PharMerica acquired by KKR: fairness opinion by UBS and BofA Securities
Deal terms
Implied value per share by method vs. $29.25 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of UBS to the target board
Discounted cash flow assumptions
Present values calculated as of June 30, 2017; terminal multiple range based on current and historical trading EBITDA multiples of PharMerica and certain Selected Companies.
Selected public companies (9)
AmerisourceBergen Corporation · Cardinal Health, Inc. · McKesson Corporation · Ensign Group, Inc. · Genesis Healthcare Inc. · Kindred Healthcare, Inc. · Express Scripts Holding Company · BioScrip, Inc. · Diplomat Pharmacy, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2017E EBITDA (pharma distributor & long term care companies overall) | 7.8x | 8.5x | 10.2x | — | — |
| EV / CY2018E EBITDA (pharma distributor & long term care companies overall) | 7.5x | 8.0x | 9.7x | — | — |
| Adj. P / CY2017E EPS (pharma distributor & long term care companies overall) | 11.0x | 14.6x | 16.2x | — | — |
| Adj. P / CY2018E EPS (pharma distributor & long term care companies overall) | 9.1x | 14.1x | 15.0x | — | — |
| EV / CY2017E EBITDA - pharmaceutical distributor companies | — | 9.6x | — | — | — |
| EV / CY2018E EBITDA - pharmaceutical distributor companies | — | 9.0x | — | — | — |
| EV / CY2017E EBITDAR - long term care companies | — | 7.9x | — | — | — |
| EV / CY2018E EBITDAR - long term care companies | — | 7.7x | — | — | — |
| PharMerica implied EV / CY2017E EBITDA at $29.25 merger consideration | — | 9.6x | — | — | — |
| PharMerica implied EV / CY2018E EBITDA at $29.25 merger consideration | — | 8.6x | — | — | — |
| PharMerica implied Adj. P / CY2017E EPS at $29.25 merger consideration | — | 15.0x | — | — | — |
| PharMerica implied Adj. P / CY2018E EPS at $29.25 merger consideration | — | 13.4x | — | — | — |
Selected precedent transactions (14)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2015-05 | Omnicare, Inc. | CVS Health Corporation | — |
| 2014-10 | Salveo Specialty Pharmacy, Inc. | Catamaran Corporation | — |
| 2015-03 | Catamaran Corporation | UnitedHealth Group Incorporated | — |
| 2015-02 | Envision Pharmaceutical Services, Inc. | Rite Aid Corporation | — |
| 2013-08 | Restat, LLC | Catamaran Corporation | — |
| 2012-04 | Catalyst Health Solutions, Inc. | SXC Health Solutions Corp. | — |
| 2011-07 | Medco Health Solutions Inc. | Express Scripts Inc. | — |
| 2013-11 | Coram, LLC | CVS Caremark Corp. | — |
| 2013-06 | CarePoint Partners Holdings LLC | BioScrip, Inc. | — |
| 2010-01 | Critical Homecare Solutions Holdings, Inc. | BioScrip, Inc. | — |
| 2014-11 | EHHI Holdings, Inc. | HealthSouth Corporation | — |
| 2014-10 | Gentiva Health Services Inc. | Kindred Healthcare Inc. | — |
| 2014-08 | Skilled Healthcare Group, Inc. | Genesis HealthCare, LLC | — |
| 2012-06 | Sun Healthcare Group, Inc. | Genesis HealthCare, LLC | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| TV / LTM EBITDA (selected transactions overall) | 6.3x | 13.0x | 21.2x | — | — |
| TV / NTM EBITDA (selected transactions overall) | 6.5x | 10.4x | 16.8x | — | — |
| TV / LTM EBITDA - institutional pharmacy / specialty pharmacy | — | 15.1x | — | — | — |
| TV / NTM EBITDA - institutional pharmacy / specialty pharmacy | — | 13.0x | — | — | — |
| TV / LTM EBITDA - pharmaceutical benefits management | — | 17.6x | — | — | — |
| TV / NTM EBITDA - pharmaceutical benefits management | — | 13.0x | — | — | — |
| TV / LTM EBITDA - infusion services | — | 12.4x | — | — | — |
| TV / NTM EBITDA - infusion services | — | 12.9x | — | — | — |
| TV / LTM EBITDA - long term care | — | 8.8x | — | — | — |
| TV / NTM EBITDA - long term care | — | 8.3x | — | — | — |
| PharMerica implied LTM EBITDA multiple at $29.25 merger consideration | — | 10.3x | — | — | — |
| PharMerica implied NTM EBITDA multiple at $29.25 merger consideration | — | 9.0x | — | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Selected Transactions Analysis (reference only) | 14 acquisition transactions across institutional/specialty pharmacy, PBM, infusion services and long term care; reviewed LTM and NTM EBITDA multiples. Performed solely for reference purposes and not considered a determinative valuation methodology. | — |
Aggregate fee of $6.06 million, of which $500,000 payable on delivery of opinion and remainder contingent on consummation. UBS/affiliates derived approx. $125 million of revenues from KKR, WBA and affiliates from Jan 1, 2015 through July 31, 2017.
