Fairness opinions › Physician Groups › 2022

Signify Health acquired by CVS Health: fairness opinion by Goldman Sachs and Deutsche Bank

Announced September 5, 2022 · One-step merger · All cash · DEFM14A filed September 30, 2022

Physician Groups Primary Care

Enterprise value

$7.3B

EV / LTM EBITDA

33.0x

EBITDA $222M · 26% margin

EV / LTM revenue

8.60x

revenue $852M

DCF discount rate

9.5%–11.5%

Exit multiple

Deal terms

ConsiderationAll cash

Price per share$30.50

Premium77.8%

Premium basisUnaffected closing price of $17.15 on August 1, 2022 (last trading day prior to WSJ report of potential sale)

StructureOne-step merger

Termination fee$228M (3.0% of equity)

Reverse termination fee$380M

Go-shopNone

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $30.50 offer

Precedent transactions — EV / LTM EBITDA (LTM ended 6/30/2022) (Goldman Sachs) $9.28 – $23.03

Discounted cash flow (Goldman Sachs) $22.23 – $30.43

Illustrative Present Value of Future Share Price Analysis (Goldman Sachs) $19.06 – $28.90

Premia Paid Analysis (Goldman Sachs) $19.44 – $23.82

Selected companies — TEV / 2022E EBITDA (Deutsche Bank) $14.56 – $31.30

Selected companies — TEV / 2023E EBITDA (Deutsche Bank) $16.72 – $35.45

Precedent transactions — TEV / LTM EBITDA (LTM ended 6/30/2022) (Deutsche Bank) $11.69 – $23.03

Discounted cash flow (Deutsche Bank) $23.96 – $31.67

Historical Trading Range Analysis (informational) (Deutsche Bank) $11.19 – $26.84

Wall Street Analyst Estimates (informational) (Deutsche Bank) $18.16 – $31.77

Premia Paid Analysis (informational) (Deutsche Bank) $20.58 – $25.73

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

Opinion of Goldman Sachs to the target board

Delivered September 2, 2022 · Fee $58.0M ($58.0M contingent on closing)

Discounted cash flow assumptions

Discount rate9.5%–11.5%

BasisWACC derived using CAPM

Terminal valueExit multiple

Perpetuity growth0.9%–4.6%

Exit multiple8.0x–10.5x EV / terminal year NTM Adjusted EBITDA (less SBC)

Projection periodQ3-Q4 2022E-2031E

Projections usedSignify management Forecasts (Unaudited Prospective Financial Information)

Implied value per share$22.23–$30.43

Discounted to present value as of June 30, 2022 using mid-year convention; implied perpetuity growth rates 0.9%-4.6%; included PV of TRA tax asset benefit net of TRA liabilities.

Selected public companies (12)

LHC Group, Inc. · Amedisys, Inc. · Addus Homecare Corporation · Innovage Holding Corp. · Aveanna Healthcare Holdings, Inc. · Enhabit, Inc. · Evolent Health, Inc. · LifeStance Health Group Inc. · Progyny, Inc. · Teladoc Health, Inc. · R1 RCM Inc. · NextGen Healthcare, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / 2023E EBITDA - Post-Acute Peers	8.0x	11.9x	18.7x	—	—
EV / 2023E EBITDA - Profitable HCIT Peers	10.2x	20.9x	28.5x	—	—

Selected precedent transactions (10)

