Somanetics acquired by Covidien: fairness opinion by Leerink Partners
Announced June 14, 2010 · Tender offer · All cash ·
SC 14D9 filed June 25, 2010
Medical Devices and Supplies Medical Devices
Enterprise value
$250M
EV / LTM EBITDA
20.5x
EBITDA $12.2M · 21% margin
EV / LTM revenue
4.39x
revenue $56.9M
DCF discount rate
11.8%–13.8%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$25.00
Premium45.8%
Premium basisclosing price of $17.15 on June 7, 2010
StructureTender offer
Termination fee$10.5M
Reverse termination fee—
Go-shopNone
Outside date—
FilingSC 14D9 · EDGAR index
Implied value per share by method vs. $25.00 offer
Selected companies — EV / 2010E EBITDA - High Growth Med Tech $16.04 – $17.84
Selected companies — EV / 2010E EBITDA - Low Growth Med Tech $16.04 – $17.84
Selected companies — EV / 2011E EBITDA - High Growth Med Tech $16.23 – $19.69
Selected companies — EV / 2011E EBITDA - Low Growth Med Tech $16.23 – $19.69
Selected companies — P / 2010E EPS - High Growth Med Tech $10.64 – $15.97
Selected companies — P / 2010E EPS - Low Growth Med Tech $10.64 – $15.97
Selected companies — P / 2011E EPS - High Growth Med Tech $11.96 – $14.95
Selected companies — P / 2011E EPS - Low Growth Med Tech $11.96 – $14.95
Precedent transactions — Transaction Value / LTM EBITDA - High Growth $20.43 – $28.82
Precedent transactions — Transaction Value / LTM EBITDA - Low Growth $20.43 – $28.82
Precedent transactions — Transaction Value / NTM EBITDA - High Growth $21.01 – $25.02
Precedent transactions — Transaction Value / NTM EBITDA - Low Growth $21.01 – $25.02
Precedent transactions — Price / LTM EPS - High Growth $16.58 – $24.87
Precedent transactions — Price / LTM EPS - Low Growth $16.58 – $24.87
Precedent transactions — Price / NTM EPS - High Growth $17.60 – $29.34
Precedent transactions — Price / NTM EPS - Low Growth $17.60 – $29.34
Discounted cash flow $14.69 – $42.55
Historical Stock Trading Analysis $12.99 – $21.10
Premiums Paid Analysis $18.20 – $31.15
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Leerink Partners to the target board
Delivered June 13, 2010
Discounted cash flow assumptions
Discount rate11.8%–13.8%
BasisCompany WACC estimated at 12.8%; broader range of 10.8%-14.8% analyzed, focus range 11.8%-13.8%
Terminal valueExit multiple
Perpetuity growth—
Exit multiple11.0x–13.0x 2014E EBITDA (broader range analyzed 10.0x-14.0x)
Projection period2010-2014
Projections usedCompany management Base Case, Upside Case and Downside Case, plus Wall St. Case of publicly available estimates
Implied value per share$14.69–$42.55
Illustrative per share value indications: Base Case $28.01-$33.28; Upside Case $35.28-$42.55; Downside Case $14.69-$16.53; Wall St. Case $20.17-$23.01.
