Pet DRx acquired by VCA: fairness opinion by Roth Capital Partners
Deal terms
Opinion of Roth Capital Partners to the target board
Discounted cash flow assumptions
Implied enterprise value range of $29.1 million to $59.8 million, compared to enterprise value in VCA Antech proposal of $41.25 million ($46.8 million including severance/closing costs paid by VCA Antech and assumed negative working capital). Subsequent to the Equity Closing it was discovered Roth used projected EBITDA figures when it intended to use projected EBIT; using EBIT would have yielded an enterprise value range of $19.8 million to $35.7 million.
Selected public companies (6)
CVS Group plc · Heska Corporation · IDEXX Laboratories, Inc. · PetMed Express, Inc. · PetSmart, Inc. · VCA Antech, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue | 0.5x | 1.8x | 3.7x | — | — |
| EV / CY2010E Revenue | 0.8x | 1.8x | 3.6x | — | — |
| EV / LTM EBITDA | 7.1x | 9.9x | 16.9x | — | — |
| EV / CY2010E EBITDA | 6.7x | 9.7x | 15.6x | 6.7x–15.6x | — |
Selected precedent transactions (12)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2008-07-01 | Valley Animal Medical Center | n/a | 1.2x EV / LTM Revenue |
| 2007-11-30 | Beechwood Veterinary Practice Limited | n/a | 0.8x EV / LTM Revenue |
| 2007-11-26 | PetMedics Limited | n/a | 0.6x EV / LTM Revenue |
| 2007-04-19 | National Veterinary Associates, Inc. | n/a | 1.1x EV / LTM Revenue |
| 2007-03-30 | Bay Area Veterinary Specialists, Inc. | n/a | 0.8x EV / LTM Revenue |
| 2007-03-08 | Healthy Pet Corporation | n/a | 2.9x EV / LTM Revenue |
| 2007-01-15 | Active Vetcare Ltd | n/a | 2.8x EV / LTM Revenue |
| 2005-12-05 | Firstvets & White Lion Group | n/a | 7.2x Equity Value / LTM EBITDA |
| 2005-07-01 | Pet's Choice, Inc. | n/a | 0.9x EV / LTM Revenue |
| 2004-05-10 | National PetCare Centers, Inc. | n/a | 0.9x EV / LTM Revenue |
| 2000-03-30 | VCA Antech, Inc. | n/a | 1.3x EV / LTM Revenue |
| 1999-02-03 | AAH Management Corp | n/a | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Revenue | 0.6x | 1.0x | 2.9x | 0.6x–2.9x | — |
| EV / LTM EBITDA | 4.9x | 7.2x | 21.3x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Comparable Public Company Analysis - implied enterprise value | Using CY2010E EBITDA multiples, Roth concluded Pet DRx enterprise value ranged from $16.5 million to $38.5 million (median $23.9 million, mean $25.4 million), versus the VCA Antech offer enterprise value of $41.25 million ($46.8 million including severance/closing costs and assumed negative working capital). Revenue-based values ranged from $32.0 million (LTM min) to $243.8 million (CY2010 max). | — |
| Precedent Transaction Analysis - implied enterprise value | Applying LTM revenue multiples from precedent transactions to Pet DRx annualized sales as of March 31, 2010: low 0.6x = $35.6 million, median 1.0x = $64.3 million (also stated as implying $62.9 million), mean 1.3x = $83.4 million, high 2.9x = $182.4 million. Roth viewed this analysis as very imprecise given the lack of fundamental valuation and Pet DRx's negative LTM EBITDA. | — |
| Dividend paying capacity and book value | Roth considered dividend paying capacity and book value but deemed them less useful metrics given Pet DRx's operating history and current financial condition. | — |
Roth received a fee of $100,000 from Pet DRx, none of which was contingent upon consummation of the merger; Pet DRx also agreed to indemnify Roth and reimburse expenses. Opinion reviewed with the Board on May 24, 2010 and formally delivered in writing on May 26, 2010.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $73.8M | $77.5M | $81.4M | $81.4M | 3.3% |
| Revenue growth | 5.0% | 5.0% | 5.0% | 0.0% | |
| EBITDA | $8.2M | $10.7M | $13.3M | $13.3M | 17.5% |
| EBITDA growth | 30.2% | 30.5% | 24.3% | 0.0% | |
| EBITDA margin | 11% | 14% | 16% | 16% | |
| Implied EV / EBITDA | 7.5x | 5.7x | 4.6x | 4.6x |
Year-1 growth is against LTM at announcement ($70.3M revenue, $6.3M EBITDA); later years are year over year.
Roth used management's financial projections for fiscal years 2010 through 2014 (plus a 2014 terminal year). Revenue was projected to grow from $68.3 million in 2010 to $81.4 million in 2014, with EBIT rising from $2.5 million (3.6% margin) to $10.0 million (12.3% margin) and debt-free net cash flows from $2.2 million to $11.3 million; NOL carryforwards eliminated income taxes through 2014, with a 39% effective rate applied in the terminal year.
Process notes
Other Professional Services fairness opinions
- American Dental Partners / JLL Partners 2011 · 8.1x EV/EBITDA
- IntegraMed America / Sagard Capital Partners 2012 · 8.5x EV/EBITDA
- Birner Dental Management Services / Mid-Atlantic Dental Partners 2018 · 21.9x EV/EBITDA
All Professional Services opinions → · Roth Capital Partners opinions