ReSearch Pharmaceutical Services acquired by Warburg Pincus: fairness opinion by Jefferies
Announced December 27, 2010 · Going-private · All cash ·
DEFM14C filed January 25, 2011
Enterprise value
$227M
equity $245M
EV / LTM EBITDA
12.4x
EBITDA $18.3M · 7% margin
EV / LTM revenue
0.89x
revenue $255M
DCF discount rate
12.0%–13.0%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$6.10
Premium—
Premium basis—
StructureGoing-private
Termination fee$10.0M (3.8% of equity)
Reverse termination fee$40.0M
Go-shop36 days
Outside date—
FilingDEFM14C · EDGAR index
Implied value per share by method vs. $6.10 offer
Selected companies — Enterprise Value / 2010E Adjusted EBITDA $3.85 – $4.38
Selected companies — Enterprise Value / 2011E Adjusted EBITDA $5.72 – $6.59
Selected companies — Price / 2010E Adjusted EPS $2.41 – $2.68
Selected companies — Price / 2011P Adjusted EPS $5.92 – $6.76
Precedent transactions — EV / LTM Adjusted EBITDA $4.62 – $5.53
Discounted cash flow $7.77 – $14.90
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Jefferies to the target board
Delivered December 27, 2010 · Fee $3.3M
Discounted cash flow assumptions
Discount rate12.0%–13.0%
BasisWACC
Terminal valueExit multiple
Perpetuity growth—
Exit multiple7.0x–8.0x EBITDA (terminal multiple)
Projection periodthrough fiscal year ending 2015-12-31
Projections usedTwo sets of Company management forecasts: Case 1 (based on Company's historic performance) and Case 2 (more closely aligned with Company's perception of general industry trends)
Implied value per share$7.77–$14.90
Case 1 implied $12.75-$14.90 per share; Case 2 implied $7.77-$9.10 per share.
Selected public companies (4)
ICON Clinical Research, Inc. · Kendle International Inc. · PAREXEL International Corporation · Pharmaceutical Product Development, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Enterprise Value / 2010E Adjusted EBITDA | 8.5x | 8.9x | 11.2x | 8.0x–9.0x | $3.85–$4.38 |
| Enterprise Value / 2011E Adjusted EBITDA | 7.4x | 7.7x | 8.5x | 7.0x–8.0x | $5.72–$6.59 |
| Price / 2010E Adjusted EPS | 15.4x | 21.6x | 26.6x | 18.0x–20.0x | $2.41–$2.68 |
| Price / 2011P Adjusted EPS | 14.5x | 16.5x | 18.7x | 14.0x–16.0x | $5.92–$6.76 |
Selected precedent transactions (9)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-08 | United Biosource Corporation | Medco Health Solutions, Inc. | — |
| 2009-07 | Life Science Research, Inc. | Lion Holdings, Inc. | — |
| 2009-02 | PharmaNet Development Group, Inc. | JLL Partners | — |
| 2008-06 | ClinPhone plc | PAREXEL International Corporation | — |
| 2008-01 | AppTec Laboratory Services, Inc. | WuXi PharmaTech (Cayman) Inc. | — |
| 2007-07 | PRA International | Genstar Capital, LLC | — |
| 2007-07 | WIL Research Holding Company, Inc. | American Capital | — |
| 2007-06 | APEX International Clinical Research Co., LTD | PAREXEL International Corporation | — |
| 2006-05 | Charles River Laboratories International, Inc. (Phase II-IV Clinical Services operations) | Kendle International, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Adjusted EBITDA | 4.3x | 12.6x | 17.4x | 11.0x–13.0x | $4.62–$5.53 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Transaction Overview | Based on approximately 40.1 million shares outstanding as of December 23, 2010 (assuming vesting of in-the-money options), the $6.10 per share Merger Consideration implied an equity value of approximately $244.9 million; net debt as of September 30, 2010 of approximately $14.6 million and estimated transaction fees and expenses of approximately $5.3 million were noted. | — |
Aggregate fee of approximately $3,266,900 under September 23, 2010 engagement letter; a portion payable upon delivery of the opinion and a significant portion contingent upon consummation of the Merger. Expense reimbursement and indemnification also provided.
3,000+ healthcare deal-level valuation multiples
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Management projections
Jefferies used two sets of management forecasts of unlevered free cash flow through the fiscal year ending December 31, 2015: Case 1, based on the Company's historic revenue growth and EBITDA margins, and Case 2, more closely aligned with management's perception of general industry trends. The comparable company analysis also used management-provided 2010E and 2011E Adjusted EBITDA and Adjusted EPS estimates. No specific revenue or EBITDA dollar figures were disclosed in the filing.
Process notes
Written-consent transaction: Principal Stockholders holding ~56.8% of Common Stock adopted the Merger Agreement by written consent after signing, so no stockholder vote was sought (DEFM14C information statement). A Transaction Committee of non-management directors formed November 24, 2010 (advised by Latham & Watkins) evaluated alternatives and recommended the deal; the Board approved on December 24, 2010. Jefferies delivered an oral opinion on December 24, 2010, confirmed in writing December 27, 2010. Merger not conditioned on financing; Warburg Pincus Private Equity X (WPX) provided an equity commitment letter of up to $239 million and a guarantee capped at $242 million. Total funds needed estimated at ~$244 million. Post-signing window to respond to a superior proposal ran until January 31, 2011 (36 days); termination fee of $10 million equal to approximately 3.77% of transaction value.
Other Pharmaceutical Services fairness opinions
- inVentiv Health / Thomas H. Lee Partners 2010 · 7.3x EV/EBITDA
- Pharmaceutical Product Development / Hellman & Friedman and The Carlyle Group 2011 · 11.4x EV/EBITDA
- Kendle International / INC Research Holdings 2011 · 9.9x EV/EBITDA
- eResearch Technology / Genstar Capital 2012 · 7.7x EV/EBITDA
- Patheon / JLL Partners 2013 · 12.7x EV/EBITDA
- Covance / Laboratory Corporation of America 2014 · 12.6x EV/EBITDA