Fairness opinions › Physician Groups › 2021

Nutex Health acquired by Clinigence Health: fairness opinion by The Benchmark

Announced November 23, 2021 · Stock merger · All stock · DEFM14A filed February 14, 2022

Physician Groups Urgent Care

Enterprise value

$1.6B

equity $2.3B

EV / LTM EBITDA

10.0x

EBITDA $164M · 44% margin

EV / LTM revenue

4.40x

revenue $373M

DCF discount rate

9.5%–13.8%

Exit multiple

Deal terms

ConsiderationAll stock

Price per share3.571428575 CLNH shares

Premium—

Premium basis—

StructureStock merger

Termination fee$14.3M (1.0% of equity)

Reverse termination fee—

Go-shopNone

Outside dateJuly 31, 2022

FilingDEFM14A · EDGAR index

CVR: Contribution Agreements provide contributing owners of Under Construction Hospitals and Ramping Hospitals a one-time additional issuance of Company Common Stock on the 24-month anniversary of the applicable hospital's opening date, based on 10x TTM EBITDA less initial equity value/capital contributions and pro rata debt, divided by the greater of the then stock price and $2.80

Each Nutex Holdco unit outstanding immediately prior to the Effective Time (after the Contribution Transaction) converts into 3.571428575 shares of Clinigence common stock; exchange ratio may be adjusted upward for pre-closing redemptions of Nutex Holdco membership interests. Aggregate shares issued equal (for Ramping and Mature Hospitals) ten times TTM EBITDA (as of 9/30/2021) less aggregate debt plus up to $10 million of cash, divided by $2.80, plus (for Under Construction Hospitals) aggregate capital contributions divided by $2.80. Legacy Nutex members expected to receive 92.42% of outstanding Company Common Stock.

Opinion of The Benchmark to the acquirer board

Delivered November 23, 2021 · Fee $0.5M ($0.1M contingent on closing), $0.1M on delivery of the opinion

Discounted cash flow assumptions

Discount rate9.5%–13.8%

BasisEstimate of Nutex's weighted average cost of capital (WACC); assumptions state 9.5%-13.8% while the discounting description states 9.8%-13.8%

Terminal valueExit multiple

Perpetuity growth—

Exit multiple4.8x–7.3x 4.8x terminal forward net income (P/E) and 7.3x terminal forward EBITDA applied to CY2026E net income and EBITDA

Projection periodQ4 2021E-2026E

Projections usedNutex Forecasts made available to Benchmark by Clinigence management

Implied value per share—

Standalone unlevered after-tax free cash flows for Q4 2021 and CY2022-2026, discounted to present value as of November 23, 2021. Implied equity value reference ranges for Nutex: $2.136 billion - $2.543 billion using the 4.8x terminal P/E multiple, and $3.548 billion - $4.247 billion using the 7.3x terminal EV/EBITDA multiple, compared with $2.295 billion of equity value implied by the parent stock issuance (based on Clinigence's 10-day VWAP as of 11/22/21). Key assumptions: Nutex revenue of $365.9 million in 2022 rising to $1.39 billion in 2026; EBITDA of $200.7 million in 2022 rising to $787.9 million in 2026.

Selected public companies (11)

Apollo Medical Holdings · Cano Health · CareMax · Community Health Systems · Encompass Health Corporation · HCA Healthcare · Oak Street Health · Select Medical Holdings Corporation · Surgery Partners · Tenet Healthcare Corporation · Universal Health Services

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2021E EBITDA	7.1x	8.8x	36.9x	8.8x–15.1x	—
EV / CY2022E EBITDA	7.0x	9.3x	22.2x	9.3x–11.3x	—

Selected precedent transactions (8)

Date	Target	Acquirer	Multiple
—	Cano Health	Jaws Acquisitions Corp.	177.8x Enterprise Value / EBITDA
—	CareMax Medical Group	Deerfield Healthcare Technology Acquisitions Corp.	55.1x Enterprise Value / EBITDA
—	Envision Healthcare	Kohlberg Kravis Roberts & Co. LP	8.9x Enterprise Value / EBITDA
—	Kindred Healthcare	Humana, Inc.; TPG Capital; Others	9.4x Enterprise Value / EBITDA
—	LifePoint Health	Apollo Management LP; LifePoint Health, Inc.	8.1x Enterprise Value / EBITDA
—	Surgery Partners	Bain Capital Private Equity LP	9.5x Enterprise Value / EBITDA
—	Surgical Care Affiliates	InGensa, Inc.	11.4x Enterprise Value / EBITDA
—	Tenet Healthcare Corp. /5 Miami Hospitals/	Steward Health Care System LLC	9.0x Enterprise Value / EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / EBITDA (applied to Nutex CY2021E and CY2022E EBITDA)	8.1x	9.4x	177.8x	9.4x–15.9x	—

