Transcend Services acquired by Nuance Communications: fairness opinion by Lazard
Announced March 7, 2012 · Tender offer · All cash ·
SC 14D9 filed March 20, 2012
Outsourced Services Transcription / Interpretation
Enterprise value
$332M
EV / LTM EBITDA
10.8x
EBITDA $30.8M · 21% margin
EV / LTM revenue
2.29x
revenue $145M
DCF discount rate
10.0%–12.0%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$29.50
Premium—
Premium basis—
StructureTender offer
Termination fee—
Reverse termination fee—
Go-shopNone
Outside date—
FilingSC 14D9 · EDGAR index
Implied value per share by method vs. $29.50 offer
Selected companies — EV / FY2012E EBITDA $20.00 – $26.00
Selected companies — EV / FY2013E EBITDA $20.00 – $26.00
Precedent transactions — EV / LTM EBITDA (applied to FY2011 EBITDA pro forma for DTS America and Salar acquisitions) $25.50 – $30.50
Discounted cash flow $24.00 – $36.00
Premiums Paid Analysis (informational) $25.50 – $33.00
52-Week Trading Range (informational) $20.03 – $29.92
Analyst Price Target Range (informational) $27.00 – $34.00
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 March 6, 2012
Discounted cash flow assumptions
Discount rate10.0%–12.0%
BasisCapital asset pricing model using average of unlevered predicted betas for the Company and MModal Inc., risk-free rate based on 12-month average yield on 10-year U.S. Treasury Note, Ibbotson equity risk premium and size premium; range of pre-tax cost of debt and debt/capitalization ratios
Terminal valuePerpetuity growth
Perpetuity growth3.5%–4.5%
Exit multiple6.8x–10.7x implied FY2016E EBITDA exit multiple
Projection period2012E-2016E
Projections usedCompany management Internal Financial Forecasts (February 2012)
Implied value per share$24.00–$36.00
Unlevered after-tax free cash flows for fiscal years 2012 through 2016; implied exit multiple range derived from perpetuity growth terminal values.
Selected public companies (13)
MModal Inc. · Transcend Services, Inc. (the Company) · The Dolan Company · EPIQ Systems, Inc. · ExlService Holdings, Inc. · iGATE Corporation · MedAssets, Inc. · Syntel, Inc. · TeleTech Holdings, Inc. · Virtusa Corporation · Merge Healthcare Incorporated · Quality Systems, Inc. · Nuance Communications, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / FY2012E EBITDA | 6.4x | 8.2x | 15.0x | 7.0x–9.0x | $20.00–$26.00 |
| EV / FY2013E EBITDA | 5.5x | 7.5x | 12.2x | 6.0x–8.0x | $20.00–$26.00 |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2011-12-20 | Vlingo, Inc. | Nuance Communications, Inc. | — |
| 2010-02-03 | Spheris Inc. | MedQuist Inc. | — |
| 2008-05-22 | MedQuist Inc. | CBaySystems Holdings Ltd. | — |
| 2011-11-16 | HealthTran LLC | SXC Health Solutions Corp. | — |
| 2011-07-07 | APAC Customer Services, Inc. | NCO Group, Inc. | — |
| 2011-06-01 | Stream Global Services, Inc. | Trillium Capital LLC | — |
| 2010-04-05 | Symyx Technologies, Inc. | Accelrys, Inc. | — |
| 2011-07-11 | MultiModal Technologies, Inc. | MedQuist Holdings Inc. | — |
| 2010-09-26 | NightHawk Radiology Holdings, Inc. | Virtual Radiologic Corporation | — |
| 2008-04-08 | eScription, Inc. | Nuance Communications, Inc. | — |
| 2010-12-02 | MedfusionRx, L.L.C. | SXC Health Solutions Corp. | — |
| 2010-09-14 | Broadlane Holdings, LLC | MedAssets, Inc. | — |
| 2010-09-07 | Chamberlin Edmonds Holdings, Inc. | Emdeon Inc. | — |
| 2010-02-22 | AMICAS, Inc. | Merge Healthcare Incorporated | — |
