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Sharps Compliance acquired by Aurora Capital Partners: fairness opinion by Raymond James

Announced July 12, 2022 · Tender offer · All cash · SC 14D9 filed July 25, 2022
Outsourced Services Waste Management / Laundry
Enterprise value
$173M
EV / LTM EBITDA
25.2x
EBITDA $6.9M · 9% margin
EV / LTM revenue
2.36x
revenue $73.4M
DCF discount rate
9.0%–13.0%
Exit multiple

Deal terms

ConsiderationAll cash
Price per share$8.75
Premium—
Premium basis—
StructureTender offer
Termination fee$7.0M (4.0% of equity)
Reverse termination fee$7.9M
Go-shopNone
Outside dateNovember 12, 2022
FilingSC 14D9 · EDGAR index

Implied value per share by method vs. $8.75 offer

Selected companies — EV / LTM March-2022 EBITDA $2.23 – $3.61
Selected companies — EV / 2023E EBITDA $3.39 – $5.14
Selected companies — EV / LTM March-2022 Revenue $4.84 – $8.41
Selected companies — EV / 2023E Revenue $4.91 – $9.02
Precedent transactions — EV / TTM EBITDA $3.19 – $4.00
Precedent transactions — EV / NTM EBITDA $4.02 – $5.55
Precedent transactions — EV / TTM Revenue $8.60 – $12.36
Precedent transactions — EV / NTM Revenue $8.52 – $12.25
Discounted cash flow $6.10 – $9.46
Historical Trading Range (informational only) $2.88 – $10.47

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

Opinion of Raymond James to the target board

Delivered July 11, 2022

Discounted cash flow assumptions

Discount rate9.0%–13.0%
Basisweighted average cost of capital of Sharps
Terminal valueExit multiple
Perpetuity growth—
Exit multiple8.0x–12.0x terminal period EBITDA
Projection period2023E-2027E
Projections usedManagement Forecasts, with extrapolations prepared by Raymond James with the consent of Sharps
Implied value per share$6.10–$9.46

Present value divided by fully diluted Shares outstanding as of June 30, 2022. Mean EV/TTM EBITDA of precedents 14.0x; mean EV/NTM EBITDA 11.3x; mean EV/TTM Revenue 2.6x; mean EV/NTM Revenue 2.4x.

Selected public companies (4)

Stericycle, Inc. · Clean Harbors, Inc. · Harsco Corporation · Heritage-Crystal Clean, Inc.

MultiplePeer lowPeer medianPeer highRange appliedImplied per share
EV / LTM March-2022 EBITDA——— 6.3x–13.6x $2.23–$3.61
EV / 2023E EBITDA——— 6.6x–11.8x $3.39–$5.14
EV / LTM March-2022 Revenue——— 1.1x–2.3x $4.84–$8.41
EV / 2023E Revenue——— 1.0x–2.2x $4.91–$9.02

Selected precedent transactions (8)

DateTargetAcquirerMultiple
2022-05US Ecology, Inc.Republic Services, Inc.—
2022-01ITRenew, Inc.Iron Mountain Incorporated—
2021-11Covanta Holding CorporationEQT Partners AB—
2020-10Advanced Disposal Services, Inc.Waste Management, Inc.—
2019-11NRC Group Holding Corp.US Ecology, Inc.—
2017-03G&K Services, Inc.Cintas Corporation—
2016-05Recall Holdings LimitedIron Mountain Incorporated—
2015-10Shred-it Internal IncStericycle, Inc—
MultipleLowMedianHighRange appliedImplied per share
EV / TTM EBITDA11.9x13.7x16.6x 11.9x–16.6x $3.19–$4.00
EV / NTM EBITDA8.5x11.8x13.0x 8.5x–13.0x $4.02–$5.55
EV / TTM Revenue2.2x2.5x3.3x 2.2x–3.3x $8.60–$12.36
EV / NTM Revenue2.0x2.4x3.1x 2.0x–3.1x $8.52–$12.25

Other analyses

AnalysisSummaryImplied per share
Historical Trading Range (informational only)For the period ending July 8, 2022: one day prior share price $2.92; one week prior $2.88; one month prior $3.82; 52-week trading high $10.47; 52-week VWAP $6.74; closing price of $3.01 on July 8, 2022, compared to the $8.75 offer price. Presented for reference only and not relied upon for valuation purposes.$2.88–$10.47

Opinion fee of $500,000 paid upon delivery of the opinion. Advisory fee equal to the greater of $1,500,000 or 1.50% of sale transaction value, contingent upon closing; $25,000 retainer offset against the advisory fee. Expense reimbursement capped at $50,000. During prior two years Raymond James received $275,000 from the Company ($25,000 retainer and $250,000 buy-side fees).

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Management projections

Projection yearYear 1Year 2Year 3Year 4CAGR
Revenue$80.5M$88.4M$98.3M$104M8.9%
Revenue growth9.7%9.8%11.2%5.8%
EBITDA$9.7M$12.8M$17.5M$19.5M26.2%
EBITDA growth41.0%32.0%36.7%11.4%
EBITDA margin12%14%18%19%
Implied EV / EBITDA17.9x13.5x9.9x8.9x

Year-1 growth is against LTM at announcement ($73.4M revenue, $6.9M EBITDA); later years are year over year.

Raymond James used Management Forecasts prepared by Sharps management covering calendar years 2023 through 2027, together with extrapolations of those forecasts prepared by Raymond James with the Company's consent, in its discounted cash flow analysis. The forecasts also supplied LTM March-2022 and 2023E Adjusted EBITDA and Revenue used in the public trading multiples and selected transactions analyses. Specific revenue and EBITDA dollar figures were not included in the sliced sections.

Process notes

Tender offer (Section 251(h) DGCL) by an affiliate of Aurora Capital Partners at $8.75 per Share in cash. Sole fairness opinion delivered orally on July 11, 2022 and confirmed in writing the same date by Raymond James to the Sharps board; no special committee. Financing consists of up to $186.1 million equity commitment from the Aurora Funds plus a $110.0 million debt commitment letter; no financing condition. Company termination fee $6,995,000 (~4% of equity value), parent reverse termination fee $7,869,400 (~4.5% of equity value), with capped expense reimbursement of up to $5,000,000. Directors and certain executive officers signed a tender and support agreement. Notably, the offer price of $8.75 represented a very large premium to the $3.01 closing price on July 8, 2022.

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