Press Ganey Holdings acquired by EQT: fairness opinion by Barclays and Goldman Sachs
Announced August 9, 2016 · One-step merger · All cash ·
DEFM14A filed September 20, 2016
Enterprise value
$2.4B
EV / LTM EBITDA
16.1x
EBITDA $146M · 39% margin
EV / LTM revenue
6.28x
revenue $374M
DCF discount rate
8.0%–10.0%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$40.50
Premium0.4%
Premium basisclosing price of $40.33 per share on August 8, 2016 (last trading day before opinion)
StructureOne-step merger
Termination fee$84.5M
Reverse termination fee$124M
Go-shop40 days · $28.0M reduced fee
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $40.50 offer
Selected companies — EV / 2017E Adjusted EBITDA (Barclays) $34.00 – $46.25
Precedent transactions — EV / LTM EBITDA (applied to pro forma LTM Q2 2016A adjusted EBITDA of $142 million) (Barclays) $21.00 – $46.25
Discounted cash flow (Barclays) $34.25 – $49.00
Closest comparable observation (Barclays) $24.77
Precedent transactions — EV / LTM EBITDA (applied to pro forma LTM Q2 2016A adjusted EBITDA of $142 million) (Goldman Sachs) $21.00 – $46.25
Discounted cash flow (Goldman Sachs) $26.75 – $49.50
Present Value of Future Share Price Analysis (Goldman Sachs) $32.50 – $52.25
Acquisition Premium for United States Cash or Cash and Stock Transactions (Goldman Sachs) $50.50 – $56.50
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Barclays to the target board
Delivered August 9, 2016
Discounted cash flow assumptions
Discount rate8.0%–10.0%
Basisafter-tax discount rates based on analysis of WACC of Press Ganey and the comparable companies
Terminal valueExit multiple
Perpetuity growth—
Exit multiple12.0x–16.0x CY2020E EBITDA
Projection period2016E-2020E
Projections usedupdated projections (Press Ganey management)
Implied value per share$34.25–$49.00
Low = 12.0x EBITDA and 10.0% discount rate; high = 16.0x EBITDA and 8.0% discount rate; net debt of $138 million as of June 30, 2016 subtracted.
Selected public companies (12)
Cerner Corporation · Pro forma combination of Quintiles Transnational Holdings Inc. and IMS Health Holdings, Inc. · Premier, Inc. · Allscripts Healthcare Solutions, Inc. · The Advisory Board Company · HealthStream, Inc. · Nielsen Holdings plc · IHS Markit Ltd. · Verisk Analytics, Inc. · Gartner, Inc. · FactSet Research Systems Inc. · Inovalon Holdings, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2017E Adjusted EBITDA | 8.8x | 12.6x | 16.3x | 12.0x–16.0x | $34.00–$46.25 |
Selected precedent transactions (16)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-06-13 | Cardon Outreach | MedData | — |
| 2016-02-22 | Brightree | ResMed | — |
| 2016-02-18 | Truven Health Analytics, Inc. | IBM | — |
| 2015-11-02 | MedAssets | Pamplona Capital Management | — |
| 2015-08-06 | Merge Healthcare Inc. | IBM | — |
| 2015-07-06 | Altegra Health Inc. | Emdeon Inc. / Blackstone | — |
| 2015-03-10 | Wood Mackenzie | Verisk Analytics | — |
| 2014-12-10 | Royall & Company | Advisory Board | — |
| 2014-11-05 | Dealogic | Carlyle | — |
| 2012-07-30 | Sunquest | Roper | — |
| 2012-04-23 | Thomson Reuters—Healthcare | Veritas Capital | — |
| 2011-08-04 | Emdeon | Blackstone | — |
| 2010-06-09 | Eclipsys | Allscripts | — |
| 2010-04-16 | Phase Forward | Oracle | — |
| 2009-11-05 | IMS | TPG | — |
| 2008-04-11 | Trizetto | Apax | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to pro forma LTM Q2 2016A adjusted EBITDA of $142 million) | 9.2x | 12.8x | 19.2x | 9.2x–19.2x | $21.00–$46.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price and Premium Paid Analysis (performed jointly by both financial advisors) | Reviewed trading from May 21, 2015 through August 8, 2016. $40.50 represented: 0.4% premium to the 8/8/16 closing price of $40.33; 62% premium to the $25.00 IPO price; 0.8% premium to 30-day VWAP of $40.17; 5.4% premium to 60-day VWAP of $38.43; 9.1% premium to 90-day VWAP of $37.13; 1.1% discount to 52-week high closing price of $40.97; and 20.3% premium to YTD VWAP of $33.65. | — |
| Implied Multiples Analysis (performed jointly by both financial advisors) | At the $40.50 offer price, implied EV/Adjusted EBITDA of 18.3x LTM (6/30/16), 16.8x LTM pro forma, 15.8x 2016 pro forma, 14.1x 2017E (updated projections); 17.0x 2016E and 15.1x 2017E on consensus. Price/Adjusted EPS of 33.6x 2016PF and 29.8x 2017E (updated projections); 35.5x 2016E and 31.6x 2017E on consensus. Net debt of $138 million as of 6/30/2016. | — |
| Closest comparable observation | Barclays noted The Advisory Board Company's EV/2017E EBITDA multiple of 8.9x, which equated to an implied Press Ganey value of $24.77 per share; Advisory Board was viewed as the closest comparable. | $24.77 |
Barclays fee arrangement not described in the sections provided; Barclays opinion attached as Appendix C.
