Odyssey Healthcare acquired by Gentiva Health Services: fairness opinion by Goldman Sachs
Announced May 24, 2010 · One-step merger · All cash ·
DEFM14A filed July 9, 2010
Home-Based Services Hospice
Enterprise value
$939M
EV / LTM EBITDA
9.8x
EBITDA $96.0M · 14% margin
EV / LTM revenue
1.33x
revenue $704M
DCF discount rate
9.5%–11.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$27.00
Premium40.0%
Premium basisclosing price of $19.29 on May 21, 2010, last trading day prior to announcement
StructureOne-step merger
Termination fee$28.9M
Reverse termination fee—
Go-shop30 days · $24.1M reduced fee
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $27.00 offer
Discounted cash flow $20.23 – $28.64
Illustrative Present Value of Future Stock Price Analysis $13.28 – $25.19
Illustrative Leveraged Buyout Analysis $19.06 – $22.83
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Goldman Sachs to the target board
Delivered May 23, 2010 · Fee $12.0M
Discounted cash flow assumptions
Discount rate9.5%–11.0%
BasisWACC derived from capital asset pricing model, taking into account betas for Odyssey and selected companies and U.S. equity market metrics
Terminal valuePerpetuity growth
Perpetuity growth1.0%–3.0%
Exit multiple5.9x–9.2x implied terminal EBITDA multiple
Projection period2H2010E-2014E
Projections usedOdyssey management estimates of unlevered free cash flow (April 2010 Projections)
Implied value per share$20.23–$28.64
Discounted to present value as of July 1, 2010; net debt as of June 30, 2010 subtracted; stock based compensation treated as cash expense
Selected public companies (5)
Almost Family, Inc. · Amedisys, Inc. · Chemed Corporation · Gentiva Health Services, Inc. · LHC Group, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2010E EBITDA | 5.0x | 5.5x | 7.4x | — | — |
| EV / 2011E EBITDA | 5.2x | 5.8x | 6.9x | — | — |
| P / 2010E EPS | 8.6x | 10.8x | 14.5x | — | — |
| P / 2011E EPS | 9.4x | 11.3x | 13.4x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | $27.00 represented premia of 40.0% to the $19.29 May 21, 2010 close; 34.3% to 1-month average ($20.11); 42.4% to 3-month average ($18.97); 56.3% to 6-month average ($17.27); 85.4% to 1-year average ($14.56); 136.6% to 3-year average ($11.41); 106.0% to 5-year average ($13.10); 81.6% to average since the October 31, 2001 IPO ($14.87); and 26.8% to the highest closing price of $21.29 during both the 1-year and 5-year periods ended May 21, 2010. | — |
| Illustrative Present Value of Future Stock Price Analysis | Applied forward P/E multiples of 11.0x-15.0x to management EPS estimates for 2010-2014, discounted at 11.0% and 13.5% cost of equity (including size premium). Implied present values of $14.52-$23.55 at 11.0% and $13.28-$23.55 at 13.5%. A share repurchase sensitivity ($50 million in 2010, $30 million per year 2011-2014, constant 12.4x P/E, 5% repurchase premium) indicated $17.64-$25.19 at 11.0% and $16.14-$25.19 at 13.5%. | $13.28–$25.19 |
| Illustrative Leveraged Buyout Analysis | Using management projections, calculated implied value per share generating a 20% IRR assuming exit EBITDA multiples of 7.0x-9.0x at end of 2014, leverage of 4.0x-5.0x LTM EBITDA (LTM ended March 31, 2010) and interest rates of 7.0%-12.5%; implied purchase prices of $19.06-$22.83. A separate return analysis at 4.5x leverage and purchase prices of $19.29-$26.00 (0.0%-34.8% premium) indicated equity returns of 5.8%-28.8%. | $19.06–$22.83 |
Transaction fee of approximately $12 million, the principal portion of which is contingent upon consummation of the Merger; plus expense reimbursement and indemnification. Engagement letter dated April 21, 2010.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $737M | $775M | $806M | $844M | 4.6% |
| Revenue growth | 4.7% | 5.2% | 4.0% | 4.7% | |
| EBITDA | $101M | $110M | $113M | $120M | 5.9% |
| EBITDA growth | 5.2% | 8.9% | 2.7% | 6.2% | |
| EBITDA margin | 14% | 14% | 14% | 14% | |
| Implied EV / EBITDA | 9.3x | 8.5x | 8.3x | 7.8x |
Year-1 growth is against LTM at announcement ($704M revenue, $96.0M EBITDA); later years are year over year.
Odyssey management prepared standalone projections in April 2010 covering fiscal years 2010-2014, reflecting 2009 results, Q1 2010 results and the estimated impact of health care reform legislation. Net revenue was projected to grow from $704 million in FY2010 to $844 million in FY2014, with EBITDA of $96 million in FY2010 rising to $120 million in FY2014 and net income of $53 million to $71 million. The projections were approved for Goldman Sachs' use in its fairness opinion and were also made available to Gentiva and Company B.
Process notes
Single fairness opinion from Goldman Sachs to the Odyssey board (no special committee). Competitive process involved a second bidder referred to as "Company B"; a 30-day post-signing go-shop ran through 11:59 p.m. Central on June 22, 2010, with a reduced $24.1 million termination fee for an Excluded Party superior proposal versus $28.9 million otherwise. Gentiva originally proposed a two-step tender offer with a 3% termination fee and a reverse break-up fee; the final deal has no financing condition and no reverse termination fee. Goldman Sachs disclosed prior work for Gentiva, including advising on the 2008 sale of a majority interest in Gentiva CareCentrix to Water Street Healthcare Partners II. Goldman Sachs performed no selected precedent transactions analysis with disclosed multiples.
Other Home-Based Services fairness opinions
- Lincare / Linde AG 2012 · 9.1x EV/EBITDA
- Gentiva Health Services / Kindred Healthcare Services 2014 · 9.7x EV/EBITDA
- Almost Family / LHC Group 2017 · 14.3x EV/EBITDA
- LHC Group / Almost Family 2017 · 15.5x EV/EBITDA
- LHC Group / UnitedHealth Group 2022 · 20.8x EV/EBITDA
- Amedisys / UnitedHealth Group 2023 · 15.2x EV/EBITDA