Pharmaceutical Product Development acquired by Hellman & Friedman and The Carlyle Group: fairness opinion by Morgan Stanley and Lazard
Deal terms
Implied value per share by method vs. $33.25 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Morgan Stanley to the target board
Filing slice does not include Morgan Stanley fee details; Morgan Stanley also conducted the go-shop process on behalf of the Company.
Opinion of Lazard to the target board
Discounted cash flow assumptions
Management presentation case: $34.24-$48.73; management sensitivity case: $31.20-$44.18. Present value as of September 30, 2011; terminal values as of December 31, 2016. Lazard gave greater weight to the management sensitivity case.
Selected public companies (5)
Charles River Laboratories International, Inc. · Covance Inc. · ICON plc · PAREXEL International Corporation · WuXi PharmaTech (Cayman) Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2011E EBITDA | 5.7x | 7.7x | 9.4x | — | — |
| EV / 2012E EBITDA | 5.0x | 6.5x | 7.4x | 5.0x–7.5x | $20.17–$28.26 |
| EV / 2012E EBITDA (management sensitivity case) | 5.0x | 6.5x | 7.4x | 5.0x–7.5x | $19.80–$27.74 |
| P / 2011E EPS | 11.0x | 14.1x | 18.4x | — | — |
| P / 2012E EPS | 9.1x | 13.9x | 14.2x | 11.0x–14.5x | $20.89–$27.32 |
| P / 2012E EPS (management sensitivity case) | 9.1x | 13.9x | 14.2x | 11.0x–14.5x | $20.38–$26.66 |
| 2011E PEG ratio | 0.9x | 1.0x | 1.1x | — | — |
| 2012E PEG ratio | 0.8x | 0.9x | 1.1x | 0.8x–0.9x | $24.69–$29.41 |
| 2012E PEG ratio (management sensitivity case) | 0.8x | 0.9x | 1.1x | 0.8x–0.9x | $24.08–$28.70 |
Selected precedent transactions (10)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-05-04 | Kendle International Inc. | INC Research, LLC | — |
| 2010-12-28 | ReSearch Pharmaceutical Services, Inc. | Warburg Pincus Private Equity X, L.P. | — |
| 2010-05-06 | inVentiv Health, Inc. | Thomas H. Lee Partners, L.P. | — |
| 2009-02-12 | PharmaNet Development Group, Inc. | JLL Partners Inc. | — |
| 2008-01-03 | AppTec Laboratory Services, Inc. | WuXi PharmaTech (Cayman) Inc. | — |
| 2007-12-21 | Quintiles Transactional Corp. | Bain Capital/TPG Capital consortium | — |
| 2007-07-25 | PRA International | Genstar Capital, LLC | — |
| 2007-07-18 | WIL Research Holding Company, Inc. | American Capital Strategies, Ltd. | — |
| 2007-02-13 | BioReliance Corporation | Avista Capital Partners | — |
| 2006-05-09 | Charles River Laboratories International, Inc. – Phase II-IV Clinical Services Unit | Kendle International Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | — | 14.2x | — | 10.0x–14.0x | $29.85–$39.79 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Leveraged Buyout Return Analysis | 5-year investment period ending 12/31/2016, target IRRs of 17.5%-22.5%, total leverage of 6.6x LTM EBITDA, exit multiples 8.0x-10.0x LTM EBITDA. Management presentation case: $31.48-$39.40; management sensitivity case: $29.44-$36.43. Informational only, not material to opinion. | $29.44–$39.40 |
| Premia Paid Analysis | All-cash healthcare transactions with total transaction value of $3-5 billion; mean/median premia of 36.6%/32.3% (1-day), 36.7%/29.1% (1-week), 44.1%/42.3% (1-month). Applied 25.0%-50.0% premium to the $27.86 unaffected price (July 15, 2011), implying $34.83-$41.79; applied same range to a market-adjusted implied unaffected price of $20.37, implying $25.46-$30.55. Informational only. | $25.46–$41.79 |
| Analyst Price Targets | 12-month target trading prices published by 12 Wall Street analysts ranged from $30.00 to $38.00. Informational only. | $30.00–$38.00 |
| Historical Trading Prices | 52-week period ending July 15, 2011; closing prices ranged from $22.97 to $31.80. Informational only. | $22.97–$31.80 |
Fee of $1.3 million, all payable upon rendering of the opinion; expense reimbursement and indemnity. Lazard received approximately $21.9 million in fees from Carlyle entities in the prior two years; no fees from Hellman & Friedman entities.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $1.7B | $1.9B | $2.1B | $2.4B | $2.6B | 11.2% |
| Revenue growth | 12.5% | 11.7% | 11.0% | 11.1% | 11.1% | |
| EBITDA | $407M | $487M | $559M | $633M | $726M | 15.6% |
| EBITDA growth | 19.4% | 19.7% | 14.8% | 13.2% | 14.7% | |
| EBITDA margin | 24% | 25% | 26% | 27% | 28% | |
| Implied EV / EBITDA | 9.6x | 8.0x | 7.0x | 6.2x | 5.4x |
Year-1 growth is against LTM at announcement ($1.5B revenue, $341M EBITDA); later years are year over year.
Management prepared two five-year forecast sets in early July 2011: a management presentation case (provided to Carlyle, H&F and other bidders) and a management sensitivity case (prepared to test downside risk by cutting clinical development revenue growth by 2 points per year, lowering clinical development gross profit to 50%, and reducing selected laboratory revenue growth). Management presentation case: net revenue of $1,523 million in 2011 rising to $2,621 million in 2016, EBITDA of $341 million rising to $726 million, free cash flow of $94 million to $410 million, and EPS of $1.57 to $3.37. Management sensitivity case: net revenue of $1,523 million in 2011 to $2,490 million in 2016, EBITDA of $341 million to $655 million, free cash flow of $94 million to $369 million, and EPS of $1.57 to $3.13; management viewed the sensitivity case as the more achievable scenario and both Lazard and Morgan Stanley weighted it more heavily.
Process notes
Other Pharmaceutical Services fairness opinions
- Kendle International / INC Research Holdings 2011 · 9.9x EV/EBITDA
- eResearch Technology / Genstar Capital 2012 · 7.7x EV/EBITDA
- inVentiv Health / Thomas H. Lee Partners 2010 · 7.3x EV/EBITDA
- ReSearch Pharmaceutical Services / Warburg Pincus 2010 · 12.4x EV/EBITDA
- Patheon / JLL Partners 2013 · 12.7x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA
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