Fairness opinions › Distribution and Equipment Services › 2018

Universal Hospital Services acquired by Federal Street Acquisition: fairness opinion by Moelis & Company

Announced August 13, 2018 · SPAC merger · Cash and stock · DEFM14A filed October 10, 2018

Distribution and Equipment Services Biomedical / Equipment Services Sponsor: Thomas H. Lee Partners (THL) / FSAC Sponsor

Enterprise value

$1.7B

equity $1.6B

EV / LTM EBITDA

11.9x

EBITDA $146M · 27% margin

EV / LTM revenue

3.23x

revenue $539M

DCF discount rate

8.5%–10.0%

Exit multiple

Deal terms

ConsiderationCash and stock

Price per share—

Premium—

Premium basis—

StructureSPAC merger

Termination fee—

Reverse termination fee—

Go-shopNone

Outside dateDecember 31, 2018

FilingDEFM14A · EDGAR index

Aggregate merger consideration to UHS Holdco Selling Equityholders of approximately $1.58 billion, payable in a combination of cash and equity. Equity consideration consists of newly issued Agiliti common stock and fully-vested rollover options valued in aggregate at up to $335.0 million (Maximum Equity Consideration), with Agiliti common stock valued at $10.00 per share; the remainder paid in cash. Implied initial enterprise value of the combined company approximately $1.74 billion.

Opinion of Moelis & Company to the acquirer board

Delivered August 13, 2018 · Fee $1.0M ($0.8M contingent on closing), $0.3M on delivery of the opinion

Discounted cash flow assumptions

Discount rate8.5%–10.0%

BasisFSAC's estimated weighted average cost of capital derived using the capital asset pricing model, taking into consideration capitalization and market data for the selected public companies

Terminal valueExit multiple

Perpetuity growth3.4%–5.6%

Exit multiple10.0x–12.0x terminal unlevered free cash flow / NTM EBITDA terminal multiple

Projection period2H2018E-CY2023E

Projections usedfinancial forecasts and other information provided by FSAC's management

Implied value per share—

Unlevered after-tax free cash flows through CY2023 and terminal value discounted to June 30, 2018; assumed tax rate of 25.7% during projection period and terminal year, plus present value of potential tax benefits from certain NOLs. Implied total enterprise value range $1,830 million - $2,265 million versus $1,740 million consideration. Implied perpetuity growth rate range of 3.4% to 5.6%.

Selected public companies (12)

Sodexo S.A. · Aramark · STERIS Corporation · Hill-Rom Holdings, Inc. · Stericycle, Inc. · Fisher & Paykel Healthcare Corporation Limited · Getinge AB · Healthcare Services Group, Inc. · Omnicell, Inc. · Arjo AB · Natus Medical Incorporated · Invacare Corporation

Multiple	Peer low	Peer median	Peer high	Range applied	Implied per share
EV / CY2018E Adjusted EBITDA	9.6x	15.3x	24.9x	11.0x–14.5x	—
EV / CY2019E Adjusted EBITDA	8.6x	13.6x	21.7x	10.0x–13.5x	—

Selected precedent transactions (21)

Date	Target	Acquirer	Multiple
2018-04	Medical Specialties Distributors	McKesson Corporation	—
2017-11	RXC Acquisition Company	McKesson Specialty Health	—
2017-10	Avendra, LLC	Aramark Services	16.9x TV / LTM EBITDA
2017-08	Symphony Health Solutions Corporation	PRA Health Sciences, Inc.	13.3x TV / LTM EBITDA
2017-02	J&J (Codman Neurosurgery Business)	Integra LifeSciences Holdings Corporation	9.1x TV / LTM EBITDA
2016-02	Physio-Control International Inc	Stryker Corp	—
2015-11	SurgiQuest, Inc.	CONMED Corporation	—
2015-10	Aesynt Inc	Omnicell	10.9x TV / LTM EBITDA
2015-10	The Braun Corp	Patricia Industries	11.5x TV / LTM EBITDA
2015-07	Shred-It International	Stericycle	9.9x TV / LTM EBITDA (estimated CY2015E pro forma EBITDA)
2015-06	Welch Allyn, Inc.	Hill-Rom	13.7x TV / LTM EBITDA (estimated CY2015E EBITDA)
2014-10	Synergy Health plc	STERIS	13.2x TV / LTM EBITDA
2014-10	CareFusion Corporation	Becton, Dickinson, and Company	13.1x TV / LTM EBITDA
2014-06	Medical Action Industries Inc.	Owens & Minor, Inc.	14.1x TV / LTM EBITDA
2014-06	Trumpf Medical	Hill-Rom	10.9x TV / LTM EBITDA
2014-04	PSC Environmental Services, LLC	Stericycle	—
2013-11	BarrierSafe Solutions International	Ansell Limited	9.6x TV / LTM EBITDA
2012-12	Precision Dynamics Corporation	Brady Corporation	9.1x TV / LTM EBITDA
2012-08	Kinetic Therapeutic Support Systems	Getinge AB	5.7x TV / LTM EBITDA (CY2011 EBITDA)
2012-07	Aspen Surgical Products	Hill-Rom	—
2011-09	Puras do Brasil	Sodexo S.A.	—