Selected public companies (24)
Thoratec Corporation · NuVasive, Inc. · Masimo Corporation · Volcano Corporation · NxStage Medical Holdings, Inc. · AGA Medical Holdings, Inc. · Conceptus, Inc. · Natus Medical Incorporated · Abiomed, Inc. · Micrus Endovascular Corporation · Endologix, Inc. · Orthovita, Inc. · Dentsply International Inc. · Kinetic Concepts, Inc. · American Medical Systems Holdings, Inc. · Integra LifeSciences Holdings Corporation · Wright Medical Group, Inc. · CONMED · Orthofix International N.V. · Given Imaging Ltd. · AngioDynamics, Inc. · Exactech, Inc. · Vascular Solutions, Inc. · Cardiovascular Systems, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2010E Revenue - High Growth Med Tech | 2.1x | 3.1x | 6.0x | — | — |
| EV / 2010E Revenue - Low Growth Med Tech | 1.1x | 1.6x | 3.7x | — | — |
| EV / 2011E Revenue - High Growth Med Tech | 1.8x | 2.7x | 5.4x | — | — |
| EV / 2011E Revenue - Low Growth Med Tech | 1.0x | 1.5x | 3.5x | — | — |
| EV / 2012E Revenue - High Growth Med Tech | 1.6x | 2.3x | 4.5x | — | — |
| EV / 2012E Revenue - Low Growth Med Tech | 0.9x | 1.4x | 3.2x | — | — |
| EV / 2010E EBITDA - High Growth Med Tech | 8.3x | 13.6x | 19.0x | 10.0x–12.0x | $16.04–$17.84 |
| EV / 2010E EBITDA - Low Growth Med Tech | 6.4x | 8.2x | 18.3x | 10.0x–12.0x | $16.04–$17.84 |
| EV / 2011E EBITDA - High Growth Med Tech | 9.1x | 11.2x | 25.9x | 8.0x–11.0x | $16.23–$19.69 |
| EV / 2011E EBITDA - Low Growth Med Tech | 5.9x | 7.7x | 14.6x | 8.0x–11.0x | $16.23–$19.69 |
| EV / 2012E EBITDA - High Growth Med Tech | 7.1x | 9.0x | 18.3x | — | — |
| EV / 2012E EBITDA - Low Growth Med Tech | 5.2x | 7.0x | 11.7x | — | — |
| P / 2010E EPS - High Growth Med Tech | 20.7x | 28.7x | 43.7x | 18.0x–27.0x | $10.64–$15.97 |
| P / 2010E EPS - Low Growth Med Tech | 9.6x | 16.2x | 30.2x | 18.0x–27.0x | $10.64–$15.97 |
| P / 2011E EPS - High Growth Med Tech | 17.8x | 21.2x | 55.5x | 16.0x–20.0x | $11.96–$14.95 |
| P / 2011E EPS - Low Growth Med Tech | 8.6x | 14.7x | 23.9x | 16.0x–20.0x | $11.96–$14.95 |
| P / 2012E EPS - High Growth Med Tech | 10.4x | 19.0x | 39.7x | — | — |
| P / 2012E EPS - Low Growth Med Tech | 7.4x | 13.3x | 19.1x | — | — |
Selected precedent transactions (65)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2010-06-01 | ev3 Inc. | Covidien Public Limited Company | — |
| 2010-05-05 | SenoRX, Inc. | C.R. Bard | — |
| 2009-12-16 | Acclarent, Inc. | Johnson & Johnson | — |
| 2009-11-30 | Ascent Healthcare Solutions, Inc. | Stryker Corporation | — |
| 2009-11-09 | Advanced Bionics Corporation | Sonova Holding AG | — |
| 2009-05-08 | VNUS Medical Technologies, Inc. | Covidien Public Limited Company | — |
| 2008-11-23 | Omrix Biopharmaceuticals, Inc. | Johnson & Johnson | — |
| 2008-09-25 | Cryocath | Medtronic, Inc. | — |
| 2008-08-11 | SurgRx, Inc. | Johnson & Johnson | — |
| 2008-04-07 | LifeCell Corporation | Kinetic Concepts, Inc. | — |
| 2007-08-06 | HemoSense, Inc. | Inverness Medical Technology, Inc. | — |
| 2007-07-27 | Kyphon Inc. | Medtronic, Inc. | — |
| 2007-05-21 | Cytyc Corporation | Hologic, Inc. | — |
| 2007-01-08 | IntraLase Corp. | Advanced Medical Optics, Inc. | — |
| 2006-12-04 | St. Francis Medical Technologies, Inc. | Kyphon | — |
| 2006-07-18 | Confluent Surgical, Inc. | Tyco International Ltd. | — |
| 2005-12-16 | Animas Corporation | Johnson & Johnson | — |
| 2005-10-16 | Advanced Neuromodulation Systems, Inc. | St. Jude Medical, Inc. | — |
| 2005-03-04 | Closure Medical Corporation | Johnson & Johnson | — |
| 2004-05-19 | Alaris Medical Systems, Inc. | Cardinal Health, Inc. | — |
| 2004-03-01 | Novacept, Inc. | Cytyc Corporation | — |
| 2004-01-13 | Therasense, Inc. | Abbott Laboratories | — |
| 2002-03-18 | Biocompatibles Eyecare, Inc. | Abbott Laboratories | — |
