Rural/Metro acquired by Warburg Pincus: fairness opinion by RBC Capital Markets and Moelis & Company
Announced March 28, 2011 · Going-private · All cash ·
DEFM14A filed May 26, 2011
Medical Transportation Ambulance: Ground
Enterprise value
$658M
equity $450M
EV / LTM EBITDA
8.6x
EBITDA $76.8M · 14% margin
EV / LTM revenue
1.20x
revenue $548M
DCF discount rate
11.5%–12.5%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$17.25
Premium37.5%
Premium basisclosing price of $12.55 on March 25, 2011
StructureGoing-private
Termination fee$16.9M
Reverse termination fee$33.8M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $17.25 offer
Precedent transactions — EV / LTM Adjusted EBITDA (precedent set) (RBC Capital Markets) $8.19 – $16.71
Precedent transactions — EV / CY2010 Adjusted EBITDA (Consensus) (RBC Capital Markets) $8.19 – $16.71
Precedent transactions — EV / CY2010 Adjusted EBITDA (Management) (RBC Capital Markets) $11.54 – $21.76
Discounted cash flow (RBC Capital Markets) $16.28 – $21.07
Selected companies — TEV / LTM Pro Forma Adjusted EBITDA (all selected companies) (Moelis & Company) $13.60 – $16.74
Selected companies — TEV / CY2011E Pro Forma Adjusted EBITDA (all selected companies) (Moelis & Company) $13.60 – $16.97
Precedent transactions — TEV / LTM Pro Forma Adjusted EBITDA (all selected transactions) (Moelis & Company) $15.17 – $18.31
Discounted cash flow (Moelis & Company) $15.67 – $21.19
52-Week Trading Range (Moelis & Company) $5.93 – $15.85
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of RBC Capital Markets to the target board
Delivered March 27, 2011 · Fee $4.5M ($4.5M contingent on closing), $0.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate11.5%–12.5%
BasisWACC calculated using long-term cost of debt and CAPM-derived cost of equity, assuming 36% debt to total capitalization and 39% tax rate; levered beta based on mean unlevered betas of Air Methods, PHI, Inc. and Providence Service Corporation
Terminal valueExit multiple
Perpetuity growth—
Exit multiple7.0x–8.0x terminal EBITDA multiple
Projection periodFY2011-FY2016 (through fiscal year ending June 30, 2016)
Projections usedCompany management projections (standalone)
Implied value per share$16.28–$21.07
Discounted to March 31, 2011
Selected public companies (1)
Air Methods Corporation
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| TEV / CY2010 Adjusted EBITDA (Air Methods) | — | 8.4x | — | — | — |
| TEV / CY2011E Adjusted EBITDA (Air Methods) | — | 7.5x | — | — | — |
| P / CY2011E EPS (Air Methods) | — | 16.6x | — | — | — |
Selected precedent transactions (3)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-02-14 | Emergency Medical Services Corp. | Clayton, Dubilier & Rice | — |
| 2010-08-25 | Air Medical Group Holdings | Bain Capital | — |
| 2004-12-06 | American Medical Response Inc. | Onex Partners | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM Adjusted EBITDA (precedent set) | 6.3x | 9.4x | 9.5x | 6.3x–9.5x | $8.19–$16.71 |
| EV / CY2010 Adjusted EBITDA (Consensus) | 6.3x | 9.4x | 9.5x | 6.3x–9.5x | $8.19–$16.71 |
| EV / CY2010 Adjusted EBITDA (Management) | 6.3x | 9.4x | 9.5x | 6.3x–9.5x | $11.54–$21.76 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Transaction premiums review (VWAP analysis) | $17.25 represented premiums of 37.5% to the 3/25/2011 closing price of $12.55; 38.0% to 1-week VWAP ($12.50); 27.8% to 1-month VWAP ($13.50); 22.1% to 3-month VWAP ($14.13); 38.7% to 6-month VWAP ($12.44); 76.5% to 1-year VWAP ($9.77); 123.7% to 2-year VWAP ($7.71); 165.9% to 5-year VWAP ($6.49); 202.8% to 10-year VWAP ($5.70); and 9.9% over the 52-week high closing price of $15.69. | — |
| Other Factors - trading multiple comparison to Air Methods | Compared Rural/Metro trading and implied transaction multiples to Air Methods: Air Methods at 8.4x CY2010 Adj. EBITDA, 7.5x CY2011E Adj. EBITDA and 16.6x CY2011E P/E; Rural/Metro at closing price 6.5x/6.1x/11.3x (management case) and 7.9x/6.8x/13.8x (consensus); at merger consideration 8.1x/7.5x/15.6x (management) and 9.7x/8.4x/19.0x (consensus). | — |
RBC earned $500,000 for rendering its opinion, payable on delivery regardless of consummation; plus a fee based on a percentage of aggregate consideration estimated at approximately $4.5 million contingent on closing, against which the opinion fee is credited.
