Fairness opinions › Physician Groups › 2022

Tivity Health acquired by Stone Point Capital: fairness opinion by Lazard

Announced April 6, 2022 · One-step merger · All cash · DEFM14A filed May 24, 2022
Physician Groups Occupational Medicine Sponsor: Stone Point Capital LLC
Enterprise value
$2.0B
EV / LTM EBITDA
12.1x
EBITDA $165M · 28% margin
EV / LTM revenue
3.41x
revenue $587M
DCF discount rate
10.0%–11.0%
Perpetuity growth

Deal terms

ConsiderationAll cash
Price per share$32.50
Premium—
Premium basis$32.25 closing price on April 4, 2022 (last full trading day prior to public announcement of Stone Point proposal)
StructureOne-step merger
Termination fee$54.4M (3.3% of equity)
Reverse termination fee$100M
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index

Implied value per share by method vs. $32.50 offer

Selected companies — EV / 2022E Adjusted EBITDA $23.75 – $30.15
Selected companies — EV / 2023E Adjusted EBITDA $25.00 – $32.10
Selected companies — P / 2022E Adjusted EPS $26.65 – $32.00
Selected companies — P / 2023E Adjusted EPS $27.50 – $33.40
Precedent transactions — TEV / LTM Adjusted EBITDA (payor services transactions; applied to LTM Adj. EBITDA as of 3/31/2022) $30.65 – $38.95
Discounted cash flow $26.95 – $33.90
Illustrative Leveraged Buyout Analysis (management projections) $27.05 – $33.65
Illustrative Leveraged Buyout Analysis (Wall Street consensus) $26.20 – $33.05
Premiums Paid Analysis $27.75 – $42.75
Last 52-Week Trading Range $21.83 – $32.61
Equity Research Analyst Price Targets $27.00 – $35.00

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

Opinion of Lazard to the target board

Delivered April 5, 2022 · Fee $24.5M ($22.0M contingent on closing), $2.5M on delivery of the opinion

Discounted cash flow assumptions

Discount rate10.0%–11.0%
Basisweighted average cost of capital
Terminal valuePerpetuity growth
Perpetuity growth2.0%–3.0%
Exit multiple—
Projection period2022E-2032E
Projections usedTivity Health Projections (management forecast 2022-2027 with extrapolations 2028-2032)
Implied value per share$26.95–$33.90

Present value as of March 31, 2022 of unlevered after-tax free cash flows inclusive of NOL carryforwards; net debt calculated as total debt less cash and less value of Tivity's equity stake in Sharecare, Inc. Pre-Finalization range was $27.05-$34.10.

Selected public companies (11)

ModivCare Inc. · MultiPlan Corporation · Signify Health, Inc. · Allscripts Healthcare Solutions, Inc. · Convey Health Solutions Holdings, Inc. · Nextgen Healthcare, Inc. · Premier, Inc. · Sharecare, Inc. · eHealth, Inc. · GoHealth, Inc. · SelectQuote, Inc.

MultiplePeer lowPeer medianPeer highRange appliedImplied per share
EV / 2022E Adjusted EBITDA7.8x10.8x20.2x 9.0x–11.0x $23.75–$30.15
EV / 2023E Adjusted EBITDA6.7x10.5x12.8x 8.5x–10.5x $25.00–$32.10
P / 2022E Adjusted EPS13.6x20.3x27.3x 15.0x–18.0x $26.65–$32.00
P / 2023E Adjusted EPS12.6x17.2x21.3x 14.0x–17.0x $27.50–$33.40

Selected precedent transactions (8)

DateTargetAcquirerMultiple
2021-01Magellan Health, Inc.Centene Corporation14.2x TEV / LTM Adjusted EBITDA
2017-10eviCore healthcareExpress Scripts Holding Company12.0x TEV / LTM Adjusted EBITDA
2016-05MultiPlan CorporationHellman & Friedman / Leonard Green11.5x TEV / LTM Adjusted EBITDA
2018-03Express Scripts Holding CompanyCigna Corporation12.8x TEV / LTM Adjusted EBITDA
2015-03Catamaran Corp.UnitedHealth Group Incorporation16.3x TEV / LTM Adjusted EBITDA
2012-04Catalyst Health Solutions, Inc.SXC Health Solutions19.6x TEV / LTM Adjusted EBITDA
2011-07Medco Health Solutions, Inc.Express Scripts Holding Company10.8x TEV / LTM Adjusted EBITDA
2006-11Caremark Rx, Inc.CVS Corporation13.5x TEV / LTM Adjusted EBITDA
MultipleLowMedianHighRange appliedImplied per share
TEV / LTM Adjusted EBITDA (payor services transactions; applied to LTM Adj. EBITDA as of 3/31/2022)11.5x12.0x14.2x 11.5x–14.2x $30.65–$38.95