| 2002-02-14 | ORATEC Interventions, Inc. | Smith & Nephew plc | — |
| 2001-12-06 | VidaMed, Inc. | Medtronic, Inc. | — |
| 2001-06-29 | Cardiac Pathways Corporation | Boston Scientific Corporation | — |
| 2001-05-30 | MiniMed Inc. | Medtronic, Inc. | — |
| 2001-05-23 | Inverness Medical Technology, Inc. (diabetes division) | Johnson & Johnson | — |
| 2001-02-15 | InterVentional Technologies Inc. | Boston Scientific Corporation | — |
| 2009-12-17 | Scient'X S.A. | Alphatec Holdings, Inc. | — |
| 2009-09-28 | Aspect Medical Systems, Inc. | Covidien Public Limited Company | — |
| 2008-12-01 | Mentor Corporation | Johnson & Johnson | — |
| 2008-09-15 | Datascope Corp. | Getinge AB | — |
| 2008-09-04 | Abbott Laboratories (spine business) | Zimmer, Inc. | — |
| 2008-07-24 | Vital Signs, Inc. | General Electric Company | — |
| 2008-05-02 | Bristol-Myers Squibb Company (ConvaTec) | Nordic Capital/Avista Capital | — |
| 2008-03-11 | Datascope Corp. (patient monitoring business) | Mindray Medical International Limited | — |
| 2008-02-11 | Possis Medical, Inc. | Bayer Aktiengesellschaft | — |
| 2008-02-04 | Whatman PLC | General Electric Company | — |
| 2007-07-23 | Arrow International, Inc. | Teleflex Incorporated | — |
| 2007-07-18 | FoxHollow Technologies, Inc. | ev3 Inc. | — |
| 2007-07-16 | DJO Incorporated | ReAble Therapeutics Finance LLC | — |
| 2007-05-16 | Bausch & Lomb Incorporated | Warburg Pincus LLC | — |
| 2007-05-02 | VWR International, Inc. | Madison Dearborn Partners, LLC | — |
| 2007-01-26 | Mölnlycke Health Care Group | Investor AB/Morgan Stanley | — |
| 2007-01-18 | Abbott Laboratories (two diagnostic units) | General Electric Company | — |
| 2007-01-10 | Eastman Kodak Company (Health Group) | Onex Healthcare Holdings | — |
| 2006-10-03 | Baxter International Inc. (Transfusion Therapies business) | Texas Pacific Group | — |
| 2006-06-30 | Encore Medical Corporation | Blackstone Capital Partners V L.P. | — |
| 2006-03-27 | Mentor Corporation (Surgical Urology and Clinical and Consumer Healthcare businesses) | Coloplast A/S | — |
| 2006-02-27 | Aircast Incorporated | DJ Orthopedics, Inc. | — |
| 2005-12-09 | BSN medical | Montagu Private Equity | — |
| 2005-07-28 | Royce Medical Holding Inc. | össur | — |
| 2005-06-16 | American Cystoscope Makers, Inc. | Gyrus Group PLC | — |
| 2004-12-06 | Medex, Inc. | Smiths Group | — |
| 2004-08-09 | Empi, Inc. | Encore Medical Corporation | — |
| 2004-05-17 | Hudson Respiratory Care, Inc. | Teleflex Incorporated | — |
| 2004-04-28 | MedSource Technologies, Inc. | UTI Corporation | — |
| 2003-12-11 | Radiometer A/S | Danaher Corporation | — |
| 2002-12-18 | Instrumentarium Corporation | General Electric Company | — |
| 2001-05-30 | C.R. Bard Inc. (announced & abandoned) | Tyco International Ltd. | — |
| 2000-11-17 | Agilent Healthcare Solutions Group | Philips | — |
| 2000-11-13 | ADAC Laboratories | Koninklijke Philips Electronics N.V. | — |
| 2000-09-27 | Acuson Corporation | Siemens Aktiengesellschaft | — |
| 2000-06-28 | Mallinckrodt Inc. | Tyco International Ltd. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Transaction Value / LTM Revenue - High Growth | 3.5x | 7.0x | 11.5x | — | — |
| Transaction Value / LTM Revenue - Low Growth | 1.0x | 2.6x | 4.5x | — | — |
| Transaction Value / NTM Revenue - High Growth | 3.1x | 5.1x | 12.1x | — | — |
| Transaction Value / NTM Revenue - Low Growth | 0.9x | 2.3x | 3.8x | — | — |
| Transaction Value / LTM EBITDA - High Growth | 15.7x | 29.3x | 60.6x | 16.0x–26.0x | $20.43–$28.82 |
| Transaction Value / LTM EBITDA - Low Growth | 7.3x | 12.7x | 19.6x | 16.0x–26.0x | $20.43–$28.82 |
| Transaction Value / NTM EBITDA - High Growth | 16.7x | 20.0x | 33.8x | 14.0x–18.0x | $21.01–$25.02 |
| Transaction Value / NTM EBITDA - Low Growth | 8.1x | 12.0x | 15.7x | 14.0x–18.0x | $21.01–$25.02 |
