Vascular Solutions acquired by Teleflex: fairness opinion by Guggenheim Securities
Announced December 2, 2016 · One-step merger · All cash ·
DEFM14A filed January 18, 2017
Medical Devices and Supplies Medical Devices
Enterprise value
$976M
EV / LTM EBITDA
25.7x
EBITDA $38.0M · 23% margin
EV / LTM revenue
5.86x
revenue $166M
DCF discount rate
9.4%–11.4%
Perpetuity growth
Deal terms
ConsiderationAll cash
Price per share$56.00
Premium2.0%
Premium basisclosing stock price of $55.10 on 11/30/16, the last full trading day prior to execution of the merger agreement
StructureOne-step merger
Termination fee$35.0M (3.5% of equity)
Reverse termination fee—
Go-shopNone
Outside date—
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $56.00 offer
Selected companies — EV / 2017E Revenue $37.50 – $51.00
Precedent transactions — Transaction Value / NTM Revenue (primary precedent transactions - overall range) $39.75 – $71.75
Precedent transactions — Transaction Value / NTM Revenue (focused range - two most recent precedent transactions) $50.50 – $55.75
Discounted cash flow $38.50 – $55.25
Stock price trading history (past year range) $24.25 – $55.25
Wall Street equity research analyst price targets (discounted) $44.25 – $52.50
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Guggenheim Securities to the target board
Delivered December 1, 2016 · Fee $15.5M ($15.5M contingent on closing), $1.0M on delivery of the opinion
Discounted cash flow assumptions
Discount rate9.4%–11.4%
Basisestimate of Vascular Solutions' weighted average cost of capital
Terminal valuePerpetuity growth
Perpetuity growth2.0%–3.0%
Exit multiple—
Projection period2016E-2021E
Projections usedupdated management projections; primary case probability-adjusted (75% probability of success applied to RePlas freeze dried plasma and large bore closure products, R&D costs weighted at 100%); non-probability-adjusted case for informational reference
Implied value per share$38.50–$55.25
Two-stage terminal/continuing value methodology. Non-probability-adjusted DCF implied $41.75 - $60.50 per share.
Selected public companies (7)
AtriCure Inc. · MiMedx Group Inc. · Cardiovascular Systems Inc. · Spectranetics Corp. · Cynosure, Inc. · ZELTIQ Aesthetics Inc. · K2M Group Holdings Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / 2017E Revenue | 1.9x | 3.5x | 4.5x | 3.3x–4.5x | $37.50–$51.00 |
Selected precedent transactions (13)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2016-06-27 | HeartWare International, Inc. | Medtronic plc | — |
| 2016-06-07 | LDR Holding Corp. | Zimmer Biomet Holdings, Inc. | — |
| 2014-10-27 | Tornier B.V. | Wright Medical Group N.V. | — |
| 2013-12-08 | Given Imaging Ltd. | Covidien plc | — |
| 2013-04-29 | Conceptus Inc. | Bayer Healthcare LLC | — |
| 2012-11-28 | Healthpoint Biotherapeutics | Smith & Nephew plc | — |
| 2012-03-12 | ZOLL Medical Corporation | Asahi Kasei Corporation | — |
| 2011-12-15 | SonoSite, Inc. | Fujifilm Holdings Corporation | — |
| 2016-02-16 | Physio-Control International, Inc. | Stryker Corporation | — |
| 2016-02-02 | Creganna Medical Group | TE Connectivity Ltd. | — |
| 2016-02-01 | Sage Products, LLC | Stryker Corporation | — |
| 2015-09-15 | Sirona Dental Systems Inc. | Dentsply International Inc. | — |
| 2015-03-02 | Endo AMS Men's Health and Prostate Health businesses | Boston Scientific Corporation | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Transaction Value / NTM Revenue (primary precedent transactions - overall range) | — | 3.9x | — | 3.5x–6.5x | $39.75–$71.75 |
| Transaction Value / NTM Revenue (focused range - two most recent precedent transactions) | — | — | — | 4.5x–5.0x | $50.50–$55.75 |
