Wright Medical Group acquired by StrykerCorp.: fairness opinion by Guggenheim Securities
Deal terms
Implied value per share by method vs. $30.75 offer
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
Discounted cash flow assumptions
After-tax unlevered free cash flows (after deducting stock-based compensation). Two-stage terminal value methodology in which free cash flow growth decelerates linearly to the assumed perpetuity growth rate by 2029, thereafter perpetuity growth applied. High end includes approximately $1.00 per share for the estimated present value (as of November 1, 2019) of Wright's net operating loss carryforwards as of December 31, 2018.
Selected public companies (8)
AtriCure, Inc. · Avanos Medical, Inc. · BioTelemetry, Inc. · Cardiovascular Systems, Inc. · CryoLife, Inc. · Globus Medical, Inc. · Masimo Corporation · Nevro Corp.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / CY2020E Revenue | 2.8x | 4.6x | 8.1x | 4.0x–5.5x | $23.00–$34.00 |
Selected precedent transactions (9)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2018-08-30 | K2M Group Holdings, Inc. | Stryker Corporation | 4.8x EV / NTM Revenue |
| 2017-12-04 | Exactech, Inc. | TPG Capital | 2.6x EV / NTM Revenue |
| 2017-08-07 | NxStage Medical, Inc. | Fresenius Medical Care Holdings, Inc. | 4.7x EV / NTM Revenue |
| 2017-02-14 | Cynosure, Inc. | Hologic, Inc. | 2.9x EV / NTM Revenue |
| 2017-02-13 | ZELTIQ Aesthetics, Inc. | Allergan Plc | 5.7x EV / NTM Revenue |
| 2016-12-02 | Vascular Solutions, Inc. | Teleflex Incorporated | 5.4x EV / NTM Revenue |
| 2016-06-27 | HeartWare International, Inc. | Medtronic plc | 4.6x EV / NTM Revenue |
| 2016-06-07 | LDR Holding Corporation | Zimmer Biomet Holdings, Inc. | 5.4x EV / NTM Revenue |
| 2016-02-01 | Sage Products, LLC | Stryker Corporation | 5.7x EV / NTM Revenue |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| EV / NTM Revenue | 2.6x | 4.8x | 5.7x | 4.6x–5.5x | $26.75–$33.00 |
| EV / NTM EBITDA | 14.1x | 20.3x | 46.3x | 20.0x–26.0x | $22.25–$31.00 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| 52-Week Intraday High/Low Stock Prices (informational) | Trading price of Shares over the 52-week period ending October 31, 2019 (last full trading day before a 5.8% increase on November 1, 2019 coinciding with a Bloomberg sale article); intraday range $19.04-$32.86 (summary table shows $19.00-$32.75 rounded). | $19.04–$32.86 |
| Wall Street Equity Research Analyst Price Targets (informational) | Analyst 12-month price targets published prior to October 31, 2019, discounted one year at an illustrative 7.7% discount rate (midpoint of estimated cost of equity), implying $21.25-$29.75 per share. | $21.25–$29.75 |
| Precedent One-Day Stock Price Premiums (informational) | One-day premiums in MedTech transactions announced since 2016 with transaction values over $700 million; approximate 25th-75th percentile range of 30%-50% applied to the $20.80 October 31, 2019 closing price, implying $27.00-$31.25 per share. | $27.00–$31.25 |
| Illustrative Theoretical Future Stock Price (informational) | Theoretical future values per share at January 1 of 2020-2023 using Management Forecast revenues: $21.58/$25.05/$29.77/$34.79 at current 3.8x NTM revenue multiple and $26.80/$30.73/$35.46/$41.06 at an illustrative upside 4.5x multiple. Present values at a 7.7% discount rate: $21.58/$23.26/$25.65/$27.84 (3.8x) and $26.80/$28.53/$30.56/$32.85 (4.5x). | $21.58–$32.85 |
| Transaction-Implied Premiums and Multiples | At $30.75 per share: 48% premium to $20.80 unaffected price (10/31/19), 48% to 10-day VWAP ($20.84), 50% to 30-day VWAP ($20.49), 46% to 90-day VWAP ($21.06) and a (6)% discount to the $32.86 52-week high. EV/CY2020E revenue of 5.2x (Management Forecast) / 5.3x (consensus); EV/NTM revenue @ 9/30/19 of 5.3x / 5.4x; EV/CY2020E Adj. EBITDA of 24.9x / 26.4x; EV/NTM Adj. EBITDA of 26.6x / 27.9x. | — |
Cash transaction fee based on a percentage of aggregate transaction value, payable upon consummation, currently estimated at $37.6 million; a $1.0 million cash milestone fee became payable upon rendering of the opinion and is creditable against the transaction fee. Expense reimbursement and indemnification also provided.
Management projections
| Projection year | Year 1 | Year 2 | Year 3 | CAGR |
|---|---|---|---|---|
| Revenue | $1.3B | $1.5B | $1.7B | 11.9% |
| Revenue growth | 12.6% | 12.5% | 11.3% | |
| EBITDA | $333M | $405M | $467M | 18.4% |
| EBITDA growth | 19.4% | 21.6% | 15.3% | |
| EBITDA margin | 25% | 27% | 28% | |
| Implied EV / EBITDA | 12.3x | 10.1x | 8.7x |
Year-1 growth is against LTM at announcement ($1.2B revenue, $279M EBITDA); later years are year over year.
Guggenheim Securities relied on the "Management Forecast" prepared and approved for its use by Wright's senior management, which was used for the discounted cash flow analysis (after-tax unlevered free cash flows after deducting stock-based compensation) and for the theoretical future stock price analysis using projected revenues through 2023. The DCF applied a two-stage terminal value in which free cash flow growth decelerates linearly to the perpetuity growth rate by 2029. Wright's CY2020E Management Forecast implied an EV/revenue multiple of 3.7x on a standalone trading basis and 5.2x at the offer price, with EV/CY2020E Adj. EBITDA of 24.9x at the offer price.
Process notes
Other Medical Devices and Supplies fairness opinions
- CAS Medical Systems / Edwards Lifesciences 2019
- Osiris Therapeutics / Smith & Nephew 2019 · 28.8x EV/EBITDA
- Varian Medical Systems / Siemens Healthineers 2020 · 29.4x EV/EBITDA
- K2M Group Holdings / StrykerCorp. 2018 · 92.0x EV/EBITDA
- Invuity / StrykerCorp. 2018
- Cogentix Medical / Laborie 2018 · 101.9x EV/EBITDA
All Medical Devices and Supplies opinions → · Guggenheim Securities opinions