and the balance is contingent upon consummation of the merger. Nuance also agreed to reimburse expenses and indemnify Evercore.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $1.6B | $1.9B | $2.2B | $2.6B | 18.7% |
| Revenue growth | 11.8% | 19.7% | 19.6% | 16.8% | |
| EBITDA | $506M | $659M | $834M | $1.0B | 26.9% |
| EBITDA growth | 23.7% | 30.2% | 26.6% | 24.0% | |
| EBITDA margin | 33% | 36% | 38% | 40% | |
| Implied EV / EBITDA | 37.1x | 28.5x | 22.5x | 18.1x |
Year-1 growth is against LTM at announcement ($1.4B revenue, $409M EBITDA); later years are year over year.
Nuance management prepared non-public "Nuance Forecasts" for fiscal years 2021-2025 (fiscal year ending September 30), which were provided to the Nuance Board, Evercore and Microsoft. Revenue grows from $1,387 million in FY2021E to $2,593 million in FY2025E; Adjusted EBITDA from $409 million to $1,034 million; unlevered free cash flow from $172 million to $610 million. Only a single management case was disclosed; Evercore used these forecasts for its DCF, SOTP DCF and trading-multiple analyses (including variants reducing Adjusted EBITDA and LFCF by Short Term Incentive Plan expenses).
Process notes
Other Digital / HealthTech fairness opinions
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- Inovalon Holdings / Nordic Capital / Insight Partners 2021 · 26.9x EV/EBITDA
- Change Healthcare / Optum 2021 · 13.8x EV/EBITDA
- Benefitfocus / Voya Financial 2022 · 11.6x EV/EBITDA
- SOC Telemed / Patient Square Capital 2022
- Castlight Health / Vera Whole Health 2022 · 30.4x EV/EBITDA