Fairness opinions › Medical Devices and Supplies › 2024

Silk Road Medical acquired by Boston Scientific: fairness opinion by BofA Securities

Announced June 18, 2024 · One-step merger · All cash · DEFM14A filed July 29, 2024
Medical Devices and Supplies Medical Devices
Enterprise value
$1.2B
EV / LTM EBITDA
—
EBITDA $-49.0M · -23% margin
EV / LTM revenue
5.47x
revenue $212M
DCF discount rate
11.7%–14.5%
Perpetuity growth

Deal terms

ConsiderationAll cash
Price per share$27.50
Premium—
Premium basisClosing price of $21.67 per share on June 17, 2024, the last trading day before announcement
StructureOne-step merger
Termination fee$37.9M
Reverse termination fee$69.5M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index

Implied value per share by method vs. $27.50 offer

Selected companies — EV / CY2024E Revenue $13.80 – $25.20
Selected companies — EV / CY2025E Revenue $13.20 – $25.30
Precedent transactions — EV / NTM Revenue $19.80 – $29.70
Discounted cash flow $15.45 – $25.15
52-Week Trading Range $6.29 – $33.79
Wall Street Analyst Price Targets $17.24 – $24.76
Premia Calculations $27.09 – $33.59

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

Opinion of BofA Securities to the target board

Delivered June 17, 2024 · Fee $25.0M ($22.5M contingent on closing), $2.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate11.7%–14.5%
BasisEstimate of Silk Road's weighted average cost of capital derived using the capital asset pricing model; mid-year discounting convention, discounted to June 30, 2024
Terminal valuePerpetuity growth
Perpetuity growth4.0%–5.0%
Exit multiple—
Projection periodJuly 1, 2024 through December 31, 2033
Projections usedSilk Road Long-Range Plan (management projections), including estimated benefits from Tax Attributes and net cash as of June 30, 2024
Implied value per share$15.45–$25.15

Perpetuity growth rate applied to terminal year unlevered free cash flows; implied equity value per share rounded to nearest $0.05.

Selected public companies (7)

iRhythm Technologies, Inc. · Tandem Diabetes Care, Inc. · Inari Medical, Inc. · AtriCure, Inc. · Si-Bone, Inc. · Paragon 28, Inc. · Treace Medical Concepts, Inc.

MultiplePeer lowPeer medianPeer highRange appliedImplied per share
EV / CY2024E Revenue1.6x2.6x5.7x 2.5x–5.0x $13.80–$25.20
EV / CY2025E Revenue1.4x2.2x4.8x 2.0x–4.3x $13.20–$25.30

Selected precedent transactions (7)

DateTargetAcquirerMultiple
2021-01-12Cantel Medical CorporationSteris plc—
2020-12-18Biotelemetry, Inc.Koninklijke Philips N.V.—
2019-11-04Wright Medical Group N.V.Stryker Corporation—
2017-08-07NxStage Medical, Inc.Fresenius Medical Care AG—
2016-12-02Vascular Solutions, Inc.Teleflex Incorporated—
2016-06-07LDR Holding CorporationZimmer Biomet Holdings, Inc.—
2016-02-01Sage Products LLCStryker Corporation—
MultipleLowMedianHighRange appliedImplied per share
EV / NTM Revenue3.6x4.9x5.4x 3.5x–5.5x $19.80–$29.70

Other analyses

AnalysisSummaryImplied per share
52-Week Trading RangeTrading range of Silk Road common stock for the 52-week period ended June 17, 2024 (informational only).$6.29–$33.79
Wall Street Analyst Price TargetsPublicly available equity research analyst price targets, discounted by one year at Silk Road's estimated mid-point cost of equity of 13.1% derived using CAPM (informational only).$17.24–$24.76
Premia CalculationsReviewed premia paid in all-cash acquisitions of U.S. public companies announced since January 1, 2014 with enterprise value greater than $500 million, relative to the target's closing price one day prior to announcement; applied an illustrative premia reference range of 25.0% to 55.0% to Silk Road's June 17, 2024 closing price of $21.67 (informational only).$27.09–$33.59

Aggregate fee of approximately $25 million, $2.5 million payable upon delivery of the opinion and the remainder contingent upon consummation of the merger; plus expense reimbursement and indemnification.

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Management projections

Projection yearYear 1Year 2Year 3Year 4Year 5CAGR
Revenue$251M$293M$345M$391M$439M15.0%
Revenue growth18.4%16.7%17.7%13.3%12.3%
EBITDA$-31.0M$-11.0M$32.0M$58.0M$89.0M—
EBITDA growth———81.3%53.4%
EBITDA margin-12%-4%9%15%20%
Implied EV / EBITDA——36.3x20.0x13.0x

Year-1 growth is against LTM at announcement ($212M revenue, $-49.0M EBITDA); later years are year over year.

Silk Road management prepared the "Silk Road Long-Range Plan" covering 2024E-2033E, approved by the Board for BofA's use; 2024-2026 figures were shared with Boston Scientific in diligence. Revenue grows from $212 million in 2024E to $651 million in 2033E, with EBIT from $(49) million in 2024E to $191 million in 2033E and unlevered free cash flow from $(58) million in 2024E to $138 million in 2033E (BofA used $(17) million of UFCF for the second half of 2024 only). Assumptions included a 25% long-term tax rate and estimated benefits from tax attributes (NOLs and research credits).

Process notes

Single financial advisor (BofA Securities) to the Silk Road Board; no special committee. Reverse (regulatory) termination fee of $69.5 million payable by Boston Scientific. BofA disclosed relationships with both parties, including ~$2 million of revenue from Silk Road and ~$5 million from Boston Scientific for investment/corporate banking services from May 1, 2022 through April 30, 2024, and holdings of Silk Road (~$5 million) and Boston Scientific (~$150 million) common stock. Premia-paid analysis and 52-week range/analyst targets were referenced for informational purposes only.

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