Spectranetics acquired by Philips: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $38.50 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
Three separate DCFs: Management Case 1 $21.25-$34.25; Management Case 2 $26.50-$41.50; Management Case 3 $33.75-$51.50. Adjusted for estimated net cash balance of negative $275 million.
Selected public companies (10)
AtriCure, Inc. · Cardiovascular Systems, Inc. · Entellus Medical, Inc. · Insulet Corporation · Intersect ENT, Inc. · K2M Group Holdings, Inc. · Merit Medical Systems, Inc. · MiMedx Group, Inc. · NxStage Medical, Inc. · Penumbra, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| FV / 2017E Revenue | — | — | — | 4.7x–8.3x | $25.25–$46.50 |
| FV / 2018E Revenue (Management Case 1) | — | — | — | 4.2x–7.0x | $27.25–$46.50 |
| FV / 2018E Revenue (Management Case 2) | — | — | — | 4.2x–7.0x | $29.75–$50.00 |
| FV / 2018E Revenue (Management Case 3) | — | — | — | 4.2x–7.0x | $30.00–$50.25 |
Selected precedent transactions (20)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2017-06-19 | NOVADAQ Technologies Inc. | Stryker Corporation | — |
| 2017-02-13 | ZELTIQ Aesthetics, Inc. | Allergan plc | — |
| 2016-12-02 | Vascular Solutions, Inc. | Teleflex Incorporated | — |
| 2016-06-07 | LDR Holding Corporation | Zimmer Biomet Holdings, Inc. | — |
| 2015-07-22 | Thoratec Corporation | St. Jude Medical, Inc. | — |
| 2015-03-02 | Cordis business of Johnson & Johnson | Cardinal Health, Inc. | — |
| 2015-03-02 | American Medical Systems urology business of Endo International plc | Boston Scientific Corporation | — |
| 2014-12-17 | Volcano Corporation | Koninklijke Philips N.V. | — |
| 2014-05-27 | AngioScore Inc. | The Spectranetics Corporation | — |
| 2014-02-03 | ArthroCare Corporation | Smith & Nephew plc | — |
| 2013-12-08 | Given Imaging Ltd. | Covidien plc | — |
| 2013-04-29 | Conceptus, Inc. | Bayer AG | — |
| 2012-05-03 | Kensey Nash Corporation | Koninklijke DSM N.V. | — |
| 2012-03-12 | ZOLL Medical Corporation | Asahi Kasei Corporation | — |
| 2011-12-15 | SonoSite, Inc. | FUJIFILM Holdings Corporation | — |
| 2010-10-18 | AGA Medical Holdings, Inc. | St. Jude Medical, Inc. | — |
| 2010-07-12 | Micrus Endovascular Corporation | Johnson & Johnson | — |
| 2010-06-01 | ev3 Inc. | Covidien plc | — |
| 2010-04-29 | ATS Medical, Inc. | Medtronic, Inc. | — |
| 2009-05-08 | VNUS Medical Technologies, Inc. | Covidien Ltd | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| FV / LTM Revenue | 2.5x | 4.5x | 7.7x | 4.4x–7.7x | $20.50–$39.00 |
| FV / NTM Revenue | 2.5x | 4.4x | 6.8x | 3.6x–6.8x | $19.50–$40.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Trading Range (52-week, period ending June 26, 2017) | 52-week trading range of $16.87 to $30.90 per share; closing price of $30.80 on June 26, 2017; $27.75 on May 9, 2017 (day prior to first public report of buyer interest); 30-day VWAP $28.22; 60-day VWAP $28.30; all-time high $36.44. Presented for reference only, not relied upon for valuation. | $16.87–$30.90 |
| Analyst Price Targets | Equity research analyst price targets for Spectranetics provided a reference range of $27.00 to $37.00 per share for the period ending June 26, 2017. Presented for reference only, not relied upon for valuation. | $27.00–$37.00 |
Engagement letter dated May 15, 2017. Fee of approximately $31 million, $4.0 million payable following delivery of opinion and the remainder upon consummation of the Offer. J.P. Morgan received approximately $7.5 million in aggregate fees from Philips and its affiliates during the prior two years and no fees from Spectranetics.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $367M | $419M | $495M | $566M | $641M | 15.0% |
| Revenue growth | 20.3% | 14.2% | 18.1% | 14.3% | 13.3% | |
| EBITDA | $34.0M | $72.0M | $127M | $179M | $204M | 56.5% |
| EBITDA growth | — | 111.8% | 76.4% | 40.9% | 14.0% | |
| EBITDA margin | 9% | 17% | 26% | 32% | 32% | |
| Implied EV / EBITDA | 56.1x | 26.5x | 15.0x | 10.7x | 9.3x |
Year-1 growth is against LTM at announcement ($305M revenue, $-14.0M EBITDA); later years are year over year.
Spectranetics management prepared three unaudited long-range cases (Management Case 1, 2 and 3) covering 2017 through 2031, with 2017-2021 based on management's strategic plan and 2022-2031 extrapolated. Case 1 revenue grows from $305M in 2017E to $1,212M in 2031E with EBITDA from negative $14M to $399M; Case 2 from $309M to $1,507M with EBITDA from negative $10M to $496M; Case 3 from $310M to $1,852M with EBITDA from negative $8M to $610M. J.P. Morgan was directed to use all three Management Cases in its analyses; the Board also received sensitivity information on revenue and gross margin assumptions.
Process notes
Other Medical Devices and Supplies fairness opinions
- NxStage Medical / Fresenius Medical Care AG & Co. KGaA 2017 · 29.7x EV/EBITDA
- Exactech / TPG 2017 · 15.0x EV/EBITDA
- Entellus Medical / StrykerCorp. 2017
- Miramar Labs / Sientra 2017
- ZELTIQ Aesthetics / Allergan 2017 · 32.9x EV/EBITDA
- C. R. Bard / Becton Dickinson 2017 · 20.1x EV/EBITDA
All Medical Devices and Supplies opinions → · J.P. Morgan opinions