Opinion of Goldman Sachs to the target board
Delivered August 9, 2016 · Fee $10.5M ($10.5M contingent on closing)
Discounted cash flow assumptions
Discount rate7.5%–9.0%
Basisillustrative discount rates
Terminal valuePerpetuity growth
Perpetuity growth3.5%–4.5%
Exit multiple—
Projection period2016E-2020E
Projections usedupdated projections (Press Ganey management)
Implied value per share$26.75–$49.50
Perpetuity growth applied to terminal year normalized free cash flow; net debt of $138 million as of June 30, 2016 subtracted.
Selected precedent transactions (16)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-06-13 | Cardon Outreach | MedData | — |
| 2016-02-22 | Brightree | ResMed | — |
| 2016-02-18 | Truven Health Analytics, Inc. | IBM | — |
| 2015-11-02 | MedAssets | Pamplona Capital Management | — |
| 2015-08-06 | Merge Healthcare Inc. | IBM | — |
| 2015-07-06 | Altegra Health Inc. | Emdeon Inc. / Blackstone | — |
| 2015-03-10 | Wood Mackenzie | Verisk Analytics | — |
| 2014-12-10 | Royall & Company | Advisory Board | — |
| 2014-11-05 | Dealogic | Carlyle | — |
| 2012-07-30 | Sunquest | Roper | — |
| 2012-04-23 | Thomson Reuters—Healthcare | Veritas Capital | — |
| 2011-08-04 | Emdeon | Blackstone | — |
| 2010-06-09 | Eclipsys | Allscripts | — |
| 2010-04-16 | Phase Forward | Oracle | — |
| 2009-11-05 | IMS | TPG | — |
| 2008-04-11 | Trizetto | Apax | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to pro forma LTM Q2 2016A adjusted EBITDA of $142 million) | 9.2x | 12.8x | 19.2x | 9.2x–19.2x | $21.00–$46.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Present Value of Future Share Price Analysis | Applied forward EV/Adjusted EBITDA multiples of 11.5x to 15.5x to estimated adjusted EBITDA for fiscal years 2017-2020 to derive implied year-end values per share for 2016-2019, discounted back to August 8, 2016 at an 8.75% cost of equity. | $32.50–$52.25 |
| Acquisition Premium for United States Cash or Cash and Stock Transactions | Using Thomson Financial data as of August 8, 2016 for completed U.S. deals from 2011 to 2016 YTD valued between $1 billion and $5 billion with all-cash or cash-and-stock consideration, average annual premia ranged from 26% to 43%. Applying a 25% to 40% premium range to the $40.33 closing price produced implied values of $50.50 to $56.50 per share. | $50.50–$56.50 |
| Historical Share Price and Premium Paid Analysis (performed jointly by both financial advisors) | $40.50 represented a 0.4% premium to the 8/8/16 close of $40.33, a 62% premium to the $25.00 IPO price, 0.8%/5.4%/9.1% premiums to 30/60/90-day VWAPs, a 1.1% discount to the 52-week high close of $40.97 and a 20.3% premium to YTD VWAP of $33.65. | — |
| Implied Multiples Analysis (performed jointly by both financial advisors) | At $40.50, implied EV/Adjusted EBITDA of 18.3x LTM, 16.8x LTM pro forma, 15.8x 2016PF and 14.1x 2017E on updated projections; 17.0x 2016E and 15.1x 2017E on consensus; Price/Adjusted EPS of 33.6x 2016PF and 29.8x 2017E. | — |
Transaction fee calculated as a percentage of aggregate consideration, estimated at approximately $10.5 million, all payable upon consummation of the merger. Goldman received ~$4.5 million from Press Ganey, ~$55 million from EQT and ~$22.5 million from Vestar for services during the two years ended August 9, 2016.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $369M | $412M | $453M | $494M | $538M | 9.9% |
| Revenue growth | -1.3% | 11.7% | 10.0% | 9.1% | 8.9% | |
| EBITDA | $138M | $167M | $190M | $210M | $231M | 13.7% |
| EBITDA growth | -5.5% | 21.0% | 13.8% | 10.5% | 10.0% | |
| EBITDA margin | 37% | 41% | 42% | 43% | 43% | |
| Implied EV / EBITDA | 17.0x | 14.1x | 12.4x | 11.2x | 10.2x |
Year-1 growth is against LTM at announcement ($374M revenue, $146M EBITDA); later years are year over year.
Management prepared two cases: initial projections (June 2016) and updated projections (late July 2016, reflecting YTD results and the Avatar International acquisition). The updated projections, used by both financial advisors, show total revenue of $377 million (2016PF)/$369 million (2016E) growing to $544 million in 2020E, with adjusted EBITDA of $152 million (2016PF)/$141 million (2016E) growing to $236 million in 2020E, and unlevered free cash flow of $24 million (Jul-Dec 2016E) rising to $100 million in 2020E. Management also prepared "incremental upside forecasts" assuming unidentified future acquisitions and two new products, which the Board did not approve and neither advisor used.
Process notes
Two financial advisors (Barclays and Goldman Sachs) each delivered opinions to the Press Ganey Board dated August 9, 2016; many analyses (historical share price/premium paid, implied multiples, selected precedent transactions) were performed jointly, with Barclays alone performing the selected comparable companies analysis and an exit-multiple DCF, and Goldman Sachs alone performing a perpetuity-growth DCF, present value of future share price and acquisition premium analyses. The deal was struck at essentially no premium (0.4% to the prior close; a 1.1% discount to the 52-week high), so the Board insisted on a lengthy go-shop (August 9 to September 18, 2016) with a reduced $28 million termination fee for exempted persons, a full stockholder vote rather than written consent by the Vestar Holders (~54% holders), and a $124 million reverse termination fee backed by an EQT termination equity commitment letter. Competing bidder "Party D" was in the process; EQT's $40.50 was characterized as "best and final." Barclays' fee was not disclosed in the provided sections.
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