| 2008-04-29 | Accuro Healthcare Solutions, Inc. | MedAssets, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / LTM EBITDA (applied to FY2011 EBITDA pro forma for DTS America and Salar acquisitions) | 4.1x | 12.2x | 20.7x | 10.0x–12.0x | $25.50–$30.50 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Premiums Paid Analysis (informational) | Premiums paid in selected public company transactions in healthcare equipment and supplies, HCIT, Internet software and services, IT consulting/services and professional services announced since November 2006 with U.S. publicly traded targets and transaction value $250-$750 million. 1-day prior: 25th percentile 22.1%, median 32.3%, mean 32.7%, 75th percentile 42.7%; 5-days prior: 23.9%/37.8%/35.4%/45.2%; 20-days prior: 23.5%/35.1%/39.3%/50.5%. Applied 25th and 75th percentile premiums to closing prices on March 5, 2012 and 5 and 20 trading days prior to March 6, 2012. | $25.50–$33.00 |
| 52-Week Trading Range (informational) | Closing share price for the 52-week period ended March 5, 2012 ranged from $20.03 to $29.92 per share. | $20.03–$29.92 |
| Analyst Price Target Range (informational) | Wall Street research analyst stock price targets ranged from $27.00 to $34.00 per share. | $27.00–$34.00 |
| Implied Price/Earnings Ratio (from comparable companies range) | Based on the $20.00-$26.00 implied equity value range and FY2012E earnings per management, implied P/E ratios of 14.3x to 18.8x. | — |
Fee terms not disclosed in the sections provided; filing refers to Item 5 for terms of Lazard's engagement. Lazard and Lazard Capital Markets LLC previously provided investment banking services to the Company, including serving as book-runner on a follow-on equity offering.
3,000+ healthcare deal-level valuation multiples
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $157M | $172M | $187M | $201M | 8.5% |
| Revenue growth | 8.5% | 9.5% | 8.4% | 7.5% | |
| EBITDA | $34.3M | $39.0M | $43.3M | $47.2M | 11.2% |
| EBITDA growth | 11.4% | 13.7% | 11.0% | 9.0% | |
| EBITDA margin | 22% | 23% | 23% | 24% | |
| Implied EV / EBITDA | 9.7x | 8.5x | 7.7x | 7.0x |
Year-1 growth is against LTM at announcement ($145M revenue, $30.8M EBITDA); later years are year over year.
Lazard used the Company's non-public Internal Financial Forecasts dated February 2012 covering fiscal years 2012E-2016E. Revenue was projected to grow from $145.0 million in 2012E to $200.7 million in 2016E, with EBITDA of $30.8 million (21.2% margin) in 2012E rising to $47.2 million (23.5% margin) in 2016E. Net income was forecast at $15.6 million (EPS $1.39) in 2012E growing to $25.9 million (EPS $2.15) in 2016E, with after-tax free cash flow of $14.6 million in 2012E rising to $26.5 million in 2016E.
Process notes
Cash tender offer at $29.50 per share by Nuance Communications (Purchaser subsidiary), followed by a back-end merger; top-up option granted. Lazard was sole financial advisor to the Company Board and delivered the only fairness opinion (oral March 6, 2012, confirmed in writing same date). A Transaction Committee of independent directors was formed to act as a resource/provide guidance but had no authority to approve the transaction. Lazard was not authorized to solicit indications of interest from third parties, though it had conversations with one strategic third party. Board negotiated a Company termination fee of no more than 3% of equity value and a reverse termination fee equal to the same Termination Fee Amount payable by Parent if the Regulatory Condition was not satisfied; the specific dollar amounts are not stated in the provided sections. Earlier negotiations referenced a proposed price of $32.50 per share before settling at $29.50. Tender and Voting Agreements dated March 6, 2012 signed with directors and executive officers.
Other Outsourced Services fairness opinions
- Mmodal / One Equity Partners 2012 · 8.1x EV/EBITDA
- SRI Surgical Express / Synergy Health 2012 · 7.6x EV/EBITDA
- Landauer / Fortive 2017 · 18.2x EV/EBITDA
- Advisory Board Healthcare / Optum 2017 · 10.3x EV/EBITDA
- BioTelemetry / Philips 2020 · 23.7x EV/EBITDA
- Sharps Compliance / Aurora Capital Partners 2022 · 25.2x EV/EBITDA