ResCare acquired by Onex: fairness opinion by Goldman Sachs
Deal terms
Implied value per share by method vs. $13.25 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
Free cash flows for the fourth quarter of fiscal 2010 and fiscal years 2011-2015; terminal value in 2015 assuming no acquisitions or acquisition costs in terminal year calculations.
Selected public companies (6)
Almost Family, Inc. · Amedisys, Inc. · LHC Group, Inc. · Magellan Health Services, Inc. · Providence Service Corporation · Rehabcare Group, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2010E EBITDA | 3.2x | 4.6x | 5.2x | — | — |
| P / CY2010E EPS | 5.6x | 7.8x | 12.4x | — | — |
| P / CY2011E EPS | 6.0x | 8.5x | 12.7x | — | — |
| Res-Care at Undisturbed Price: EV / CY2010E EBITDA | 4.8x | 4.8x | 4.8x | — | — |
| Res-Care at Offer Price: EV / CY2010E EBITDA | 5.8x | 5.8x | 5.8x | — | — |
| Res-Care at Undisturbed Price: P / 2010E EPS | 9.1x | 9.1x | 9.1x | — | — |
| Res-Care at Offer Price: P / 2010E EPS | 11.9x | 11.9x | 11.9x | — | — |
| Res-Care at Undisturbed Price: P / 2011E EPS | 8.5x | 8.5x | 8.5x | — | — |
| Res-Care at Offer Price: P / 2011E EPS | 11.0x | 11.0x | 11.0x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | $13.25 represented a 30.7% premium to the August 13, 2010 closing price (last trading day before public announcement of Onex's proposal), a 35.9% premium to the one-month average closing price ended August 13, 2010, a 3.0% premium to the highest closing price during the six-month period ended August 13, 2010, and a 13.5% discount to the highest closing price during the 52-week period ended August 13, 2010. | — |
| Illustrative Present Value of Future Share Price | Applied forward 2011 P/E multiples of 7.0x-10.0x to forward earnings Forecasts for fiscal years 2011-2015 to derive future values for years 2010-2014, discounted back to August 13, 2010 at a 10.0% cost of equity (CAPM). Implied present values: 2010 $8.76-$12.51; 2011 $8.40-$12.01; 2012 $8.43-$12.05; 2013 $8.39-$11.99; 2014 $8.19-$11.71. | $8.19–$12.51 |
| Illustrative Leveraged Buyout Analysis - Purchaser | Assumed purchase prices of $13.25-$15.00 per share, 3.5x gross leverage, amendment to current credit facility, 7.75% Senior Notes remaining outstanding, and an additional $189.5 million term loan at LIBOR+450bps with a 175bps LIBOR floor; LTM EBITDA exit multiples of 5.5x-6.5x at end of fiscal 2015 produced IRRs to Purchaser of 7.7%-17.5%. | — |
| Illustrative Leveraged Buyout Analysis - Hypothetical Financial Buyer | Assumed purchase prices of $13.25-$15.00 per share, 4.0x gross leverage, retirement of the current credit facility and 7.75% Senior Notes, and financing of $261.8 million bank debt at 6.50% and $157.1 million senior notes at 10.00%; LTM EBITDA exit multiples of 5.5x-6.5x at end of fiscal 2015 produced IRRs of 6.5%-18.0%. | — |
Engagement letter dated March 8, 2010; transaction fee of approximately $5 million, approximately $3.25 million contingent upon consummation of the Transaction; expense reimbursement and indemnity.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $1.7B | $1.8B | $1.9B | $2.0B | $2.1B | 6.5% |
| Revenue growth | 4.2% | 6.6% | 6.8% | 6.5% | 6.2% | |
| EBITDA | $114M | $123M | $136M | $147M | $157M | 8.5% |
| EBITDA growth | 9.0% | 8.3% | 10.3% | 8.6% | 6.8% | |
| EBITDA margin | 7% | 7% | 7% | 7% | 7% | |
| Implied EV / EBITDA | 4.8x | 4.5x | 4.0x | 3.7x | 3.5x |
Year-1 growth is against LTM at announcement ($1.6B revenue, $104M EBITDA); later years are year over year.
Goldman Sachs used internal financial analyses and forecasts for the Company prepared by ResCare management and approved for Goldman Sachs' use by the Special Committee (the "Forecasts"), covering the fourth quarter of fiscal 2010 and fiscal years 2011 through 2015. The Forecasts supported the DCF, the present value of future share price analysis (forward earnings for 2011-2015) and both leveraged buyout analyses. Specific revenue and EBITDA figures were not disclosed in the sliced sections, other than implied CY2010E EBITDA and EPS multiples (5.8x EV/EBITDA, 11.9x 2010E P/E and 11.0x 2011E P/E at the offer price).
Process notes
Other Behavioral Health fairness opinions
- Psychiatric Solutions / Universal Health Services 2010 · 8.7x EV/EBITDA
- Civitas Solutions / Centerbridge Partners 2018 · 8.1x EV/EBITDA