Fairness opinions › Physician Groups › 2016

Team Health Holdings acquired by Blackstone: fairness opinion by Goldman Sachs

Announced October 31, 2016 · One-step merger · All cash · DEFM14A filed December 12, 2016

Physician Groups Facility-Based Sponsor: Blackstone Capital Partners VII L.P. (The Blackstone Group L.P.)

Enterprise value

$5.9B

EV / LTM EBITDA

11.5x

EBITDA $514M · 11% margin

EV / LTM revenue

1.27x

revenue $4.7B

DCF discount rate

7.5%–8.5%

Perpetuity growth

Deal terms

ConsiderationAll cash

Price per share$43.50

Premium32.6%

Premium basisClosing price of $32.80 on October 3, 2016, the day before The Wall Street Journal reported TeamHealth was exploring a sale

StructureOne-step merger

Termination fee$101M

Reverse termination fee$202M

Go-shop41 days · $50.4M reduced fee

Outside date—

FilingDEFM14A · EDGAR index

Implied value per share by method vs. $43.50 offer

Precedent transactions — EV / LTM EBITDA (applied to PF LTM 6/30/2016 Adjusted EBITDA) $16.85 – $42.95

Discounted cash flow $43.20 – $74.65

Illustrative Present Value of Future Stock Price Analysis $33.55 – $71.10

Premiums Paid Analysis $39.35 – $47.55

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 October 30, 2016 · Fee $18.4M ($15.4M contingent on closing)

Discounted cash flow assumptions

Discount rate7.5%–8.5%

Basisweighted average cost of capital of TeamHealth; mid-year convention

Terminal valuePerpetuity growth

Perpetuity growth2.0%–3.0%

Exit multiple—

Projection period6/30/2016-2021E

Projections usedManagement Projections (October 2016)

Implied value per share$43.20–$74.65

Discounted to present value as of June 30, 2016; Net Debt as of June 30, 2016 adjusted for debt incurred for the FEP acquisition subtracted.

Selected public companies (3)

Amsurg Corp. · MEDNAX, Inc. · Envision Healthcare Holdings, Inc.

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / NTM EBITDA	8.1x	8.9x	9.3x	—	—

Selected precedent transactions (8)

Date	Target	Acquirer	Multiple
2005-10-11	Team Health, Inc.	The Blackstone Group L.P.	8.8x EV/LTM EBITDA
2007-05-21	Sheridan Healthcare, Inc.	Hellman & Friedman LLC	12.1x EV/LTM EBITDA
2011-02-14	Emergency Medical Services Corporation	Clayton, Dubilier & Rice, Inc.	9.7x EV/LTM EBITDA
2012-05-21	Healthcare Partners Holdings, LLC	Davita Inc.	8.4x EV/LTM EBITDA
2012-10-22	CHG Healthcare Services, Inc.	Leonard Green & Partners, L.P.; Ares Management LLC	12.6x EV/LTM EBITDA
2014-05-29	Sheridan Healthcare, Inc.	Amsurg Corp.	12.2x EV/LTM EBITDA
2015-08-04	IPC Healthcare, Inc.	Team Health Holdings, Inc.	22.2x EV/LTM EBITDA
2016-06-17	Envision Healthcare Holdings, Inc.	Amsurg Corp.	12.6x EV/LTM EBITDA

Multiple	Low	Median	High	Range applied	Implied per share
EV / LTM EBITDA (applied to PF LTM 6/30/2016 Adjusted EBITDA)	8.4x	—	22.2x	8.4x–12.6x	$16.85–$42.95

