Parexel International acquired by Pamplona Capital Management: fairness opinion by Goldman Sachs
Announced June 19, 2017 · Going-private · All cash ·
DEFM14A filed August 15, 2017
Enterprise value
$5.0B
equity $4.6B
EV / LTM EBITDA
13.9x
EBITDA $360M · 17% margin
EV / LTM revenue
2.39x
revenue $2.1B
DCF discount rate
8.5%–10.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$88.10
Premium27.9%
Premium basisunaffected closing price of $68.86 on May 5, 2017 (last trading day before market speculation); 5.0%/5.6% premium to June 18/19, 2017 closing price
StructureGoing-private
Termination fee$138M (3.0% of equity)
Reverse termination fee$276M
Go-shopNone
Outside dateMarch 19, 2018
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $88.10 offer
Precedent transactions — EV / LTM EBITDA $61.11 – $87.69
Discounted cash flow $60.33 – $90.45
Premia Paid Analysis $78.50 – $95.72
Illustrative Present Value of Future Share Price Analysis $55.35 – $81.48
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 June 19, 2017 · Fee $37.0M ($32.0M contingent on closing)
Discounted cash flow assumptions
Discount rate8.5%–10.0%
Basisestimates of the Company's weighted average cost of capital
Terminal valuePerpetuity growth
Perpetuity growth2.5%–3.5%
Exit multiple—
Projection periodFY2017E-FY2022E (unlevered free cash flow from March 31, 2017 to June 30, 2022)
Projections usedCompany Projections (management)
Implied value per share$60.33–$90.45
Mid-year convention; present values as of March 31, 2017; Net Debt of $416 million as of March 31, 2017 subtracted from enterprise values
Selected precedent transactions (7)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2017-05 | inVentiv Health, Inc. | INC Research Holdings, Inc. | 12.2x EV / LTM EBITDA |
| 2016-08 | inVentiv Health, Inc. (50% stake) | Advent International Corporation | 11.2x EV / LTM EBITDA |
| 2014-11 | Covance Inc. | Laboratory Corporation of America Holdings | 13.2x EV / LTM EBITDA |
| 2014-04 | Medpace Holdings, Inc. (Majority stake) | Cinven Capital Management (V) General Partner Limited | 9.7x EV / LTM EBITDA |
| 2013-06 | PRA International, Inc. [n/k/a PRA Health Sciences, Inc.] | KKR & Co. L.P. | 11.3x EV / LTM EBITDA |
| 2011-10 | Pharmaceutical Product Development, Inc. | The Carlyle Group L.P. / Hellman & Friedman LLC | 10.4x EV / LTM EBITDA |
| 2011-05 | Kendle International Inc. | INC Research, LLC (privately owned by Avista Capital Partners, LP and Ontario Teachers' Pension Plan Board) | 14.3x EV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 9.7x | 11.3x | 14.3x | 10.0x–14.0x | $61.11–$87.69 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Premia and Multiple Analysis | Implied premia of $88.10: 5.0% to June 19, 2017 close of $83.92; 27.9% to undisturbed May 5, 2017 close of $68.86; 38.5% to undisturbed 30-day VWAP of $63.63; 23.3% to undisturbed 52-week high of $71.44. Implied Equity Value multiples: 26.7x 2017 adjusted net income, 24.1x 2018 adjusted net income (Company Projections), 27.2x 2017 adjusted net income (Analyst Consensus). Implied Enterprise Value multiples: 14.1x LTM EBITDA, 13.9x 2017 adjusted EBITDA (Company Projections), 14.1x 2017 adjusted EBITDA (Analyst Consensus), 12.7x 2018 adjusted EBITDA (Company Projections). Net Debt of $416 million as of March 31, 2017. | — |
| Premia Paid Analysis | Reviewed premia in acquisitions announced in the five years prior to June 19, 2017 with transaction values of $2-6 billion: Global (25th percentile 13%, median 24%, 75th percentile 39%), U.S. (14%, 25%, 39%), Public to Private (7%, 17%, 33%). Applied illustrative premiums of 14.0% to 39.0% to the May 5, 2017 closing price. | $78.50–$95.72 |
| Illustrative Present Value of Future Share Price Analysis | Applied one-year forward P/E multiples of 15.0x to 19.0x to estimated adjusted EPS for FY2017-FY2021 per the Company Projections, discounted to March 31, 2017 at an illustrative 9.6% cost of equity. | $55.35–$81.48 |
Aggregate fee currently estimated at approximately $37 million, $5 million of which was paid upon announcement of the proposed transaction and the remainder contingent upon consummation. Goldman Sachs received approximately $6.0 million from Pamplona, its affiliates and portfolio companies during the two years ended June 19, 2017.
