PSS World Medical acquired by McKesson: fairness opinion by Credit Suisse and Goldman Sachs
Deal terms
Implied value per share by method vs. $29.00 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Credit Suisse to the target board
Discounted cash flow assumptions
Present value as of September 30, 2012 of standalone unlevered, after-tax free cash flow.
Selected public companies (6)
Henry Schein, Inc. · Patterson Companies, Inc. · Owens & Minor, Inc. · McKesson Corporation · Cardinal Health, Inc. · AmerisourceBergen Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2012E EBITDA (alternate site distribution companies) | 7.7x | 9.5x | 10.2x | 7.5x–9.5x | — |
| EV / CY2013E EBITDA (alternate site distribution companies) | 7.2x | 8.9x | 9.6x | 7.0x–9.0x | — |
| EV / CY2012E EBITDA (drug distribution companies) | 6.6x | 7.4x | 7.6x | 7.5x–9.5x | — |
| EV / CY2013E EBITDA (drug distribution companies) | 6.3x | 7.0x | 7.3x | 7.0x–9.0x | — |
| P / CY2013E EPS (alternate site distribution companies) | 13.3x | 14.7x | 15.4x | 14.0x–17.0x | — |
| P / CY2013E EPS (drug distribution companies) | 11.3x | 11.4x | 12.4x | 14.0x–17.0x | — |
| Selected Companies Analysis - overall implied equity value per share | — | — | — | — | $18.00–$30.00 |
Selected precedent transactions (17)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-08-23 | PharMerica Corporation (withdrawn) | Omnicare, Inc. | — |
| 2010-11-18 | Kinray, Inc. | Cardinal Health, Inc. | — |
| 2010-11-01 | US Oncology, Inc. | McKesson Corporation | — |
| 2010-10-14 | Provet Holdings Limited | Henry Schein, Inc. | — |
| 2009-11-30 | Butler Animal Health Supply, LLC | Henry Schein, Inc. | — |
| 2007-08-28 | PolyMedica Corporation | Medco Health Solutions, Inc. | — |
| 2007-05-02 | VWR International, Inc. | Madison Dearborn Partners, LLC | — |
| 2005-07-11 | D&K Healthcare Resources, Inc. | McKesson Corporation | — |
| 2005-07-07 | NeighborCare, Inc. | Omnicare, Inc. | — |
| 2002-12-18 | NCS HealthCare, Inc. | Omnicare, Inc. | — |
| 2001-03-19 | Bergen Brunswig Corporation | AmeriSource Health Corporation | — |
| 2000-12-04 | Bindley Western Industries, Inc. | Cardinal Health, Inc. | — |
| 2000-06-22 | PSS World Medical, Inc. (withdrawn) | Fisher Scientific International Inc. | — |
| 1999-01-11 | PharMerica, Inc. | Bergen Brunswig Corporation | — |
| 1998-10-09 | Allegiance Corporation | Cardinal Health, Inc. | — |
| 1997-09-23 | AmeriSource Health Corporation (withdrawn) | McKesson Corporation | — |
| 1997-08-24 | Bergen Brunswig Corporation (withdrawn) | Cardinal Health, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 7.4x | 12.6x | 19.3x | 9.0x–13.0x | $24.00–$33.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Wall Street analyst price targets | Publicly available Wall Street research analyst stock price targets for Company common stock. | $18.00–$26.00 |
| Premiums paid analysis | Premiums paid in U.S. and U.S. healthcare transactions >$1 billion announced 1/1/2005-10/23/2012; applied mean premium ranges of 28%-35% (1 day), 29%-35% (1 week) and 33%-39% (1 month) to the Company's corresponding closing prices. | $28.00–$32.00 |
| 52-week historical trading range | Historical trading prices of Company common stock during the 52-week period ended October 23, 2012. | $19.00–$26.00 |
Aggregate fee estimated at approximately $9.5 million, a portion payable upon delivery of the opinion and approximately $7.5 million contingent upon completion of the merger. Credit Suisse received approximately $2.4 million in fees from the Company in the prior two years (senior notes offering and share repurchase agent).
Opinion of Goldman Sachs to the target board
Discounted cash flow assumptions
Discounted to September 30, 2012; net debt adjusted for proceeds from specialty dental sale and hypothetical skilled nursing divestiture.
