Quintiles acquired by IMS Health: fairness opinion by Barclays
Deal terms
Each share of IMS Health common stock converts into the right to receive 0.3840 of a share of Surviving Corporation (Quintiles, renamed) common stock; cash in lieu of fractional shares based on five-day VWAP of Quintiles common stock. IMS Health stockholders expected to own approximately 51.5% and Quintiles shareholders approximately 48.5% of the combined company.
Opinion of Barclays to the acquirer board
Discounted cash flow assumptions
Separate DCFs for Quintiles and IMS Health; terminal value as of December 31, 2020; net debt as of December 31, 2015 subtracted. Resulting implied exchange ratio range 0.266x - 0.394x versus merger exchange ratio of 0.3840x.
Selected public companies (12)
INC Research Holdings, Inc. · PRA Health Sciences, Inc. · IMS Health · PAREXEL International Corporation · ICON plc · Gartner, Inc. · Inovalon Holdings, Inc. · Verisk Analytics, Inc. · FactSet Research Systems Inc. · Experian plc · The Advisory Board Company · Nielsen Holdings plc
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Quintiles: Firm Value / 2016E EBITDA | — | — | — | 10.0x–14.0x | — |
| Quintiles: Firm Value / 2017E EBITDA | — | — | — | 9.0x–12.0x | — |
| Quintiles: Share Price / 2016E EPS | — | — | — | 16.0x–20.0x | — |
| Quintiles: Share Price / 2017E EPS | — | — | — | 14.0x–17.0x | — |
| IMS Health: Firm Value / 2016E EBITDA | — | — | — | 12.0x–16.0x | — |
| IMS Health: Firm Value / 2017E EBITDA | — | — | — | 11.0x–15.0x | — |
| IMS Health: Share Price / 2016E EPS | — | — | — | 18.0x–23.0x | — |
| IMS Health: Share Price / 2017E EPS | — | — | — | 16.0x–21.0x | — |
| Implied exchange ratio range from Firm Value/EBITDA analysis (vs. 0.3840x) | — | — | — | 0.3x–0.6x | — |
| Implied exchange ratio range from Share Price P/E analysis (vs. 0.3840x) | — | — | — | 0.3x–0.6x | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Share Price Analysis | Reviewed daily average share prices and VWAPs of Quintiles and IMS Health common stock for 1-year, 180-, 90-, 30-, 20- and 10-trading-day periods ended May 2, 2016 and derived historical exchange ratios: May 2, 2016 0.389x daily/0.383x VWAP; 10-day 0.383x/0.384x; 20-day 0.380x/0.380x; 30-day 0.386x/0.386x; 90-day 0.388x/0.388x; 180-day 0.400x/0.402x; LTM 0.407x/0.407x. 52-week implied exchange ratio range 0.364x - 0.469x versus merger ratio of 0.3840x. | — |
| Equity Research Price Targets Analysis | Used publicly available research analyst price targets for Quintiles and IMS Health to derive an implied exchange ratio range of 0.284x - 0.552x versus merger ratio of 0.3840x. | — |
| Contribution Analysis | Relative contributions to the Surviving Corporation based on I/B/E/S consensus estimates implied exchange ratios of 0.342x (2016E EBITDA), 0.336x (2017E EBITDA), 0.380x (2016E net income) and 0.387x (2017E net income), a range of 0.336x - 0.387x versus merger ratio of 0.3840x. | — |
Quintiles paid Barclays $5 million upon delivery of its opinion; additional $15 million payable on completion of the merger. An affiliate of Barclays entered into a Commitment Letter after announcement to provide a portion of the committed financing for refinancing Quintiles' existing debt. In past two years Barclays received approximately $10 million in fees from Quintiles, $5.9 million from IMS Health and $37.7 million from TPG Capital Management and affiliates.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $5.0B | $5.4B | $5.8B | $6.2B | $6.7B | 7.5% |
| Revenue growth | 7.5% | 7.5% | 7.5% | 7.5% | 7.5% | |
| EBITDA | $1.0B | $1.1B | $1.2B | $1.4B | $1.5B | 9.8% |
| EBITDA growth | 10.0% | 9.9% | 9.9% | 9.7% | 9.6% | |
| EBITDA margin | 21% | 21% | 22% | 22% | 22% | |
| Implied EV / EBITDA | 9.8x | 8.9x | 8.1x | 7.4x | 6.8x |
Year-1 growth is against LTM at announcement ($4.7B revenue, $940M EBITDA); later years are year over year.
Stand-alone, pre-transaction unaudited forecasts for fiscal years 2016E-2021E were prepared for each company. IMS Health 2016-2021 forecasts (based on/extrapolated from I/B/E/S consensus) show revenue of $3,217M in 2016E rising to $4,270M in 2021E, adjusted EBITDA of $974M rising to $1,373M, and adjusted diluted EPS of $1.60 rising to $2.66 (the version given to Quintiles/Barclays showed $1.60 to $2.71). Quintiles 2016-2021 forecasts show revenue of $4,651M in 2016E rising to $6,684M in 2021E, adjusted EBITDA of $940M rising to $1,501M (Barclays-calculated $959M to $1,529M), and adjusted diluted EPS of $4.28 rising to $7.85. Estimated Synergies jointly prepared included 100-200 bps of incremental revenue growth (over $400M incremental revenue in year four), $100M annual run-rate cost savings by end of year three, and approximately $35M of annual cash tax savings through 2020 from IMS Health tax assets.
Process notes
Other Pharmaceutical Services fairness opinions
- IMS Health / Quintiles 2016 · 13.5x EV/EBITDA
- Albany Molecular Research / Carlyle Group / GTCR 2017 · 11.5x EV/EBITDA
- Parexel International / Pamplona Capital Management 2017 · 13.9x EV/EBITDA
- Patheon NV / Thermo Fisher Scientific 2017 · 16.4x EV/EBITDA
- Juniper Pharmaceuticals / Catalent 2018 · 9.9x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA