Fairness opinions › Medical Devices and Supplies › 2019

Osiris Therapeutics acquired by Smith & Nephew: fairness opinion by Cantor Fitzgerald

Announced March 13, 2019 · Tender offer · All cash · SC 14D9 filed March 20, 2019

Medical Devices and Supplies Advanced Materials

Enterprise value

$660M

EV / LTM EBITDA

28.8x

EBITDA $22.9M · 15% margin

EV / LTM revenue

4.19x

revenue $157M

DCF discount rate

10.5%–12.5%

Exit multiple

Deal terms

ConsiderationAll cash

Price per share$19.00

Premium—

Premium basis—

StructureTender offer

Termination fee$18.7M (2.8% of equity)

Reverse termination fee—

Go-shopNone

Outside date—

FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $19.00 offer

Selected companies — EV / CY2018A Revenue $15.41 – $19.48

Selected companies — EV / CY2019E Revenue $14.62 – $19.11

Selected companies — EV / CY2020E Revenue $13.49 – $18.44

Selected companies — EV / CY2018A Adjusted EBITDA $6.57 – $10.26

Selected companies — EV / CY2019E Adjusted EBITDA $9.33 – $16.09

Precedent transactions — EV / LTM Revenue (applied to CY2018A revenue) $14.39 – $19.48

Precedent transactions — EV / LTM Adjusted EBITDA (applied to CY2018A Adjusted EBITDA) $6.10 – $8.41

Discounted cash flow $14.76 – $19.72

Historical trading prices (one-year period ended March 11, 2019) $7.20 – $18.88

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

Opinion of Cantor Fitzgerald to the target board

Delivered March 12, 2019

Discounted cash flow assumptions

Discount rate10.5%–12.5%

BasisWACC

Terminal valueExit multiple

Perpetuity growth—

Exit multiple3.0x–4.0x CY2022E Revenue

Projection period2019E-2022E

Projections usedCompany management projections (Company projections)

Implied value per share$14.76–$19.72

Unlevered after-tax free cash flows for the period March 31, 2019 through December 31, 2022.

Selected public companies (11)

Advanced Medical Solutions Group plc · Anika Therapeutics Inc. · Axogen, Inc. · CryoLife, Inc. · Integra LifeSciences Holdings Corp · MiMedx Group, Inc. · Organogenesis Holdings Inc. · Orthofix Medical Inc. · RTI Surgical, Inc. · SeaSpine Holdings Corp. · Tissue Regenix Group

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2018A Revenue	1.0x	4.1x	8.2x	3.5x–4.5x	$15.41–$19.48
EV / CY2019E Revenue	0.8x	3.6x	6.2x	3.0x–4.0x	$14.62–$19.11
EV / CY2020E Revenue	1.2x	2.6x	5.1x	2.5x–3.5x	$13.49–$18.44
EV / CY2018A Adjusted EBITDA	3.5x	13.5x	38.5x	12.0x–20.0x	$6.57–$10.26
EV / CY2019E Adjusted EBITDA	2.8x	11.5x	27.6x	11.0x–20.0x	$9.33–$16.09

Selected precedent transactions (14)

Date	Target	Acquirer	Multiple
2017-01-10	Derma Sciences, Inc.	Integra LifeSciences Holdings Corporation	—
2016-12-20	LifeCell Corporation	Allergan plc	—
2016-07-28	BioD, LLC	Derma Sciences, Inc.	—
2015-06-28	TEI Biosciences Inc. and TEI Medical Inc.	Integra LifeSciences Holdings Corporation	—
2014-10-23	Transplant Technologies of Texas, Ltd.	Globus Medical, Inc.	—
2014-01-16	Shire plc (DERMAGRAFT)	Organogenesis Holdings Inc.	—
2013-10-28	Covidien (Confluent Surgical line)	Integra LifeSciences Holdings Corporation	—
2013-06-11	Pioneer Surgical Technology, Inc.	RTI Surgical Holdings, Inc.	—
2012-11-28	Healthpoint, Ltd.	Smith & Nephew plc	—
2012-05-03	Kensey Nash Corporation	Royal DSM N.V.	—
2011-12-13	Synovis Life Technologies Inc.	Baxter International Inc.	—
2011-07-13	Kinetic Concepts, Inc. (Acelity L.P. Inc.)	Apax Partners LLP	—
2011-05-17	Advanced BioHealing, Inc.	Shire plc	—
2011-05-16	Orthovita Inc.	Stryker Corporation	—