Other analyses

Analysis	Summary	Implied per share
Implied Premia and Multiple Analysis	Merger consideration of $43.50 implied premia of 32.6% to the 10/3/2016 close of $32.80, 18.2% to the 10/28/2016 close of $36.80, 31.8% to 30-day VWAP of $33.00, 19.9% to 90-day VWAP of $36.28, and a (27.1)% discount to the 52-week high of $59.71. Implied Transaction Enterprise Value multiples: 12.7x PF LTM 6/30 Adjusted EBITDA, 12.9x PF LTM 9/30 Adjusted EBITDA, 12.2x 2016E Adjusted EBITDA, 11.7x PF 2016E Adjusted EBITDA.	—
Illustrative Present Value of Future Stock Price Analysis	Applied one-year forward EV/Adjusted EBITDA multiples of 9.0x to 11.5x to Management Projections Adjusted EBITDA to derive future per-share values as of December 31 of 2016-2020, discounted to June 30, 2016 at a 10.2% cost of equity.	$33.55–$71.10
Premiums Paid Analysis	Reviewed 100% cash acquisitions of U.S. public companies from January 2011 to October 2016 with enterprise values of $4-$8 billion; median premiums of 41.6% (2011), 43.0% (2012), 31.1% (2013), 24.8% (2014), 28.9% (2015), 21.6% (2016). Applied illustrative premiums of 20.0% to 45.0% to the October 3, 2016 closing price.	$39.35–$47.55

Aggregate fee estimated at approximately $18.4 million, $15.4 million contingent on consummation; fee reduced by $1.5 million previously paid for services in connection with JANA share acquisition. Goldman received ~$5.3 million from TeamHealth and ~$165 million from Blackstone and its affiliates/portfolio companies over the prior two years.

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Management projections

Projection year	Year 1	Year 2	Year 3	Year 4	Year 5	CAGR
Revenue	$5.2B	$5.7B	$6.3B	$6.9B	$7.6B	10.0%
Revenue growth	11.0%	10.0%	10.0%	9.9%	9.9%
EBITDA	$597M	$671M	$737M	$809M	$888M	10.4%
EBITDA growth	16.1%	12.4%	9.8%	9.8%	9.8%
EBITDA margin	12%	12%	12%	12%	12%
Implied EV / EBITDA	9.9x	8.8x	8.0x	7.3x	6.7x

Year-1 growth is against LTM at announcement ($4.7B revenue, $514M EBITDA); later years are year over year.

Three sets of management forecasts were prepared: the July Projections, the August Projections and the final October "Management Projections," the last of which was the only set approved for Goldman Sachs's use. The Management Projections covered 2016E-2021E with revenue rising from $4,637 million in 2016E to $7,551 million in 2021E and Adjusted EBITDA from $503 million to $886 million, with unlevered free cash flow of $52 million (2H 2016 only) rising to $402 million in 2021E. The August Projections showed 2016E revenue of $4,656 million / Adjusted EBITDA of $514 million rising to $7,551 million / $888 million in 2021E; the July Projections showed 2016E revenue of $4,658 million / Adjusted EBITDA of $512 million rising to $7,554 million / $951 million in 2021E.

Process notes

Going-private LBO by Blackstone, which had previously owned Team Health from 2005 until its 2009 IPO. Goldman Sachs was TeamHealth's sole financial advisor and delivered the only fairness opinion; it was not asked to solicit interest from other parties before signing. The merger agreement included a go-shop period running from October 30, 2016 to 12:01 a.m. on December 10, 2016, during which Goldman contacted 30 potential bidders (8 strategic, 22 financial, including AmSurg and Parties A-C); no acquisition proposals were received. A lower termination fee of $50.4 million applied to a superior proposal from an excluded party agreed within ten business days of the go-shop end; otherwise $100.8 million. Reverse termination fee of $201.7 million guaranteed by Blackstone Capital Partners VII L.P. under a limited guarantee. JANA Partners entered into a voting/support agreement. Goldman disclosed approximately $165 million of fees received from Blackstone and affiliates over the prior two years.

Other Physician Groups fairness opinions

Network Medical Management / Apollo Medical Holdings 2016 · 9.5x EV/EBITDA
Envision Healthcare Holdings / AmSurg 2016 · 11.2x EV/EBITDA
USMD Holdings / WellMed Medical Management 2016 · 15.5x EV/EBITDA
ExamWorks Group / Leonard Green & Partners 2016 · 11.5x EV/EBITDA
IPC Healthcare / TeamHealth 2015 · 22.5x EV/EBITDA
Envision Healthcare Holdings / KKR 2018 · 10.0x EV/EBITDA

All Physician Groups opinions → · Goldman Sachs opinions