Orthovita acquired by StrykerCorp.: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $3.85 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Unlevered free cash flows FY2011-FY2020 discounted to present value, terminal value as of December 31, 2020; adjusted for net debt as of March 31, 2011 and divided by fully diluted shares. A second DCF adding the value of NOLs ($131.2 million NOL balance as of December 31, 2010, 34% effective tax rate, tax savings 2011-2017) produced $3.15 to $3.50 per share.
Selected public companies (11)
Tornier N.V. · Kensey Nash Corporation · ArthroCare Corporation · NuVasive, Inc. · Integra LifeSciences Holdings Corporation · Alphatec Holdings, Inc. · Orthofix International N.V. · Exactech, Inc. · CONMED Corporation · Wright Medical Group, Inc. · RTI Biologics, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / 2011E Revenues | 0.7x | 1.7x | 3.7x | 1.2x–2.9x | $1.45–$3.55 |
| Firm Value / 2012E Revenues | 0.7x | 1.5x | 3.3x | 1.1x–2.9x | $1.65–$4.15 |
Selected precedent transactions (16)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-08 | OP-1 unit of Stryker | Olympus Corporation | — |
| 2010-08 | Osteotech, Inc. | Medtronic, Inc. | — |
| 2010-05 | BioSphere Medical, Inc. | Merit Medical Systems, Inc. | — |
| 2010-03 | ApaTech Ltd. | Baxter International Inc. | — |
| 2010-02 | Home Diagnostics, Inc. | Nipro Corporation | — |
| 2010-01 | Invatec S.p.A. | Medtronic, Inc. | — |
| 2010-01 | BioForm Medical, Inc. | Merz GmbH & Co. KGaA | — |
| 2009-10 | I-Flow Corporation | Kimberly-Clark Corporation | — |
| 2009-09 | Aspect Medical Systems, Inc. | Covidien plc | — |
| 2009-05 | VNUS Medical Technologies, Inc. | Covidien plc | — |
| 2008-12 | Radi Medical Systems AB | St. Jude Medical, Inc. | — |
| 2008-09 | Datascope Corp. | Getinge AB | — |
| 2008-09 | Abbott Spine business of Abbott Laboratories | Zimmer Holdings, Inc. | — |
| 2008-02 | Possis Medical, Inc. | Bayer Aktiengesellschaft | — |
| 2008-01 | Lifecore Biomedical, Inc. | Warburg Pincus LLC | — |
| 2007-07 | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / LTM Revenue | 1.3x | 3.0x | 4.4x | 2.5x–4.3x | $2.85–$4.85 |
| Firm Value / NTM Revenue | 1.3x | 2.7x | 5.7x | 2.0x–3.7x | $2.65–$4.80 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Discounted Cash Flow including NOL tax savings | Illustrated effects of projected annual tax savings during calendar years 2011-2017 from usage of Orthovita's $131.2 million NOL carryforwards (as of December 31, 2010) at a 34% effective tax rate, discounted at 11.5%-12.5%; adding implied per share value of NOLs to base DCF value. | $3.15–$3.50 |
Transaction fee of approximately $5.2 million payable upon completion of the Offer, of which $1.0 million was earned upon delivery of the opinion; plus expense reimbursement and indemnification. J.P. Morgan had prior commercial/investment banking relationships with Stryker, including co-manager of a January 2010 Stryker debt offering.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | CAGR |
|---|---|---|---|---|
| Revenue | $140M | $161M | $185M | 15.0% |
| Revenue growth | 16.0% | 14.9% | 15.0% | |
| EBITDA | $28.2M | $39.4M | $51.0M | 34.5% |
| EBITDA growth | 61.1% | 39.7% | 29.4% | |
| EBITDA margin | 20% | 25% | 28% | |
| Implied EV / EBITDA | 11.2x | 8.0x | 6.2x |
Year-1 growth is against LTM at announcement ($121M revenue, $17.5M EBITDA); later years are year over year.
Orthovita management prepared non-public financial projections that were made available to Stryker in due diligence and to J.P. Morgan for its opinion. The disclosed projections covered fiscal years 2011 through 2015, and J.P. Morgan extended/used unlevered free cash flows through fiscal year 2020 in its DCF analysis. Specific revenue and EBITDA figures were not reproduced in the sliced sections; the projections also underpinned the NOL tax-savings sensitivity (NOL balance of $131.2 million as of December 31, 2010, 34% effective tax rate).
Process notes
Other Medical Devices and Supplies fairness opinions
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
- SonoSite / FUJIFILM Holdings 2011 · 21.1x EV/EBITDA
- Synovis Life Technologies / Baxter International 2011 · 17.1x EV/EBITDA
- American Medical Alert / Tunstall Healthcare Group 2011 · 8.5x EV/EBITDA
- Kinetic Concepts / Apax Partners, CPPIB and PSP Investments 2011 · 9.7x EV/EBITDA
- American Medical Systems / Endo Pharmaceuticals 2011 · 15.2x EV/EBITDA
All Medical Devices and Supplies opinions → · J.P. Morgan opinions