Fairness opinions › Outsourced Services › 2024

R1 RCM acquired by TowerBrook and CD&R: fairness opinion by Barclays

Announced August 1, 2024 · Going-private · All cash · DEFM14A filed October 16, 2024

Outsourced Services Revenue Cycle Sponsor: TowerBrook Capital Partners L.P. and Clayton, Dubilier & Rice, LLC (CD&R)

Enterprise value

$8.9B

EV / LTM EBITDA

13.6x

EBITDA $655M · 25% margin

EV / LTM revenue

3.34x

revenue $2.7B

DCF discount rate

9.5%–11.0%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$14.30

Premium—

Premium basisundisturbed closing price on February 23, 2024 (last trading day prior to Amendment No. 3 to Schedule 13D filed by New Mountain)

StructureGoing-private

Termination fee$250M

Reverse termination fee$550M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $14.30 offer

Selected companies — EV / CY2024E Adjusted EBITDA $12.27 – $14.95

Selected companies — EV / CY2025E Adjusted EBITDA $13.42 – $16.54

Precedent transactions — EV / LTM EBITDA (applied to Normalized Adjusted EBITDA of ~$658mm for LTM ended 6/30/2024) $11.66 – $17.02

Discounted cash flow $9.93 – $16.24

Historical Share Price Analysis $9.11 – $18.49

Equity Research Price Targets Analysis $12.00 – $20.00

Transaction Premium Analysis - Cash-only Deals $13.72 – $17.03

Transaction Premium Analysis - Sponsor LBO Deals $13.31 – $16.41

Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.

Opinion of Barclays to the special committee

Delivered July 31, 2024 · Fee $38.0M, $7.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate9.5%–11.0%

Basisafter-tax discount rates based on an analysis of the weighted average cost of capital of the Company and comparable companies

Terminal valuePerpetuity growth

Perpetuity growth3.5%–4.5%

Exit multiple—

Projection period2H2024E-2030E (plus NOL tax savings 2025-2039)

Projections usedJuly 28 Projections; July 28 Unlevered Free Cash Flows (SBC as Cash Expense)

Implied value per share$9.93–$16.24

Subtracted estimated net debt of ~$2,130 million as of June 30, 2024; divided by 462.4-472.9 million fully diluted shares as of July 30, 2024 (share count dependent on share price). Included present value of projected tax savings from net operating losses for fiscal years 2025 through 2039.

Selected public companies (12)

HealthEquity, Inc. · Genpact Limited · ExlService Holdings, Inc. · Waystar Holding Corp. · Evolent Health, Inc. · WNS (Holdings) Limited · Progyny, Inc. · Premier, Inc. · Omnicell, Inc. · HealthStream, Inc. · Health Catalyst, Inc. · TruBridge, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2024E Adjusted EBITDA	5.9x	13.5x	17.4x	12.0x–14.0x	$12.27–$14.95
EV / CY2025E Adjusted EBITDA	6.1x	10.8x	14.7x	11.0x–13.0x	$13.42–$16.54

Selected precedent transactions (14)

Date	Target	Acquirer	Multiple
2023-09	NextGen Healthcare, Inc.	Thoma Bravo, L.P.	14.5x EV/LTM EBITDA
2022-06	Convey Health Solutions Holdings, Inc.	TPG Inc.	15.7x EV/LTM EBITDA
2022-03	Ensemble Health Partners	Berkshire Partners LLC / Warburg Pincus LLC / Bon Secours Mercy Health	18.7x EV/LTM EBITDA
2021-12	Cerner Corporation	Oracle Corporation	15.4x EV/LTM EBITDA
2021-10	TransUnion Healthcare, Inc.	nThrive, Inc.	20.3x EV/LTM EBITDA
2021-08	Inovalon Holdings, Inc.	Nordic Capital Epsilon SCA, SICAV-RAIF	29.0x EV/LTM EBITDA
2021-01	Change Healthcare Inc.	UnitedHealth Group Incorporated	14.1x EV/LTM EBITDA
2020-12	HMS Holdings Corp.	Gainwell Technologies LLC	21.1x EV/LTM EBITDA
2018-11	athenahealth, Inc.	Elliott Management Corporation / Veritas Capital Fund Management, L.L.C.	14.9x EV/LTM EBITDA
2018-06	Cotiviti Holdings, Inc.	Verscend Technologies, Inc.	17.9x EV/LTM EBITDA
2018-03	ABILITY Network Inc.	Inovalon Holdings, Inc.	16.6x EV/LTM EBITDA
2018-02	Intermedix Corporation	R1 RCM Inc.	9.6x EV/LTM EBITDA
2016-08	Press Ganey Holdings, Inc.	EQT Holdings AB	18.2x EV/LTM EBITDA
2015-11	MedAssets, Inc.	Pamplona Capital Management LLC	11.5x EV/LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA (applied to Normalized Adjusted EBITDA of ~$658mm for LTM ended 6/30/2024)	9.6x	16.2x	29.0x	11.5x–15.5x	$11.66–$17.02