Opinion of BofA Securities to the target board
Discounted cash flow assumptions
Discounted to June 30, 2017. Excluding NOLs: $24.40-$34.50; including present value of $33 million of federal NOL tax attributes: $24.80-$34.90.
Selected public companies (9)
AmerisourceBergen Corporation · BioScrip, Inc. · Cardinal Health Inc. · Diplomat Pharmacy, Inc. · Express Scripts Holding Co. · Genesis Healthcare Inc. · Kindred Healthcare, Inc. · McKesson Corporation · The Ensign Group, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| P / CY2017E adjusted EPS | 9.0x | 14.0x | 24.5x | 11.5x–14.5x | $22.50–$28.30 |
| P / CY2018E adjusted EPS | 8.2x | 13.4x | 21.4x | 10.5x–13.5x | $23.00–$29.60 |
| EV / CY2017E EBITDA | 6.7x | 8.2x | 19.6x | 7.5x–9.5x | $19.90–$28.70 |
| EV / CY2018E EBITDA | 6.5x | 7.7x | 14.3x | 7.0x–9.0x | $21.30–$31.20 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-week trading range (informational) | Historical closing prices per share during the 52-week period ended July 31, 2017 ranged from $20.20 to $28.17. | $20.20–$28.17 |
| Analyst price targets (informational) | One-year forward share price targets as of July 31, 2017 in publicly available research reports, discounted one year to present value at a 10.0% cost of equity. | $17.30–$28.20 |
| Illustrative leveraged buy-out analysis (informational) | Assumed illustrative closing of June 30, 2017 and exit December 31, 2021, exit LTM EBITDA multiples of 7.5x-9.5x applied to LTM EBITDA ending Dec 31, 2021, target IRR of 17.5%-22.5%. | $22.40–$29.90 |
| DCF including NOLs | DCF taking into account present value of $33 million of federal NOL tax attributes as of June 30, 2017. | $24.80–$34.90 |
Aggregate fee estimated at approximately $6,000,000, $500,000 payable upon delivery of opinion, remainder contingent on consummation. BofA derived approx. $5 million from the Company, $74 million from KKR and affiliates and $49 million from WBA over Aug 1, 2015-July 31, 2017.
Management projections
| Projection year | Year 1 | Year 2 | CAGR |
|---|---|---|---|
| Revenue | $2.6B | $2.8B | 7.8% |
| Revenue growth | 7.5% | 7.8% | |
| EBITDA | $155M | $161M | 3.9% |
| EBITDA growth | 4.0% | 3.9% | |
| EBITDA margin | 6% | 6% | |
| Implied EV / EBITDA | 9.2x | 8.9x |
Year-1 growth is against LTM at announcement ($2.4B revenue, $149M EBITDA); later years are year over year.
Multiple vintages of management projections were disclosed (2015, April 2016, September 2016, April 2017 and July 2017 Projections), but only the July 2017 Projections were approved for use by UBS and BofA Merrill Lynch in their financial analyses. The July 2017 Projections (excluding future acquisitions) show revenue growing from $2,439.2 million in 2017E to $3,596.0 million in 2021E, Adjusted EBITDA from $142.0 million to $193.6 million, and Adjusted EPS from $1.95 to $2.80. Adjusted EBITDA excludes non-recurring items of ~$20 million in 2017E and ~$6 million per year in 2018E-2021E; BofA also considered $33 million of federal NOL tax attributes as of June 30, 2017.
Process notes
Other Pharmacy / Infusion fairness opinions
- CVS Health / Aetna 2017 · 7.2x EV/EBITDA
- Diplomat Pharmacy / UnitedHealth Group 2019 · 12.1x EV/EBITDA
- Omnicare / CVS Health 2015 · 15.8x EV/EBITDA
- Walgreens / Sycamore Partners 2025 · 52.4x EV/EBITDA
All Pharmacy / Infusion opinions → · UBS opinions · BofA Securities opinions