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM Revenue (applied to CY2018A revenue)	1.0x	3.8x	6.4x	3.3x–4.5x	$14.39–$19.48
EV / LTM Adjusted EBITDA (applied to CY2018A Adjusted EBITDA)	7.8x	—	70.3x	11.0x–16.0x	$6.10–$8.41

Other analyses

Analysis	Summary	Implied per share
Historical trading prices (one-year period ended March 11, 2019)	Low and high closing prices for Company Common Stock during the one-year period ended March 11, 2019 were $7.20 and $18.88.	$7.20–$18.88
Other information - selected companies Adjusted EBITDA multiples including high/low	Mean and median Adjusted EBITDA multiples for the selected companies including overall high and low multiples were 16.0x and 13.5x for CY2018A and 13.7x and 11.5x for CY2019E.	—

Fee terms described under Item 5 of the Schedule 14D-9; not included in the sliced sections. Cantor Fitzgerald was engaged solely to render the opinion and had not provided financial advisory or investment banking services to the Company, Smith & Nephew or Parent for a fee during the preceding two years.

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Management projections

Projection year	Year 1	Year 2	Year 3	CAGR
Revenue	$173M	$190M	$209M	9.9%
Revenue growth	10.0%	9.9%	9.9%
EBITDA	$28.2M	$33.5M	$36.9M	14.4%
EBITDA growth	23.1%	18.8%	10.1%
EBITDA margin	16%	18%	18%
Implied EV / EBITDA	23.4x	19.7x	17.9x

Year-1 growth is against LTM at announcement ($157M revenue, $22.9M EBITDA); later years are year over year.

Company management prepared standalone projections for calendar years 2019 through 2022, assuming annual revenue growth of 14% in 2019 and 10% in each of 2020-2022, capex of $3.0 million annually beginning 2020, and 5% annual compensation expense growth. Net revenue was projected to grow from $157.4 million in 2019E to $209.2 million in 2022E, with EBITDA of $22.9 million in 2019E ($26.2 million Adjusted EBITDA) rising to $36.9 million in 2022E, and free cash flow of $23.8 million in 2019E to $33.9 million in 2022E. These projections were provided to the Board, Smith & Nephew and Cantor Fitzgerald and used in Cantor Fitzgerald's DCF analysis.

Process notes

Cantor Fitzgerald was engaged solely to render the fairness opinion to the Board; it did not solicit third-party interest and did not participate in negotiating the transaction terms. Opinion excluded the 'Specified Holders' (Smith & Nephew, Parent, Purchaser and Chairman/co-founder Peter Friedli and their affiliates). Friedli, who beneficially owned ~30% of shares outstanding directly (14.8 million shares beneficially), signed a tender and support agreement and is expected to receive a two-year, $250,000/year consulting arrangement post-closing. Negotiations over a 'go shop' provision were dropped; the parties agreed to a termination fee of 2.8% of fully diluted equity value. The filing did not disclose Cantor Fitzgerald's fee amounts in the sliced sections (referenced to Item 5).

Other Medical Devices and Supplies fairness opinions

Wright Medical Group / StrykerCorp. 2019 · 14.6x EV/EBITDA
CAS Medical Systems / Edwards Lifesciences 2019
Varian Medical Systems / Siemens Healthineers 2020 · 29.4x EV/EBITDA
K2M Group Holdings / StrykerCorp. 2018 · 92.0x EV/EBITDA
Invuity / StrykerCorp. 2018
Cogentix Medical / Laborie 2018 · 101.9x EV/EBITDA

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