Other analyses

AnalysisSummaryImplied per share
Illustrative Leveraged Buyout Analysis (management projections)Assumed required IRR of 15.0%-25.0%, total leverage of approximately 6.7x estimated LTM Adjusted EBITDA as of 3/31/2022 and a 12.0x exit multiple, based on the Tivity Health Projections.$27.05–$33.65
Illustrative Leveraged Buyout Analysis (Wall Street consensus)Same assumptions but using a 12.2x exit multiple and Wall Street equity analyst consensus estimates extrapolated through 2026 per Tivity guidance.$26.20–$33.05
Premiums Paid AnalysisAll-cash healthcare services transactions announced since January 1, 2010 with TEV over $1 billion involving a U.S. acquiror or U.S. target for 100% of shares. Observed premiums: 1-day 25th/median/mean/75th of 17%/27%/27%/33%; 30-day VWAP 21%/27%/29%/38%; 60-day VWAP 21%/28%/31%/35%; 90-day VWAP 22%/29%/32%/39%; 52-week high (1%)/10%/8%/20%. Applied ranges to various reference prices: 1-day premium 17%-33% to $32.25 (4/4/22) -> $37.70-$42.75; to $27.28 (2/28/22) -> $31.90-$36.15; to $24.81 (1/7/22) -> $29.00-$32.90; to $25.36 (12/7/21) -> $29.65-$33.60; 30-day VWAP 21%-38% on $29.76 -> $36.00-$41.20; 60-day VWAP 21%-35% on $28.26 -> $34.20-$38.05; 90-day VWAP 22%-39% on $27.46 -> $33.60-$38.20; 52-week high (1%)-20% on $32.61 -> $32.15-$39.05 and on $28.18 -> $27.75-$33.75.$27.75–$42.75
Last 52-Week Trading RangeLow and high closing prices for the 12-month period ended April 4, 2022 ranged from $21.83 to $32.61; 52-week high closing price prior to March 1, 2022 was $28.18.$21.83–$32.61
Equity Research Analyst Price TargetsPublicly available analyst price targets as of April 4, 2022 ranged from $27.00 to $35.00 per share.$27.00–$35.00

Aggregate fee of approximately $24.5 million, $2.5 million payable upon rendering of opinion and the remainder contingent upon consummation of the Merger. Lazard received approximately $9 million from Tivity Health for other investment banking services in the prior two years; fees from Stone Point Capital and known affiliates in the prior two years were less than $1 million.

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Management projections

Projection yearYear 1Year 2Year 3Year 4Year 5CAGR
Revenue$727M$846M$952M$1.1B$1.1B11.5%
Revenue growth23.9%16.4%12.5%11.6%5.8%
EBITDA$183M$201M$219M$241M$255M8.6%
EBITDA growth10.9%9.8%9.0%10.0%5.8%
EBITDA margin25%24%23%23%23%
Implied EV / EBITDA10.9x10.0x9.1x8.3x7.8x

Year-1 growth is against LTM at announcement ($587M revenue, $165M EBITDA); later years are year over year.

Tivity Health management prepared standalone unaudited projections for fiscal 2022-2027 in January 2022, with extrapolations for 2028-2032 based on management guidance and approved by the Board. Revenue grows from $587 million in 2022E to $1,124 million in 2027E and $1,448 million in 2032E; Adjusted EBITDA from $165 million in 2022E to $255 million in 2027E and $328 million in 2032E; Unlevered FCF (including cash impact of NOLs) from $108 million in 2022E to $192 million in 2032E. Lazard also referenced Wall Street analyst consensus estimates extrapolated through 2026 in its LBO analysis.

Process notes

Single financial advisor (Lazard) delivering opinion to the Tivity Health Board; no special committee. Lazard delivered an oral opinion on April 5, 2022 confirmed in writing the same day; on April 7, 2022 Lazard provided a finalized presentation reflecting the final share count (the \"Finalization\"), which slightly changed implied per-share ranges but not the opinion conclusion. Precedent transactions, LBO, premiums paid, 52-week trading range and analyst price targets were presented as \"Other Analyses\" for informational purposes only and not considered material to the opinion. Price negotiation history: Stone Point initially proposed $33.00/share (Dec 2021), later $32.00, with Tivity countering at $33.25 and $32.65, settling at $32.50. Termination fee of $54,371,114 (3.25% of equity value) and reverse termination fee of $100,377,441 (6.5% of equity value), plus up to $7.5 million enforcement costs; Stone Point Funds guarantee capped at $107,877,441. Financing: $1.01 billion equity commitment from Stone Point Funds and $1.2 billion debt commitment from Apollo, HPS, SPC, Benefit Street Partners and Owl Rock.

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