Fairness opinions › Physician Groups › 2023

Oak Street Health acquired by CVS Health: fairness opinion by Centerview Partners

Announced February 8, 2023 · One-step merger · All cash · DEFM14A filed March 30, 2023

Physician Groups Primary Care

Enterprise value

$11B

EV / LTM EBITDA

—

EBITDA $-285.0M · -13% margin

EV / LTM revenue

4.90x

revenue $2.2B

DCF discount rate

11.3%–13.5%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$39.00

Premium—

Premium basisUnaffected closing price of $22.57 on January 9, 2023 (last trading day before the trading price was perceived to be affected by a potential transaction)

StructureOne-step merger

Termination fee$300M

Reverse termination fee$500M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $39.00 offer

Selected companies — EV / 2023E Revenue $21.50 – $26.50

Precedent transactions — EV / LTM Revenue (applied to 2022E revenue of $2,165 million) $23.70 – $40.00

Discounted cash flow $29.50 – $48.30

Illustrative Discounted Future Share Price Analysis $33.70 – $45.20

Analyst Price Target Range Analysis $22.00 – $43.00

Historical Stock Price Trading Analysis $14.10 – $30.30

Premiums Paid Analysis $28.90 – $37.90

Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.

Opinion of Centerview Partners to the target board

Delivered February 7, 2023 · Fee $79.3M ($74.3M contingent on closing), $5.0M on delivery of the opinion

Discounted cash flow assumptions

Discount rate11.3%–13.5%

BasisCenterview's analysis of Oak Street Health's weighted average cost of capital

Terminal valuePerpetuity growth

Perpetuity growth2.5%–3.5%

Exit multiple—

Projection periodQ1 2023-2028, with extrapolations Q1 2029-2037 and NOL usage through 2032

Projections usedCompany management Forecasts (Internal Data), including extrapolations and federal/state NOL carryforward analyses

Implied value per share$29.50–$48.30

Discounted to present value as of December 31, 2022; stock-based compensation treated as a cash expense; net debt as of December 31, 2022 subtracted; range inclusive of NOLs.

Selected public companies (5)

Agilon Health, Inc. (NYSE: AGL) · Apollo Medical Holdings, Inc. (NASDAQ: AMEH) · Cano Health, Inc. (NYSE: CANO) · CareMax, Inc. (NASDAQ: CMAX) · Privia Health Group, Inc. (NASDAQ: PRVA)

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / 2023E Revenue	0.5x	0.9x	2.1x	1.8x–2.2x	$21.50–$26.50

Selected precedent transactions (9)

Date	Target	Acquirer	Multiple
2022-11	Summit Health-CityMD	Walgreens Boots Alliance, Inc.	3.1x EV / LTM Revenue
2022-07	1Life Healthcare Inc.	Amazon.com, Inc.	4.1x EV / LTM Revenue
2022-02	Better Health Group (f.k.a. Physician Partners)	Kinderhook Industries, LLC	3.1x EV / LTM Revenue
2021-10	Village Practice Management Company, LLC	Walgreens Boots Alliance, Inc	9.9x EV / LTM Revenue
2021-07	Doctors Medical Center of Modesto, Inc.	Cano Health, Inc.	1.5x EV / LTM Revenue
2021-06	University Health Care	Cano Health, Inc.	1.7x EV / LTM Revenue
2021-06	Iora Health, Inc.	1Life Healthcare Inc.	9.5x EV / LTM Revenue
2017-12	DaVita Inc.	Optum, Inc.	0.8x EV / LTM Revenue
2012-05	Health Care Partners Medical Group, P.C.	DaVita Inc.	1.3x EV / LTM Revenue

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Revenue (applied to 2022E revenue of $2,165 million)	0.8x	3.1x	9.9x	3.0x–5.0x	$23.70–$40.00

Other analyses

Analysis	Summary	Implied per share
Illustrative Discounted Future Share Price Analysis	Applied one-year forward revenue multiples of 1.8x, 2.0x and 2.2x to estimated 2024-2028 revenue, with projected net debt, discounted at a 13.5% cost of equity to December 31, 2022; selected 2.0x as the reference multiple.	$33.70–$45.20
Analyst Price Target Range Analysis	Wall Street research analyst price targets as of January 9, 2023 ranged from $22.00 to $43.00, with a mean of $30.62 per share.	$22.00–$43.00
Historical Stock Price Trading Analysis	Historical closing trading prices during the LTM period ending January 9, 2023 ranged from $14.10 to $30.30 per share.	$14.10–$30.30
Premiums Paid Analysis	Premiums in change-of-control transactions involving public targets since 2017 valued over $5 billion, applied to the January 9, 2023 closing price of $22.57: (i) 30%-40% to closing price implied $29.30-$31.60; (ii) 35%-45% to 30-day VWAP implied $28.90-$31.10; (iii) 35%-45% to 90-day VWAP implied $30.40-$32.70; (iv) 10%-25% to 52-week high implied $33.30-$37.90.	$28.90–$37.90

Aggregate fee of approximately $79.3 million, $5 million payable upon rendering of the opinion and approximately $74.3 million contingent upon consummation; plus expense reimbursement and indemnification.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$3.3B	$4.8B	$6.4B	$8.2B	$10B	32.6%
Revenue growth	51.9%	45.0%	33.7%	28.7%	23.8%
EBITDA	$-233.0M	$-123.0M	$35.0M	$249M	$486M	—
EBITDA growth	—	—	—	611.4%	95.2%
EBITDA margin	-7%	-3%	1%	3%	5%
Implied EV / EBITDA	—	—	302.9x	42.6x	21.8x

Year-1 growth is against LTM at announcement ($2.2B revenue, $-285.0M EBITDA); later years are year over year.

Oak Street Health management prepared unaudited projections for the remainder of FY2022 and fiscal years 2023 through 2028, plus extrapolations for 2029-2037 and analyses of federal/state NOL carryforward utilization through 2032, all provided to Centerview. Revenue grows from $2,165 million in 2022E to $12,256 million in 2028E; Adjusted EBITDA moves from ($285) million in 2022E to $729 million in 2028E; unlevered free cash flow from ($378) million in 2022E to $640 million in 2028E. The projections assume 35 new primary care centers per year in 2023-2024 and 40 per year in 2022 and 2025-2028, with organic growth only (no M&A).

Process notes

Single financial advisor (Centerview Partners) to the Oak Street Health Board; a Transaction Committee of the Board was involved in oversight of the process. CVS Health initially proposed a higher price, then reduced to $38.00 per share; the Board countered at $40.00 and the parties settled at $39.00. Affiliates of General Atlantic own approximately 25% of Oak Street Health common stock and entered into Voting Agreements. Centerview disclosed prior engagements with General Atlantic portfolio companies (aggregate fees of $45-55 million in the prior two years). Reverse termination fee of $500 million tied to failure to obtain regulatory/antitrust clearance.

Other Physician Groups fairness opinions

Signify Health / CVS Health 2022 · 33.0x EV/EBITDA
1Life Healthcare / One Medical / Amazon 2022
Tivity Health / Stone Point Capital 2022 · 12.1x EV/EBITDA
Nutex Health / Clinigence Health 2021 · 10.0x EV/EBITDA
Envision Healthcare Holdings / KKR 2018 · 10.0x EV/EBITDA
Network Medical Management / Apollo Medical Holdings 2016 · 9.5x EV/EBITDA

All Physician Groups opinions → · Centerview Partners opinions