Selected public companies (6)
Amerisource (AmerisourceBergen) · Cardinal Health · McKesson Corp. · Henry Schein · Owens & Minor · Patterson Companies
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2012E EBITDA (drug/diversified wholesalers) | 6.8x | 7.4x | 7.9x | — | — |
| EV / 2012E EBITDA (med-surg distribution companies) | 7.7x | 9.6x | 10.3x | — | — |
| 2013E P/E multiple (drug/diversified wholesalers) | 11.5x | 11.6x | 12.5x | — | — |
| 2013E P/E multiple (med-surg distribution companies) | 13.3x | 14.9x | 15.6x | — | — |
| EV / 2013E EBITDA (drug/diversified wholesalers) | 6.4x | 7.0x | 7.5x | — | — |
| EV / 2013E EBITDA (med-surg distribution companies) | 7.2x | 9.0x | 9.6x | — | — |
| 2013E P/E/G ratio (drug/diversified wholesalers) | 0.9x | 1.1x | 1.2x | — | — |
| 2013E P/E/G ratio (med-surg distribution companies) | 1.3x | 1.3x | 1.8x | — | — |
Selected precedent transactions (17)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2000-06-26 | Bergen Brunswig | Allegiance Corp. | — |
| 2001-03-16 | Bergen Brunswig | Amerisource Health | — |
| 2010-11-18 | Kinray | Cardinal Health | — |
| 2000-12-04 | Bindley Western | Cardinal Health | — |
| 1998-10-09 | Allegiance Corp. | Cardinal Health | — |
| 2000-06-22 | PSS World Medical | Fisher Scientific | — |
| 2010-10-14 | Provet Holdings | Henry Schein | — |
| 2009-11-20 | Butler Animal Health Supply | Henry Schein | — |
| 1998-12-29 | General Injectables | Henry Schein | — |
| 2007-05-02 | VWR | Madison Dearborn Capital | — |
| 2012-01-30 | Drug Trading (Katz Group) | McKesson | — |
| 2010-11-01 | US Oncology | McKesson | — |
| 2008-04-08 | McQueary Bros. Drug Co. | McKesson | — |
| 1998-09-30 | Red Line Health Care Unit | McKesson | — |
| 2007-08-27 | Polymedica | MedCo Health | — |
| 2008-02-19 | Byram Healthcare | OPG Groep | — |
| 2006-05-08 | Fisher Scientific | Thermo Electron | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 7.4x | 12.6x | 16.9x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Premia Analysis | $29.00 represented premia of 33.7% to the 10/22/2012 close of $21.69, 27.5% to one-month average $22.75, 32.2% to three-month average $21.93, 34.3% to six-month average $21.59, 28.4% to nine-month average $22.59, 27.4% to one-year average $22.77, 12.1% to 52-week high close $25.86 and 54.7% to 52-week low close $18.75. | — |
| Illustrative Present Value of Future Share Price Analysis | Applied NTM P/E multiples of 13.0x-17.0x to estimated CY2013-2016 EPS of $1.29, $1.77, $2.13 and $2.45 per the Forecasts, discounted to December 31, 2012 at an 8.6% cost of equity. | $16.78–$32.52 |
Transaction fee of approximately $14 million, all contingent upon consummation of the merger, under engagement letter dated October 10, 2012. Goldman Sachs received approximately $7.2 million from McKesson in the prior two years and expects a gain of approximately $38.8 million on the Call Spread Transactions as a result of the merger.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $2.5B | $2.7B | $2.9B | $3.1B | 8.0% |
| Revenue growth | 8.5% | 10.8% | 7.1% | 6.1% | |
| EBITDA | $204M | $226M | $246M | $266M | 9.2% |
| EBITDA growth | 13.3% | 10.8% | 8.8% | 8.1% | |
| EBITDA margin | 8% | 8% | 8% | 9% | |
| Implied EV / EBITDA | 9.3x | 8.4x | 7.7x | 7.1x |
Year-1 growth is against LTM at announcement ($2.3B revenue, $180M EBITDA); later years are year over year.
Management prepared non-public forecasts of revenue, gross profit, EBITDA, EBIT and EPS for fiscal years 2013-2017. A first case (given to McKesson and Company A) assumed retention of the Gulf South SNF business and divestiture of specialty dental, with revenue growing from $2,262M (FY2013E) to $3,089M (FY2017E) and EBITDA from $180M to $266M (EPS $1.40 to $2.62). A second case, used by the financial advisors for their opinions and not shared with bidders, assumed sale of both the Gulf South SNF and specialty dental businesses with capital redeployment into acquisitions: revenue of $1,768M (FY2013E) rising to $2,876M (FY2017E), EBITDA of $145M rising to $250M, and EPS of $1.00 rising to $2.53; key assumptions included $431M of acquisition spend, $487M of acquired revenue, ~$370M of share repurchases and a 35.5% tax rate.
Process notes
Other Distribution and Equipment Services fairness opinions
- Universal Hospital Services / Federal Street Acquisition 2018 · 11.9x EV/EBITDA
- Covetrus / Clayton, Dubilier & Rice 2022 · 14.0x EV/EBITDA
- Apria / Owens & Minor 2022 · 12.0x EV/EBITDA
- Patterson Companies / Patient Square Capital 2024 · 12.0x EV/EBITDA
- Agiliti / Thomas H. Lee Partners 2024 · 9.4x EV/EBITDA
- Quipt Home Medical / Kingswood Capital Management / Forager Capital Management 2025 · 4.7x EV/EBITDA
All Distribution and Equipment Services opinions → · Credit Suisse opinions · Goldman Sachs opinions