Psychiatric Solutions acquired by Universal Health Services: fairness opinion by Goldman Sachs
Deal terms
Implied value per share by method vs. $33.75 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Goldman Sachs to the special committee
Discounted cash flow assumptions
Stock based compensation treated as a cash expense in deriving unlevered free cash flow.
Selected public companies (9)
Community Health Systems, Inc. · Health Management Associates, Inc. · LifePoint Hospitals, Inc. · Tenet Healthcare Corporation · Universal Health Services, Inc. · AmSurg Corp. · DaVita Inc. · HealthSouth Corporation · Select Medical Holdings Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA - Acute Care Hospitals | 6.5x | 6.9x | 7.7x | — | — |
| EV / 2010E EBITDA - Acute Care Hospitals | 6.5x | 7.0x | 7.5x | — | — |
| EV / 2011E EBITDA - Acute Care Hospitals | 6.2x | 6.7x | 7.2x | — | — |
| P / 2010E EPS - Acute Care Hospitals | 12.8x | 15.0x | 18.1x | — | — |
| P / 2011E EPS - Acute Care Hospitals | 11.9x | 13.6x | 20.0x | — | — |
| P / 2012E EPS - Acute Care Hospitals | 11.1x | 12.3x | 17.8x | — | — |
| 2011 P/E to 5-Year EPS CAGR - Acute Care Hospitals | 0.9x | 1.4x | 2.0x | — | — |
| EV / LTM EBITDA - Other Alternative Site/Post-Acute Facilities | 7.8x | 8.6x | 10.8x | — | — |
| EV / 2010E EBITDA - Other Alternative Site/Post-Acute Facilities | 7.4x | 7.8x | 9.4x | — | — |
| EV / 2011E EBITDA - Other Alternative Site/Post-Acute Facilities | 6.6x | 7.4x | 8.8x | — | — |
| P / 2010E EPS - Other Alternative Site/Post-Acute Facilities | 12.0x | 13.1x | 14.3x | — | — |
| P / 2011E EPS - Other Alternative Site/Post-Acute Facilities | 10.6x | 11.7x | 13.5x | — | — |
| P / 2012E EPS - Other Alternative Site/Post-Acute Facilities | 9.4x | 9.6x | 11.3x | — | — |
| 2011 P/E to 5-Year EPS CAGR - Other Alternative Site/Post-Acute Facilities | 0.7x | 1.1x | 1.4x | — | — |
Selected precedent transactions (13)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2007-04 | Symbion, Inc. | Crestview Partners, L.P. | 8.3x EV / LTM EBITDA |
| 2007-03 | HealthSouth Corporation (Surgery) | TPG Partners V, L.P. | 9.7x EV / LTM EBITDA |
| 2007-03 | Triad Hospitals, Inc. | Community Health Systems, Inc. | 10.6x EV / LTM EBITDA |
| 2007-01 | United Surgical Partners International, Inc. | Welsh, Carson, Anderson & Stowe X, L.P. | 10.8x EV / LTM EBITDA |
| 2006-12 | Horizon Health Corporation | Psychiatric Solutions, Inc. | 12.7x EV / LTM EBITDA |
| 2006-07 | HCA Inc. | Private Investment Funds affiliated with Bain Capital Partners, LLC, Kohlberg Kravis Roberts & Co. L.P. and Merrill Lynch Global Private Equity | 8.6x EV / LTM EBITDA |
| 2006-03 | National Mentor Holdings, Inc. | Vestar Capital Partners V, L.P. | 9.6x EV / LTM EBITDA |
| 2005-10 | CRC Health Corporation | Bain Capital Partners, LLC | 12.2x EV / LTM EBITDA |
| 2005-03 | Ardent Health Services LLC (Behavioral) | Psychiatric Solutions, Inc. | 12.8x EV / LTM EBITDA |
| 2004-12 | Gambro Healthcare, Inc. | DaVita Inc. | 8.4x EV / LTM EBITDA |
| 2004-08 | Province Healthcare Company | LifePoint Hospitals, Inc. | 12.6x EV / LTM EBITDA |
| 2004-07 | Vanguard Health Systems, Inc. | The Blackstone Group | 11.2x EV / LTM EBITDA |
| 2004-05 | IASIS Healthcare Corporation | Texas Pacific Group and JLL Partners | 9.2x EV / LTM EBITDA |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA | 8.3x | 10.6x | 12.8x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Analysis of Implied Premia and Multiples | $33.75 represented a 41.2% premium to the $23.91 undisturbed closing price (March 9, 2010) and a 3.4% premium to the $32.63 closing price on May 14, 2010. Implied multiples at $33.75 (management forecasts, adjusted for the special committee's capital structure assumptions): 9.8x LTM EBITDA, 9.4x 2010E EBITDA, 8.9x 2011E EBITDA, 14.7x 2010E EPS, 12.8x 2011E EPS; compared to medians for Acute Care Hospitals (6.9x/7.0x/6.7x LTM/2010E/2011E EBITDA) and Other Alternative Site/Post-Acute Facilities (8.6x/7.8x/7.4x). | — |
| Illustrative Present Value of Future Share Prices | Derived theoretical future share prices for 2010-2015 by applying forward P/E multiples of 9.0x and 13.0x to EPS estimates (management forecasts adjusted for the special committee's capital structure assumptions), discounted at 10.5% and 12.0% (cost of equity via CAPM). | $19.48–$31.42 |
Fee of approximately $20 million for services in connection with the transaction, $3.25 million of which became due prior to consummation of the transaction; engagement letter dated March 8, 2010.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $2.0B | $2.1B | $2.2B | $2.3B | $2.4B | 4.7% |
| Revenue growth | 4.6% | 4.5% | 4.5% | 4.6% | 5.0% | |
| EBITDA | $372M | $394M | $416M | $440M | $476M | 6.4% |
| EBITDA growth | 6.0% | 5.9% | 5.6% | 5.8% | 8.2% | |
| EBITDA margin | 19% | 19% | 19% | 19% | 20% | |
| Implied EV / EBITDA | 8.2x | 7.7x | 7.3x | 6.9x | 6.4x |
Year-1 growth is against LTM at announcement ($1.9B revenue, $351M EBITDA); later years are year over year.
At the special committee's request, management prepared a five-year business plan (2010E-2015E): net revenues of $1,896 million in 2010E rising to $2,381 million in 2015E (4.7% CAGR); Adjusted EBITDA of $351 million in 2010E to $476 million in 2015E (6.3% CAGR); EBITDA of $332 million to $453 million; diluted EPS of $2.25 to $3.41. Goldman Sachs used these forecasts together with the special committee's capital structure assumptions (an increase in total indebtedness of ~$500 million and repurchase of ~30% of outstanding shares), which produced adjusted diluted EPS for 2010E-2015E of $2.29, $2.63, $2.86, $3.09, $3.41 and $3.98. Unlevered free cash flow was derived from EBITDA less taxes, plus a $4-5 million annual increase in deferred tax liability, less capex of $95 million (2010) to $119 million (2015) and less an $8-11 million annual increase in net working capital.
Process notes
Other Behavioral Health fairness opinions
- ResCare / Onex 2010 · 5.3x EV/EBITDA
- Civitas Solutions / Centerbridge Partners 2018 · 8.1x EV/EBITDA