3,000+ healthcare deal-level valuation multiples
The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $2.2B | $2.3B | $2.5B | $2.6B | $2.8B | 6.8% |
| Revenue growth | 3.3% | 7.0% | 7.2% | 6.6% | 6.6% | |
| EBITDA | $393M | $442M | $474M | $507M | $542M | 8.4% |
| EBITDA growth | 9.2% | 12.5% | 7.2% | 7.0% | 6.9% | |
| EBITDA margin | 18% | 19% | 19% | 19% | 19% | |
| Implied EV / EBITDA | 12.7x | 11.3x | 10.6x | 9.9x | 9.2x |
Year-1 growth is against LTM at announcement ($2.1B revenue, $360M EBITDA); later years are year over year.
Management prepared the "Company Projections" covering fiscal years 2017 through 2022 (fiscal year ending June 30), approved by the Board on March 10, 2017 and provided to Goldman Sachs. Net revenue grows from $2,099 million in FY2017 to $2,822 million in FY2022; Adjusted EBITDA from $360 million to $542 million; Adjusted net income from $172 million to $296 million; unlevered free cash flow from $159 million to $275 million; Adjusted EPS from $3.29 to $6.35. Projections assumed continued standalone operation with no effects of the merger, and reflected annual share repurchases equal to 50% of estimated levered free cash flow.
Process notes
Goldman Sachs was the only bank to deliver a fairness opinion (to the PAREXEL Board). Chestnut Securities, Inc. was engaged March 24, 2017 as a non-exclusive financial advisor to provide supplemental assistance to the independent directors but was not asked to and did not render a fairness opinion; its fee is $1,000,000 contingent on closing (minimum $200,000 if no transaction by December 31, 2017) plus a $150,000 discretionary bonus contingent on completion. Perella Weinberg Partners LP acted as broker for Parent/Merger Sub. The Board deliberately deferred outreach to strategic parties, initially contemplating a 40-day go-shop (company fee 2% of equity value, 1% for go-shop bidders, reverse fee 7%); Pamplona's counsel removed the go-shop and the final agreement has a 3% ($138 million) company termination fee and 6% ($276 million) parent termination fee guaranteed by a Pamplona fund via limited guarantee. The transaction was leaked by The Wall Street Journal on May 5-6, 2017, so premiums are measured against the "unaffected" May 5, 2017 price. FTC terminated the HSR waiting period on July 18, 2017; EC and Russian FAS filings pending.
Other Pharmaceutical Services fairness opinions
- Albany Molecular Research / Carlyle Group / GTCR 2017 · 11.5x EV/EBITDA
- Patheon NV / Thermo Fisher Scientific 2017 · 16.4x EV/EBITDA
- Juniper Pharmaceuticals / Catalent 2018 · 9.9x EV/EBITDA
- Quintiles / IMS Health 2016 · 10.8x EV/EBITDA
- IMS Health / Quintiles 2016 · 13.5x EV/EBITDA
- Cambrex / Permira Funds 2019 · 14.5x EV/EBITDA
All Pharmaceutical Services opinions → · Goldman Sachs opinions