| Price / LTM EPS - High Growth | 41.7x | 47.7x | 97.7x | 30.0x–45.0x | $16.58–$24.87 |
| Price / LTM EPS - Low Growth | 15.2x | 24.7x | 43.2x | 30.0x–45.0x | $16.58–$24.87 |
| Price / NTM EPS - High Growth | 25.4x | 49.0x | 63.6x | 27.0x–45.0x | $17.60–$29.34 |
| Price / NTM EPS - Low Growth | 16.0x | 22.3x | 31.5x | 27.0x–45.0x | $17.60–$29.34 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | 52-week trading range for the Shares for the period ended June 7, 2010 was $12.99 to $21.10. The $25.00 per share represented premiums of 18.5% to the 52-week high closing price ($21.10), 45.8% to the June 7, 2010 close ($17.15), 38.7% to the price one week prior ($18.02), and 27.0% to the price one month prior ($19.69). | $12.99–$21.10 |
| Premiums Paid Analysis | Reviewed 125 selected completed or pending M&A transactions with deal size greater than $50 million. Premiums: 1-day 75th percentile 44.8%, median 27.8%, 25th percentile 16.0%; 1-week 50.0%/29.1%/18.5%; 1-month 58.2%/34.6%/20.9%; 52-week high 2.6%/0.1%/(13.7)%. Implied prices per Share ranged from $18.20 to $31.15 (1-day $19.90-$24.83; 1-week $21.36-$27.03; 1-month $23.80-$31.15; 52-week high $18.20-$21.65). | $18.20–$31.15 |
Transaction fee equal to 1.5% of aggregate consideration up to $200 million plus 1% of aggregate consideration above $200 million, payable upon successful closing of the Offer. A fee equal to 25% of that transaction fee became payable upon delivery of the fairness opinion and is credited against the transaction fee. Expense reimbursement and indemnification also provided.
3,000+ healthcare deal-level valuation multiples
The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $67.6M | $81.3M | $99.2M | $122M | 21.8% |
| Revenue growth | 18.8% | 20.3% | 22.0% | 23.1% | |
| EBITDA | $15.4M | $21.5M | $29.0M | $41.1M | 38.7% |
| EBITDA growth | 26.2% | 39.6% | 34.9% | 41.7% | |
| EBITDA margin | 23% | 26% | 29% | 34% | |
| Implied EV / EBITDA | 16.2x | 11.6x | 8.6x | 6.1x |
Year-1 growth is against LTM at announcement ($56.9M revenue, $12.2M EBITDA); later years are year over year.
Leerink used three sets of Company management projections (Base Case, Upside Case and Downside Case) covering fiscal years 2010 through 2014, as well as a Wall St. Case based on publicly available analyst estimates. The Base Case and Wall St. Case were used in the selected companies and selected transactions analyses (2010E-2012E revenue, EBITDA and EPS), and all four cases were used in the illustrative discounted cash flow analysis. Specific revenue and EBITDA dollar figures were not included in the sliced sections.
Process notes
Tender offer by Covidien subsidiary at $25.00 per share, with a top-up option granted to Sub and a Tender and Voting Agreement signed by CEO/President Bruce J. Barrett. Single financial advisor (Leerink Swann LLC) delivered an oral opinion at the June 13, 2010 board meeting, confirmed in writing the same date. Market data used as of June 7, 2010. Termination fee of $10.5 million payable by the Company in certain circumstances. Leerink's fee is formula-based (1.5% of aggregate consideration up to $200 million plus 1% above $200 million) so no dollar amount is stated; 25% of the fee was payable upon delivery of the opinion, creditable against the closing fee.
Other Medical Devices and Supplies fairness opinions
- Osteotech / Medtronic 2010 · 11.8x EV/EBITDA
- Micrus Endovascular / Johnson & Johnson 2010 · 23.1x EV/EBITDA
- ev3 / Covidien 2010 · 27.9x EV/EBITDA
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
- SonoSite / FUJIFILM Holdings 2011 · 21.1x EV/EBITDA
- Synovis Life Technologies / Baxter International 2011 · 17.1x EV/EBITDA
All Medical Devices and Supplies opinions → · Leerink Partners opinions