Sequenom acquired by Laboratory Corporation of America: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $2.40 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Valuation date assumed as of June 30, 2016; present values adjusted for cash and debt as of June 30, 2016 (cash $61.3 million, debt $130.0 million, net debt $68.7 million).
Selected public companies (7)
Myriad Genetics, Inc. · Genomic Health, Inc. · Foundation Medicine, Inc. · Natera, Inc. · Oxford Immunotec Global PLC · Veracyte, Inc. · CareDx, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / 2016E Revenue | 1.5x | 2.5x | 2.8x | 1.5x–2.8x | $0.90–$2.80 |
| Firm Value / 2017E Revenue | 1.1x | 2.0x | 2.6x | 1.1x–2.6x | $0.90–$2.80 |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2015-10-21 | Clarient, Inc. | NeoGenomics, Inc. | — |
| 2015-06-04 | Bio-Reference Laboratories, Inc. | OPKO Health, Inc. | — |
| 2014-12-02 | Ariosa Diagnostics, Inc. | Roche Holdings, Inc. | — |
| 2014-01-22 | Solstas Lab Partners Group | Quest Diagnostics Incorporated | — |
| 2013-06-25 | CML Healthcare Inc. | Lifelabs Medical Laboratory Services, Inc. | — |
| 2013-01-07 | Verinata Health, Inc. | Illumina, Inc. | — |
| 2012-06-04 | MEDTOX Scientific, Inc. | Laboratory Corporation of America Holdings | — |
| 2011-04-04 | Cellestis, Inc. | Qiagen Inc. | — |
| 2011-03-18 | Celera Corp. | Quest Diagnostics Incorporated | — |
| 2011-02-24 | Athena Diagnostics, Inc. | Quest Diagnostics Incorporated | — |
| 2011-01-24 | Genoptix, Inc. | Novartis AG | — |
| 2010-10-22 | Clarient, Inc. | GE Healthcare | — |
| 2010-09-13 | Genzyme Genetics | Laboratory Corporation of America Holdings | — |
| 2007-06-03 | Digene Corp. | Qiagen NV | — |
| 2007-04-16 | AmeriPath, Inc. | Quest Diagnostics Incorporated | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Firm Value / LTM Revenue | 1.6x | 2.6x | 7.5x | 1.6x–7.5x | $0.95–$6.30 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Public Trading Multiples - applied to Wall Street research projections for Sequenom (informational only) | Applied FV/2016E Revenue of 1.5x-2.8x and FV/2017E Revenue of 1.1x-2.6x to publicly available equity research projections for Sequenom. | $0.65–$2.25 |
| Public Trading Multiples - including Foundation Medicine multiples (informational only) | Applied Foundation Medicine's FV/2016E and FV/2017E Revenue multiples to Sequenom management and research projections; if Foundation Medicine had been included in the trading multiple range, implied values were approximately $0.65 to $4.30 per share. | $0.65–$4.30 |
| Historical Share Price Analysis / 52-week trading range | For the 52-week period ended July 25, 2016 the closing share price ranged from $0.84 to $2.96. The $2.40 price represented a 185.4% premium to the $0.84 July 25, 2016 close, a 130.1% premium to the 30-day average of $1.04, and an 18.9% discount to the 52-week high. Presented for informational purposes only, not a valuation methodology. | $0.84–$2.96 |
| Analyst Price Targets | Reviewed equity research price targets from Jefferies, William Blair, Piper Jaffray and Ladenburg Thalmann, ranging from $0.75 to $1.90 per share. Presented for informational purposes only. | $0.75–$1.90 |
Approximately $6.3 million total transaction fee; $1.5 million payable following delivery of the opinion and $4.8 million payable upon consummation of the Merger. Expense reimbursement including counsel fees up to $125,000 plus indemnification. J.P. Morgan received approximately $34,000 in fees from Parent during the prior two years for transaction services and trade finance, and no fees from Sequenom.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $161M | $210M | $257M | $330M | $379M | 23.9% |
| Revenue growth | 27.8% | 30.4% | 22.4% | 28.4% | 14.8% | |
| EBITDA | $13.0M | $35.0M | $56.0M | $89.0M | $103M | 67.8% |
| EBITDA growth | — | 169.2% | 60.0% | 58.9% | 15.7% | |
| EBITDA margin | 8% | 17% | 22% | 27% | 27% | |
| Implied EV / EBITDA | 29.2x | 10.8x | 6.8x | 4.3x | 3.7x |
Year-1 growth is against LTM at announcement ($126M revenue, $-16.0M EBITDA); later years are year over year.
Management "Projections" for the reproductive health business (oncology excluded) covered CY2016E-CY2020E with J.P. Morgan extrapolations, reviewed and approved by management, for CY2021E-CY2025E plus a terminal year. Revenue grows from $126 million in CY2016E to $465 million in CY2025E ($478 million terminal year), with Adjusted EBITDA moving from ($16) million in CY2016E to $126 million in CY2025E (27% margin), and free cash flow from ($23) million to $61 million. A more aggressive "Optimistic Case" (CY2016E revenue $126 million rising to $600 million in CY2025E, Adjusted EBITDA $190 million) was also prepared and shared with J.P. Morgan, but the Board directed J.P. Morgan to use only the base Projections for its fairness opinion.
Process notes
Other Diagnostics / Life Sciences fairness opinions
- FEI / Thermo Fisher Scientific 2016 · 15.1x EV/EBITDA
- Advanced Accelerator Applications / Novartis 2017
- Alere / Abbott Laboratories 2017 · 14.3x EV/EBITDA
- Clarient / NeoGenomics 2015 · 14.4x EV/EBITDA
- Pall / Danaher 2015 · 20.5x EV/EBITDA
- Bio-Reference Laboratories / Opko Health 2015 · 12.1x EV/EBITDA
All Diagnostics / Life Sciences opinions → · J.P. Morgan opinions