| Transaction Value / NTM EBITDA (other precedent transactions, informational) | — | 14.0x | — | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Stock price trading history (past year range) | For informational reference purposes, stock price range during the past year of $24.25 - $55.25; merger price exceeded all-time intraday high of $55.30, closing price of $55.10 on 11/30/16, unaffected price of $49.90 on 11/15/16 and 20-day unaffected VWAP of $47.10. | $24.25–$55.25 |
| Wall Street equity research analyst price targets (discounted) | Analyst price targets ranged $49.00 - $58.00 per share, or approximately $44.25 - $52.50 on a present value basis as of 11/30/16 using an illustrative 10.62% discount rate (midpoint of cost of equity). | $44.25–$52.50 |
| Recap of implied merger financial metrics | At $56.00 per share: premia of 2% to 11/30/16 close, 12% to unaffected 11/15/16 price, 19% to unaffected 20-day VWAP, 1% to intraday all-time high. EV/Revenue of 5.81x 2016CY, 4.96x 2017CY, 5.02x NTM; EV/Adj. EBITDA of 25.4x 2016CY, 18.9x 2017CY, 19.3x NTM, 25.8x LTM; Adj. P/E of 31.5x 2017CY (management estimates). | — |
Cash transaction fee (percentage of aggregate consideration) estimated at approximately $15,460,000 payable upon consummation; $1,000,000 cash milestone fee payable upon delivery of the opinion, credited against the transaction fee.
3,000+ healthcare deal-level valuation multiples
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Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | Year 5 | CAGR |
|---|---|---|---|---|---|---|
| Revenue | $195M | $229M | $260M | $302M | $339M | 14.9% |
| Revenue growth | 17.1% | 17.7% | 13.3% | 16.3% | 12.3% | |
| EBITDA | $51.0M | $60.2M | $71.8M | $85.9M | $98.1M | 17.8% |
| EBITDA growth | 34.2% | 18.0% | 19.3% | 19.6% | 14.2% | |
| EBITDA margin | 26% | 26% | 28% | 28% | 29% | |
| Implied EV / EBITDA | 19.1x | 16.2x | 13.6x | 11.4x | 9.9x |
Year-1 growth is against LTM at announcement ($166M revenue, $38.0M EBITDA); later years are year over year.
Guggenheim Securities relied on the "updated projections" prepared by Vascular Solutions' senior management covering calendar years ending December 31, 2016 through December 31, 2021. Its primary DCF used a probability-adjusted case derived from those projections, assuming a 75% probability of success (per management direction) for the RePlas freeze dried plasma product and the large bore closure product, with R&D costs weighted at 100%; the non-probability-adjusted updated projections were used for informational reference only. Implied merger multiples on management estimates included EV/2016CY revenue of 5.81x, EV/2017CY revenue of 4.96x and EV/2017CY Adj. EBITDA of 18.9x.
Process notes
Single financial advisor (Guggenheim Securities) delivering an opinion to the Vascular Solutions board on December 1, 2016; no special committee. Guggenheim had performed prior work for Teleflex (a preliminary WACC analysis in July 2016), which was disclosed to the board. Termination fee of $35 million equals approximately 3.5% of transaction/equity value; negotiated up from 2.5% in exchange for Teleflex dropping a $7 million expense reimbursement demand. Deal price of $56.00 was above the selected companies, focused precedent transaction and probability-adjusted DCF reference ranges, and above the all-time intraday high stock price of $55.30. Board recommendation change/matching period: four business days (agreement text erroneously refers to five).
Other Medical Devices and Supplies fairness opinions
- EndoChoice Holdings / Boston Scientific 2016
- HeartWare International / Medtronic 2016
- Hansen Medical / Auris Surgical Robotics 2016
- LDR Holding / Zimmer Biomet Holdings 2016
- Symmetry Surgical / Roundtable Healthcare Partners 2016 · 12.6x EV/EBITDA
- Newport / MKS Instruments 2016 · 8.2x EV/EBITDA
All Medical Devices and Supplies opinions → · Guggenheim Securities opinions