Virtual Radiologic acquired by Providence Equity Partners: fairness opinion by Goldman Sachs
Deal terms
Implied value per share by method vs. $17.25 offer
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
Discounted cash flow assumptions
Unlevered free cash flows discounted back to March 31, 2010; EBITDA estimates adjusted to add back medical malpractice reserve accruals.
Selected public companies (9)
Alliance Healthcare Services, Inc. · RadNet, Inc. · NightHawk Radiology Holdings, Inc. · MEDNAX, Inc. · Emergency Medical Services L.P. · Team Health, Inc. · IPC The Hospitalist Company, Inc. · AMN Healthcare Services, Inc. · Cross Country Healthcare, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2010E EBITDA | 5.3x | 8.7x | 13.2x | — | — |
| EV / CY2011E EBITDA | 5.0x | 8.0x | 10.4x | — | — |
| P / CY2010E EPS | 13.0x | 14.1x | 20.7x | — | — |
| P / CY2011E EPS | 9.4x | 15.8x | 31.7x | — | — |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Historical Stock Trading Analysis | $17.25 represented a 32.8% premium to the $12.99 closing price on May 14, 2010, a 54.9% premium to the three-month average closing price ended May 14, 2010, and a 25% premium to the highest closing price during the twelve-month period ended May 14, 2010. | — |
| Illustrative Present Value of Future Share Price — P/E Analysis | Applied forward P/E multiples of 14.0x and 16.0x to forward-year EPS estimates for fiscal years 2010-2014, discounted to March 31, 2010 at 11%-14% cost of equity. Ranges: 2010 $12.27-$14.02; 2011 $12.06-$14.06; 2012 $12.32-$14.75; 2013 $13.25-$16.30; 2014 $14.66-$18.52. | $12.06–$18.52 |
| Illustrative Present Value of Future Share Price — EBITDA Analysis | Applied EV/forward EBITDA multiples of 5.0x and 6.0x for fiscal years 2010-2014, discounted to March 31, 2010 at 11%-14%. Ranges: 2010 $12.44-$14.20; 2011 $11.94-$13.94; 2012 $11.70-$14.10; 2013 $12.15-$15.08; 2014 $13.13-$16.87. | $11.70–$16.87 |
| Illustrative Leveraged Buyout Analysis | Assumed a hypothetical financial buyer purchase price of $17.25 per share, leverage of 3.5x-4.5x, weighted average interest rate of 7.00%-11.00%, and a 2014 exit at 5.5x-7.5x one-year forward EBITDA (EBITDA adjusted for malpractice accruals, stock comp and $1.0 million of public-company cost savings). Implied IRRs of 19.3% to 22.6%. | — |
| Implied Multiples of Virtual Radiologic at Merger Consideration | At $17.25: EV/2010E EBITDA 7.9x and 2011E 7.2x, P/E 20.8x (2010) and 19.2x (2011) using IBES medians; 7.7x/7.2x EBITDA and 19.6x/18.1x P/E using the Forecasts. At the $12.99 closing price: 5.4x/4.9x EBITDA and 15.7x/14.4x P/E (IBES); 5.3x/4.9x and 14.8x/13.7x (Forecasts). | — |
Transaction fee of approximately $3 million, all contingent upon consummation of the merger; plus expense reimbursement and indemnification. Engagement letter dated January 12, 2010.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $151M | $182M | $234M | $319M | 28.3% |
| Revenue growth | 13.0% | 20.5% | 28.5% | 36.3% | |
| EBITDA | $33.6M | $39.0M | $48.7M | $63.4M | 23.6% |
| EBITDA growth | 8.4% | 16.1% | 24.9% | 30.2% | |
| EBITDA margin | 22% | 21% | 21% | 20% | |
| Implied EV / EBITDA | 8.8x | 7.5x | 6.0x | 4.6x |
Year-1 growth is against LTM at announcement ($134M revenue, $31.0M EBITDA); later years are year over year.
Goldman Sachs used internal financial analyses and forecasts for fiscal years 2010 through 2014 prepared by Virtual Radiologic management and approved for Goldman Sachs' use (the "Forecasts"), along with IBES median estimates for comparison. The Forecasts implied EV/EBITDA multiples of 5.3x (2010E) and 4.9x (2011E) at the $12.99 market price. For certain analyses, EBITDA estimates were adjusted per company guidance to add back medical malpractice reserve accruals (and, in the LBO analysis, stock-based compensation and $1.0 million in annual public-company cost savings). No specific revenue or EBITDA dollar figures were disclosed in the excerpted sections.
Process notes
Other Physician Groups fairness opinions
- Nighthawk Radiology Holdings / Virtual Radiologic 2010 · 12.9x EV/EBITDA
- Continucare / Metropolitan Health Networks 2011 · 9.2x EV/EBITDA
- Emergency Medical Services / Clayton, Dubilier & Rice 2011 · 10.2x EV/EBITDA
- Metropolitan Health Networks / Humana 2012 · 8.2x EV/EBITDA
- IPC Healthcare / TeamHealth 2015 · 22.5x EV/EBITDA
- Network Medical Management / Apollo Medical Holdings 2016 · 9.5x EV/EBITDA