Opinion of Moelis & Company to the target board
Delivered March 27, 2011 · Fee $3.0M ($3.0M contingent on closing), $0.5M on delivery of the opinion
Discounted cash flow assumptions
Discount rate10.5%–11.5%
BasisWACC using estimated long-term cost of debt and CAPM-derived cost of equity, assuming 40% debt to total capitalization and 39% tax rate; levered beta based on median unlevered betas of selected public companies
Terminal valueExit multiple
Perpetuity growth3.7%–5.6%
Exit multiple7.0x–8.0x terminal EBITDA multiple
Projection periodQ4 FY2011-FY2016
Projections usedCompany management projections, with and without future acquisitions, and including/excluding NOLs
Implied value per share$15.67–$21.19
Low end excludes acquisitions and NOLs; high end includes acquisitions and NOLs. Implied perpetuity growth rates 3.7%-5.5% (excluding acquisitions) and 3.9%-5.6% (including acquisitions). Discounted to March 31, 2011 using mid-year convention and 39% tax rate.
Selected public companies (7)
Air Methods Corporation · The Providence Service Corporation · HCA Holdings, Inc. · Universal Health Services, Inc. · Community Health Systems, Inc. · Health Management Associates, Inc. · LifePoint Hospitals, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| TEV / LTM EBITDA - Emergency Transport/Logistics Providers | — | 6.4x | — | — | — |
| TEV / CY2011E EBITDA - Emergency Transport/Logistics Providers | — | 6.4x | — | — | — |
| P / CY2011E EPS - Emergency Transport/Logistics Providers | — | 12.5x | — | — | — |
| TEV / LTM EBITDA - Acute Care Providers | — | 7.3x | — | — | — |
| TEV / CY2011E EBITDA - Acute Care Providers | — | 6.7x | — | — | — |
| P / CY2011E EPS - Acute Care Providers | — | 12.7x | — | — | — |
| TEV / LTM Pro Forma Adjusted EBITDA (all selected companies) | — | 7.3x | — | 7.0x–8.0x | $13.60–$16.74 |
| TEV / CY2011E Pro Forma Adjusted EBITDA (all selected companies) | — | 6.7x | — | 6.5x–7.5x | $13.60–$16.97 |
| P / CY2011E EPS (all selected companies) | — | 12.7x | — | — | — |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-02 | Emergency Medical Services Corporation | Clayton, Dubilier & Rice, LLC | — |
| 2010-12 | Falck A/S | Lundbeckfond Invest A/S | — |
| 2010-08 | Air Medical Group Holdings, Inc | Bain Capital Partners, LLC | — |
| 2004-12 | American Medical Response, Inc. | Onex Corporation | — |
| 2004-11 | Falck A/S | Nordic Capital | — |
| 2011-02 | RehabCare Group, Inc. | Kindred Healthcare, Inc. | — |
| 2010-11 | Tenet Healthcare Corporation | Community Health Systems, Inc. | — |
| 2010-09 | Res-Care, Inc. | Onex Corporation | — |
| 2010-08 | Prospect Medical Holdings, Inc. | Leonard Green & Partners, L.P. | — |
| 2010-05 | Psychiatric Solutions, Inc. | Universal Health Services, Inc. | — |
| 2007-03 | Triad Hospitals, Inc. | Community Health Systems, Inc. | — |
| 2006-07 | HCA Inc. | Kohlberg Kravis Roberts & Co. L.P.; Bain Capital Partners, LLC; Merrill Lynch Global Partners, Inc. | — |
| 2004-08 | Province Healthcare Company | LifePoint Hospitals, Inc. | — |
| 2004-07 | Vanguard Health Systems, Inc. | The Blackstone Group | — |
| 2004-05 | IASIS Healthcare Corporation | Texas Pacific Group | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| TEV / LTM EBITDA - Emergency Transport Services transactions | — | 8.4x | — | — | — |