Date	Target	Acquirer	Multiple
2021	Inovalon Holdings, Inc.	Nordic Capital / Insight Partners	29.0x EV/LTM EBITDA
2020	HMS Holdings Corp.	Gainwell Acquisition Corp.	21.1x EV/LTM EBITDA
2018	Cotiviti Holdings, Inc.	Verscend Technologies, Inc.	18.0x EV/LTM EBITDA
2018	Athenahealth, Inc.	Veritas Capital Fund Management, L.L.C. / Evergreen Coast Capital Corp.	15.2x EV/LTM EBITDA
2018	ABILITY Network Inc.	Inovalon Holdings, Inc.	16.6x EV/LTM EBITDA
2022	LHC Group, Inc.	Optum, Inc.	22.8x EV/LTM EBITDA
2022	Kindred Healthcare Inc.	Clayton, Dubilier & Rice, Inc.	10.5x EV/LTM EBITDA
2018	MatrixCare Holdings, Inc.	ResMed Inc.	25.0x EV/LTM EBITDA
2018	Curo Health Services	Humana Inc. / TPG Capital / Welsh, Carson, Anderson & Stowe	14.1x EV/LTM EBITDA
2017	Almost Family, Inc.	LHC Group, Inc.	15.1x EV/LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA (LTM ended 6/30/2022)	10.5x	17.3x	29.0x	11.0x–29.0x	$9.28–$23.03

Other analyses

Analysis	Summary	Implied per share
Implied Premia Analysis	$30.50 vs. unaffected share price of $17.15 (77.8% premium), 30-day undisturbed VWAP of $15.28 (99.6%), 52-week high of $26.84 (13.6%) and 52-week low of $11.19 (172.6%).	—
Illustrative Present Value of Future Share Price Analysis	Applied NTM EV/EBITDA multiples of 15.5x to 17.5x to NTM Adjusted EBITDA estimates for FY2022, 2023 and 2024, then discounted to June 30, 2022 at an 11.3% cost of equity.	$19.06–$28.90
Premia Paid Analysis	49 healthcare (ex-biotech) U.S. transactions announced 9/1/2012-9/1/2022 with EV of $3bn-$20bn; median premium 27.0%, mean 30.3%, 25th percentile 13.3%, 75th percentile 38.9%. Applied 13.3%-38.9% to the $17.15 unaffected share price.	$19.44–$23.82

Engagement letter dated August 22, 2022; transaction fee estimated at approximately $58 million, all payable upon consummation of the Merger. Goldman Sachs recognized ~$10mm from Signify, ~$9mm from CVS and ~$75mm from New Mountain over the prior two years.

Opinion of Deutsche Bank to the target board

Delivered September 2, 2022 · Fee $24.0M ($24.0M contingent on closing), $2.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate9.6%–10.7%

BasisWACC, based on a risk free rate of 3.6% (20-year U.S. government bond yield as of September 1, 2022), cost of debt and betas for Signify and the selected companies

Terminal valuePerpetuity growth

Perpetuity growth2.5%–3.5%

Exit multiple—

Projection period2022-2031

Projections usedSignify management financial forecasts

Implied value per share$23.96–$31.67

Valued as of June 30, 2022 using mid-year convention; SBC treated as a cash expense; TRA effects not taken into account.

Selected public companies (5)

Evolent Health, Inc. · Sharecare, Inc. · Cano Health, Inc. · Option Care Health, Inc. · Amedisys, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
TEV / 2022E EBITDA	15.2x	25.1x	35.6x	16.0x–35.0x	$14.56–$31.30
TEV / 2023E EBITDA	12.9x	17.7x	29.1x	13.0x–28.0x	$16.72–$35.45

Selected precedent transactions (9)

Date	Target	Acquirer	Multiple
2016-08	Matrix Medical Network	Frazier Healthcare Partners	10.4x TEV/LTM EBITDA
2018-04	CURO Health Services	Humana Inc., TPG Capital and Welsh, Carson, Anderson & Stowe	14.1x TEV/LTM EBITDA
2021-04	Kindred at Home	Humana Inc.	12.5x TEV/LTM EBITDA
2022-03	LHC Group, Inc.	UnitedHealth Group Inc.	22.7x TEV/LTM EBITDA
2015-07	Altegra Health	Emdeon Inc.	15.4x TEV/LTM EBITDA
2018-06	Cotiviti Holdings, Inc.	Verscend Technologies, Inc. (Veritas Capital portfolio company)	18.0x TEV/LTM EBITDA
2020-12	HMS Holdings Corp.	Gainwell Acquisition Corp. (Veritas Capital portfolio company)	21.1x TEV/LTM EBITDA
2021-08	Inovalon Holdings, Inc.	Consortium including Nordic Capital and Insight Partners as lead co-investors	29.0x TEV/LTM EBITDA
2022-06	Convey Health Solutions	TPG Capital	15.7x TEV/LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
TEV / LTM EBITDA (LTM ended 6/30/2022)	10.4x	—	29.0x	14.0x–29.0x	$11.69–$23.03