Multiple	Low	Median	High	Range applied	Implied per share
Transaction Value / LTM 3/31/18 Adjusted EBITDA	5.7x	11.2x	16.9x	12.0x–14.0x	—

Other analyses

Analysis	Summary	Implied per share
Selected Public Companies Analysis — implied enterprise value	Applying 11.0x-14.5x to CY2018 Adjusted EBITDA implied total enterprise value of $1,650-$2,175 million; applying 10.0x-13.5x to CY2019 Adjusted EBITDA implied $1,700-$2,295 million, versus $1,740 million consideration.	—
Selected Precedent Transactions Analysis — implied enterprise value	Applying 12.0x-14.0x to LTM 3/31/18 Adjusted EBITDA implied total enterprise value of $1,720-$2,005 million versus $1,740 million consideration. Precedent set mean 11.5x, median 11.2x LTM EBITDA.	—

Engagement letter dated July 31, 2018. Total fee of $1,000,000; $250,000 payable upon delivery of the opinion regardless of conclusion; remainder payable upon consummation of the Business Combination or, if the Merger Agreement is terminated prior to closing, within 30 days following termination. Expense reimbursement capped at $50,000 without FSAC consent; indemnification provided.

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Management projections

UHS provided FSAC with internally prepared projections for fiscal years 2018 through 2020 (initial set April 4, 2018; updated Adjusted EBITDA guidance and revenue growth rates for 2018 and 2019 in June 2018). Key figures: revenue growth of 9%-11%; Adjusted EBITDA of $145.0-$150.0 million for 2018 and $165.0-$170.0 million for 2019; accrual capex of $45-$55 million in each of 2018 and 2019; pro forma net leverage at close of 4.5x declining 0.4x-0.6x in 2019; and long-term Adjusted EBITDA CAGR of 9%-11%. Moelis used financial forecasts and Adjusted EBITDA estimates provided by FSAC's management, extending to CY2023 for its DCF analysis.

Process notes

SPAC business combination: Federal Street Acquisition Corp. (a THL-sponsored SPAC) acquiring Universal Hospital Services (UHS Holdco), with the combined company to become publicly traded as Agiliti. Moelis & Company delivered its opinion to the FSAC board (the acquirer), opining that the Consideration was fair from a financial point of view to FSAC — no opinion was delivered to the UHS side. Moelis' analyses were expressed as implied total enterprise value ranges compared to the $1,740 million consideration, not per-share values. Financing includes a $250.0 million private placement (including $200.0 million from THL Stockholder), a $660.0 million delayed draw senior secured term loan and a $150.0 million revolving facility. No termination fee; instead FSAC agreed to reimburse UHS Holdco up to $1.5 million of expenses upon certain terminations. Moelis had not provided services to FSAC, UHS or their affiliates in the prior two years.

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Patterson Companies / Patient Square Capital 2024 · 12.0x EV/EBITDA
Agiliti / Thomas H. Lee Partners 2024 · 9.4x EV/EBITDA
PSS World Medical / McKesson 2012 · 10.6x EV/EBITDA
Quipt Home Medical / Kingswood Capital Management / Forager Capital Management 2025 · 4.7x EV/EBITDA

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