Other analyses

Analysis	Summary	Implied per share
Historical Share Price Analysis	Closing price of Common Stock from February 24, 2023 to February 23, 2024 (last trading day prior to New Mountain's Amendment No. 3 to Schedule 13D) ranged from $9.11 to $18.49 per share. Reference only.	$9.11–$18.49
Equity Research Price Targets Analysis	Reviewed price targets from sixteen equity research firms; range as of February 26, 2024 was $12.00-$20.00 per share and as of July 30, 2024 was $14.00-$20.00 per share. Reference only.	$12.00–$20.00
Transaction Premium Analysis - Cash-only Deals	144 cash-only US deals over last 10 years with target EV of $5-15 billion; premiums to undisturbed price: 25th percentile 23.6%, mean 40.1%, median 32.1%, 75th percentile 53.4%. Applied 23.6%-53.4% to the undisturbed closing price on February 23, 2024.	$13.72–$17.03
Transaction Premium Analysis - Sponsor LBO Deals	57 cash-only deals with financial sponsor acquirers; premiums: 25th percentile 19.9%, mean 34.3%, median 27.1%, 75th percentile 47.9%. Applied 19.9%-47.9% to the undisturbed closing price on February 23, 2024.	$13.31–$16.41

$250,000 retainer fee payable on execution of engagement letter (March 28, 2024) and $7.5 million opinion fee payable on delivery of the opinion (not contingent on the conclusion of the opinion or consummation). Remaining compensation payable on completion of the transaction, against which the retainer and opinion fees are credited; total compensation approximately $38 million as of the opinion date. From January 1, 2021 to the opinion date Barclays received approximately $17.0 million in investment banking fees from the Company, $55.7 million from CD&R and affiliates, $22.1 million from TowerBrook and affiliates and $11.7 million from Ascension and affiliates.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$2.9B	$3.1B	$3.4B	$3.7B	$4.0B	8.0%
Revenue growth	9.3%	7.2%	8.6%	8.4%	7.8%
EBITDA	$766M	$874M	$1.0B	$1.1B	$1.3B	14.2%
EBITDA growth	16.9%	14.1%	14.5%	10.8%	17.3%
EBITDA margin	26%	28%	30%	30%	33%
Implied EV / EBITDA	11.6x	10.2x	8.9x	8.0x	6.8x

Year-1 growth is against LTM at announcement ($2.7B revenue, $655M EBITDA); later years are year over year.

Management prepared several sets of standalone projections for FY2024-FY2030: the April 5 Projections (with May 16 Unlevered Free Cash Flows), the July 16 Projections and the July 28 Projections. The July 28 Projections, which reflect the impact of the Ascension Health data breach, show total revenue of $2,564 million in 2024E growing to $4,261 million in 2030E and Adjusted EBITDA of $570 million in 2024E growing to $1,301 million in 2030E, with Normalized Adjusted EBITDA (excluding the Ascension breach impact) of $655 million in 2024E to $1,301 million in 2030E. The Special Committee directed Qatalyst Partners and Barclays to use the July 28 Projections; Barclays used the July 28 Unlevered Free Cash Flows (SBC as Cash Expense) ($94mm in Q3-Q4 2024E to $611mm in 2030E) while Qatalyst used the SBC Unburdened version ($135mm to $737mm). December 2023 Projections (R1/Acclara consolidated, 2024E-2028E) were not used for valuation.

Process notes

Going-private transaction by TowerBrook (existing ~ holder with Ascension via TA) and CD&R; a Special Committee of independent directors ran the process with Skadden as counsel and retained two financial advisors, Qatalyst Partners LP and Barclays Capital Inc., both of which delivered fairness opinions to the Special Committee on July 31, 2024 (only the Barclays opinion section was provided in these excerpts; Qatalyst's opinion is described at page 59 of the proxy). New Mountain Capital was a competing/interested bidder during the process (represented by Ropes & Gray; TowerBrook/Parent by Wachtell). TA (which beneficially owned ~29.44% of outstanding shares) signed a Voting Agreement supporting the merger and may roll over shares. The merger agreement includes a two-tier termination fee: $250 million generally, reduced to $71,143,709 for a Superior Proposal from a 'Qualified Bidder' terminated prior to the Window Period End Time (11:59 p.m. ET September 14, 2024). Reverse termination fee of $550 million is guaranteed by the Guarantors under a Limited Guarantee. Transaction is subject to Schedule 13E-3. Barclays held a net long position of less than 1% of the Company's stock as of July 19, 2024 and has extensive prior banking relationships with CD&R, TowerBrook and Ascension. Joseph Flanagan expected to become CEO of the Surviving Corporation.

Other Outsourced Services fairness opinions

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Cross Country Healthcare / Aya Healthcare 2024 · 12.1x EV/EBITDA
Premier / Patient Square Capital 2025 · 10.9x EV/EBITDA
ProAssurance / The Doctors 2025 · 12.4x EV/EBITDA
Cross Country Healthcare / Knox Lane 2026 · 16.3x EV/EBITDA
Sharps Compliance / Aurora Capital Partners 2022 · 25.2x EV/EBITDA

All Outsourced Services opinions → · Barclays opinions