Other analyses

Analysis	Summary	Implied per share
Selected Publicly Traded Companies Analysis - implied aggregate equity values	Applying average CY2021E/CY2022E EV/EBITDA multiples of 15.12x/11.30x to Nutex CY2021E EBITDA of $160,916,732 and CY2022E EBITDA of $200,673,538 produced implied enterprise/equity values of $4.250 billion (2021E) and $4.133 billion (2022E); applying median multiples of 8.80x/9.27x produced $1.416 billion (2021E) and $1.860 billion (2022E). Net debt of Nutex assumed to be $0 at closing. Compared with $2.295 billion equity value implied by the parent stock issuance based on Clinigence's 10-day VWAP as of 11/22/21.	—
Selected Precedent Transactions Analysis - implied aggregate equity values	Applying average and median EV/EBITDA multiples of 15.93x and 9.42x (excluding Cano Health as an outlier) to Nutex CY2021E and CY2022E EBITDA produced implied equity values of $2.564 billion (2021E) and $3.197 billion (2022E) on the average multiple, and $1.516 billion (2021E) and $1.890 billion (2022E) on the median multiple, versus $2.295 billion implied by the merger consideration.	—
Other Factors (informational only)	Benchmark also referenced, for informational purposes only: (1) historical trading prices and volumes of Clinigence common stock; (2) the $2.80 per share valuation for Clinigence agreed upon by the parties; (3) EV / revenue multiples for LTM, CY2021E and CY2022E for the selected publicly traded companies; and (4) EV / LTM EBITDA for the selected publicly traded companies.	—

Clinigence agreed to pay the Financial Advisors (Benchmark and Colliers together) an aggregate fee of up to $500,000: $125,000 to Benchmark on execution of the engagement letter; $125,000 to Colliers on completion of Colliers' due diligence review; $125,000 to Benchmark upon Benchmark being prepared to deliver the opinion; and a final $125,000 to Colliers upon closing of the transaction. Expense reimbursement up to $30,000 plus customary indemnification.

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Management projections

Benchmark used Nutex financial statements for the twelve months ended September 30, 2021 together with a financial model containing projected income statements and balance sheets for the quarter ended December 31, 2021 and calendar years 2022-2026 (the "Nutex Forecasts"), made available to Benchmark by Clinigence management. The forecasts show revenue of $365.9 million in 2022 growing to $1.39 billion in 2026, and EBITDA of $200.7 million in 2022 growing to $787.9 million in 2026. Estimated EBITDA of $160,916,732 for CY2021 and $200,673,538 for CY2022 was used in the multiples analyses, with Nutex net debt assumed to be $0 at closing.

Process notes

Reverse-merger style transaction: Clinigence (the public acquirer) issues stock such that legacy Nutex members hold 92.42% of the combined company, which will be renamed Nutex Health Inc. The fairness opinion was delivered to the Clinigence board (the acquirer) on the fairness of the consideration to be PAID by Clinigence, to holders of Clinigence common stock; no opinion was rendered to Nutex. Benchmark gave an oral opinion on 2021-11-18 at the board meeting, confirmed by written opinion and final supporting analysis on 2021-11-23. Two financial advisors were retained (The Benchmark Company, LLC and Colliers Securities LLC) under a joint engagement letter with an aggregate fee of up to $500,000, but only Benchmark delivered the opinion. Benchmark was not asked to solicit third-party interest or negotiate terms. DCF section states discount rates of 9.5%-13.8% in the assumptions and 9.8%-13.8% in the discounting description. No per-share implied values were disclosed — all Benchmark output is expressed as aggregate implied equity value for Nutex versus $2.295 billion implied by the parent stock issuance (based on Clinigence's 10-day VWAP as of 11/22/21). Termination fee described inconsistently in the filing as both $14,300,000 and "1% of the Merger Consideration" plus out-of-pocket costs, payable by Clinigence if it enters into or consummates an Alternative Proposal within 12 months of termination.

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