Other analyses

Analysis	Summary	Implied per share
Historical Trading Range Analysis (informational)	52-week period ending August 1, 2022 low/high of $11.19 and $26.84; closing price $17.15 on August 1, 2022 and $28.39 on September 1, 2022. Reference purposes only.	$11.19–$26.84
Wall Street Analyst Estimates (informational)	Twelve-month-forward analyst price targets of $20.00 to $35.00 per share, discounted back twelve months at a 10.2% cost of equity. Reference purposes only.	$18.16–$31.77
Premia Paid Analysis (informational)	162 transactions announced 1/1/2013-7/26/2022 involving U.S. targets with TEV greater than $5 billion and all-cash consideration; selected representative premia range of 20.0%-50.0% applied to the $17.15 closing price on August 1, 2022. Reference purposes only.	$20.58–$25.73

Engagement letter dated August 22, 2022, as amended. Opinion fee of $2.5 million payable on delivery of the opinion; transaction fee contingent on consummation of approximately $24 million, equal to 0.3% of aggregate consideration estimated at approximately $8 billion, reduced by the opinion fee. If the merger is not consummated and Signify receives a termination fee, DB receives 4.5% of such fee (capped at 50% of the transaction fee). DB Group recognized ~EUR 2.3 million in fees from Signify over the prior two years.

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Management projections

Projection year	Year 1	Year 2	Year 3	CAGR
Revenue	$1.1B	$1.3B	$1.6B	21.1%
Revenue growth	26.7%	23.4%	18.9%
EBITDA	$315M	$411M	$511M	27.4%
EBITDA growth	41.9%	30.5%	24.3%
EBITDA margin	29%	31%	32%
Implied EV / EBITDA	23.2x	17.8x	14.3x

Year-1 growth is against LTM at announcement ($852M revenue, $222M EBITDA); later years are year over year.

Signify management prepared Management's Projections for fiscal years 2022-2025, showing revenue growing from $851 million in 2022E to $1,583 million in 2025E, adjusted gross profit of $425 million to $816 million, and Adjusted EBITDA of $222 million in 2022E to $511 million in 2025E. Management extrapolated these through 2031 (the "Unaudited Prospective Financial Information"), showing total revenue of $3,107 million, Adjusted EBITDA of $1,131 million and unlevered free cash flow of $720 million in 2031E (versus a 6/30/22 stub of $439 million revenue, $107 million Adjusted EBITDA and $61 million UFCF). Both Goldman Sachs and Deutsche Bank used these forecasts, which exclude the BPCI-A, Episodes of Care and Community businesses, in their analyses.

Process notes

Two financial advisors, Goldman Sachs and Deutsche Bank, each delivered a fairness opinion to the Signify Board of Directors on September 2, 2022, addressing fairness of the $30.50 per share cash consideration to holders other than CVS, New Mountain and their respective affiliates. Competitive auction process with multiple bidders (CVS and Parties A, B and C); CVS initially proposed $30.00 per share as "best and final" while Signify sought $35.00, and the final agreed price was $30.50. New Mountain (controlling stockholder) entered a voting agreement and the Tax Receivable Agreement was amended/terminated without payment. Company termination fee of $228 million (3.0% of equity value) and reverse/antitrust termination fee of $380 million (5.0% of equity value). Deutsche Bank did not take the TRA into account in its analysis; Goldman Sachs did include the PV of TRA tax benefits.

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Network Medical Management / Apollo Medical Holdings 2016 · 9.5x EV/EBITDA

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