| TEV / LTM EBITDA - Acute Care and Healthcare Provider Services transactions | — | 8.1x | — | — | — |
| TEV / LTM Pro Forma Adjusted EBITDA (all selected transactions) | — | 8.1x | — | 7.5x–8.5x | $15.17–$18.31 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Purchase Price Premium analysis | Reviewed premiums in all-cash acquisitions and going private transactions of U.S. public companies with transaction values of $500 million-$1.5 billion from January 1, 2006 through March 25, 2011. Median premiums: all-cash 25.6% (1 day), 26.3% (1 week), 30.1% (1 month); going private 17.7%, 19.2%, 22.6%. The merger implied 37.5%, 34.0% and 15.0%. | — |
| 52-Week Trading Range | Company common stock traded between $5.93 and $15.85 per share during the 52-week period ending March 25, 2011. | $5.93–$15.85 |
Moelis earned $500,000 for rendering its opinion, payable on delivery regardless of consummation; plus a fee based on a percentage of aggregate consideration estimated at approximately $3 million contingent on closing, against which the opinion fee is credited.
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $569M | $668M | $755M | $848M | $948M | 13.6% |
| Revenue growth | 3.7% | 17.4% | 13.1% | 12.3% | 11.8% | |
| EBITDA | $82.9M | $94.2M | $109M | $124M | $141M | 14.2% |
| EBITDA growth | 7.9% | 13.6% | 15.3% | 14.4% | 13.7% | |
| EBITDA margin | 15% | 14% | 14% | 15% | 15% | |
| Implied EV / EBITDA | 7.9x | 7.0x | 6.1x | 5.3x | 4.7x |
Year-1 growth is against LTM at announcement ($548M revenue, $76.8M EBITDA); later years are year over year.
Management prepared projections in January 2011 covering fiscal years 2011 through 2016 (FY ends June 30), assuming 17% revenue growth in FY2012 and 11%-13% annually FY2013-FY2016, plus $50 million per year of acquisitions beginning FY2012. Revenue grows from $568.7 million in 2011E to $1,054.8 million in 2016E; Adjusted EBITDA from $82.9 million to $159.5 million; net income from $13.4 million to $58.0 million. Pro Forma Adjusted EBITDA (giving effect to the Pridemark acquisition and Santa Clara County contract) was $83.7 million LTM 12/31/2010 and $89.3 million for 2011E; free cash flow was negative in 2012E-2015E. Buyers were also given $2 million of projected public-company cost savings.
Process notes
Two fairness opinions delivered to the Board of Directors on March 27, 2011 by RBC Capital Markets and Moelis & Company; each opinion excluded Coliseum Capital Partners, L.P., Blackwell Partners, LLC and their affiliates (Moelis also excluded Parent and Merger Sub). A special committee oversaw the process. Competitive auction with five second-round bidders; Warburg Pincus raised its bid from $17.00 to $17.25 per share on March 25, 2011 as a "best and final" offer and refused a go-shop period. Coliseum Capital Partners and Blackwell Partners entered a voting agreement with Warburg Pincus. Termination fees represent 2.5% (company) and 5% (parent) of transaction value; the parent fee of $33.84 million is backed by a limited guaranty from the Guarantor. RBC had extensive prior lending/underwriting relationships with both the Company and Warburg Pincus portfolio companies.
Other Medical Transportation fairness opinions
- Air Methods / American Securities 2017 · 7.6x EV/EBITDA
All Medical Transportation opinions → · RBC Capital Markets opinions · Moelis & Company opinions