WebMD acquired by Internet Brands: fairness opinion by J.P. Morgan
Deal terms
Implied value per share by method vs. $66.50 offer
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of J.P. Morgan to the target board
Discounted cash flow assumptions
Valuation date June 30, 2017; terminal values at December 31, 2026. Included present value of additional tax savings from NOLs and R&D credit carryforwards, discounted at the same 8.0%-10.0% range. Mean FV/LTM EBITDA of selected transactions was 10.0x.
Selected public companies (14)
IAC/InterActiveCorp · TripAdvisor, Inc. · Match Group, Inc. · Yelp Inc. · LendingTree, Inc. · Bankrate, Inc. · XO Group Inc. · Cerner Corporation · Quintiles IMS Holdings, Inc. · athenahealth, Inc. · Cotiviti Holdings, Inc. · The Advisory Board Company · Allscripts Healthcare Solutions, Inc. · Inovalon Holdings, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| FV / 2017E EBITDA | — | — | — | 8.3x–12.3x | $53.00–$72.00 |
| FV / 2018E EBITDA | — | — | — | 8.0x–10.5x | $50.25–$62.50 |
Selected precedent transactions (8)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2017-07-03 | Bankrate, Inc. | Red Ventures | — |
| 2017-04-24 | Yahoo! Inc. | Verizon Communications, Inc. | — |
| 2016-10-21 | Everyday Health, Inc. | Ziff Davis, LLC | — |
| 2016-07-22 | Yahoo! Inc. | Verizon Communications, Inc. | — |
| 2016-04-01 | Ancestry.com Inc. | Silver Lake Partners | — |
| 2015-05-12 | AOL, Inc. | Verizon Communications, Inc. | — |
| 2014-06-03 | Internet Brands, Inc. | KKR & Co. L.P. | — |
| 2012-10-22 | Ancestry.com Inc. | Permira Advisers LLP | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| FV / LTM EBITDA (LTM ended June 30, 2017) | 8.7x | 9.7x | 12.2x | 8.8x–12.3x | $51.25–$67.25 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-Week Historical Trading Range | 52-week trading range of WebMD shares for the period ending February 15, 2017 (last full trading day prior to first public announcement that WebMD was exploring strategic alternatives) was $48.25-$67.00, versus a closing price of $51.31 on February 15, 2017 and the $66.50 Offer Price. Presented for reference only, not relied upon for valuation. | $48.25–$67.00 |
| Analyst Price Targets | Public equity research analyst price targets for WebMD ranged from $56.00 to $72.00 for the period ending February 15, 2017, with a median of $61.00, compared to the $66.50 Offer Price. Presented for reference only, not relied upon for valuation. | $56.00–$72.00 |
Fee of approximately $30.5 million; $3.0 million payable upon execution of the Merger Agreement and the remainder payable upon closing of the Offer and Merger. J.P. Morgan received ~$0.35 million of fees from WebMD and ~$87.9 million from affiliates of Parent (including KKR and portfolio companies) in the prior two years.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | Year 4 | CAGR |
|---|---|---|---|---|---|
| Revenue | $747M | $800M | $858M | $927M | 7.5% |
| Revenue growth | 1.8% | 7.1% | 7.3% | 8.0% | |
| EBITDA | $238M | $259M | $286M | $318M | 10.1% |
| EBITDA growth | -2.9% | 8.8% | 10.4% | 11.2% | |
| EBITDA margin | 32% | 32% | 33% | 34% | |
| Implied EV / EBITDA | 12.2x | 11.2x | 10.2x | 9.2x |
Year-1 growth is against LTM at announcement ($734M revenue, $245M EBITDA); later years are year over year.
Management prepared the "Management Forecasts" covering fiscal years 2017 through 2021, which were provided to the Board, to J.P. Morgan and (in part) to Parent in diligence. Revenue grows from $734 million in 2017E to $927 million in 2021E; Adjusted EBITDA from $245 million in 2017E to $318 million in 2021E; and unlevered free cash flow (prepared by J.P. Morgan from company data) from $92 million to $155 million. J.P. Morgan extrapolated the forecasts through 2026 with WebMD's consent for use in its DCF.
Process notes
Other Digital / HealthTech fairness opinions
- Athenahealth / Veritas Capital / Evergreen Coast Capital 2018 · 15.5x EV/EBITDA
- Cotiviti / Verscend Technologies 2018 · 16.3x EV/EBITDA
- Connecture / Francisco Partners 2018
- Press Ganey Holdings / EQT 2016 · 16.1x EV/EBITDA
- Everyday Health / Ziff Davis 2016 · 10.3x EV/EBITDA
- Imprivata / Thoma Bravo 2016