Young Innovations acquired by Linden: fairness opinion by Robert W Baird
Announced December 4, 2012 · Going-private · All cash ·
DEFM14A filed January 3, 2013
Enterprise value
$314M
equity $314M
EV / LTM EBITDA
10.5x
EBITDA $29.8M · 27% margin
EV / LTM revenue
2.87x
revenue $110M
DCF discount rate
12.0%–13.0%
Exit multiple
Deal terms
ConsiderationAll cash
Price per share$39.50
Premium10.9%
Premium basisclosing price 1 day prior to 11/30/2012 of $35.62
StructureGoing-private
Termination fee$11.0M
Reverse termination fee$18.8M
Go-shop40 days · $5.5M reduced fee
Outside dateMarch 29, 2013
FilingDEFM14A · EDGAR index
Implied value per share by method vs. $39.50 offer
Selected companies — TEV / LTM Revenue $20.08 – $52.68
Selected companies — TEV / 2012E Revenue $20.32 – $52.37
Selected companies — TEV / 2013P Revenue $20.72 – $48.98
Selected companies — TEV / LTM EBITDA $27.68 – $52.59
Selected companies — TEV / 2012E EBITDA $30.19 – $55.08
Selected companies — TEV / 2013P EBITDA $31.07 – $51.16
Selected companies — TEV / LTM EBIT $33.03 – $63.31
Selected companies — TEV / 2012E EBIT $37.38 – $61.81
Selected companies — TEV / 2013P EBIT $37.81 – $57.09
Selected companies — P / LTM EPS $33.88 – $57.66
Selected companies — P / 2012E EPS $34.20 – $56.79
Selected companies — P / 2013P EPS $32.52 – $50.28
Precedent transactions — Total purchase price / LTM Revenue (applied to 2012E revenue) $9.18 – $72.09
Precedent transactions — Total purchase price / LTM EBITDA (applied to 2012E EBITDA) $30.95 – $63.54
Precedent transactions — Total purchase price / LTM EBIT (applied to 2012E EBIT) $34.21 – $78.97
Discounted cash flow $39.45 – $44.10
Leveraged Buyout Analysis $34.69 – $41.65
Price Activity / Historical Trading $9.48 – $39.67
Ranges as disclosed in the banker’s summary of analyses; the red line marks the per-share consideration.
Opinion of Robert W Baird to the target board
Delivered December 3, 2012
Discounted cash flow assumptions
Discount rate12.0%–13.0%
Basisestimates of the Company's weighted average cost of capital
Terminal valueExit multiple
Perpetuity growth—
Exit multiple9.0x–10.0x 2017 EBITDA
Projection period2013-2017
Projections usedCompany senior management projections (the Forecasts, 2012-2017)
Implied value per share$39.45–$44.10
Unlevered free cash flows defined as after-tax operating income using assumed 35% tax rate, plus depreciation, less increases in net working capital, less capex; present values of free cash flows calculated from 2012 to 2017.
Selected public companies (7)
Align Technology, Inc. · Nobel Biocare Holding AG · ATRION Corporation · Sirona Dental Systems, Inc. · DENTSPLY International Inc. · Terumo Corporation · ICU Medical, Inc.
| Multiple | Peer low | Peer median | Peer high | Range applied | Implied per share |
|---|---|---|---|---|---|
| TEV / LTM Revenue | 1.3x | 2.5x | 3.6x | — | $20.08–$52.68 |
| TEV / 2012E Revenue | 1.3x | 2.5x | 3.6x | — | $20.32–$52.37 |
| TEV / 2013P Revenue | 1.2x | 2.5x | 3.2x | — | $20.72–$48.98 |
| TEV / LTM EBITDA | 6.7x | 9.6x | 13.4x | — | $27.68–$52.59 |
| TEV / 2012E EBITDA | 7.3x | 10.6x | 13.9x | — | $30.19–$55.08 |
| TEV / 2013P EBITDA | 7.1x | 9.7x | 12.1x | — | $31.07–$51.16 |
| TEV / LTM EBIT | 9.4x | 13.8x | 18.9x | — | $33.03–$63.31 |
| TEV / 2012E EBIT | 10.6x | 15.7x | 18.2x | — | $37.38–$61.81 |
| TEV / 2013P EBIT | 10.2x | 14.3x | 15.8x | — | $37.81–$57.09 |
| P / LTM EPS | 15.6x | 22.8x | 26.6x | — | $33.88–$57.66 |
| P / 2012E EPS | 15.8x | 20.4x | 26.3x | — | $34.20–$56.79 |
| P / 2013P EPS | 14.4x | 16.9x | 22.3x | — | $32.52–$50.28 |
Selected precedent transactions (15)
| Date | Target | Acquirer | Multiple |
|---|---|---|---|
| 2012-08-08 | BSN Medical GmbH | EQT Partners AB | — |
| 2012-07-23 | Aspen Surgical Products, Inc. | Hill-Rom, Inc. | — |
| 2012-05-31 | SunTech Medical Group | Halma plc | — |
| 2011-12-20 | RESORBA Wundversorgung GmbH & Co. KG | Advanced Medical Solutions Group plc | — |
| 2011-10-17 | Reichert, Inc. | Ametek Inc. | — |
| 2011-08-31 | Astra Tech AB | DENTSPLY International Inc. | — |
| 2011-08-02 | Byrne Medical, Inc. | Medivators Inc. | — |
| 2011-04-29 | Cadent Inc. | Align Technology Inc. | — |
| 2011-03-04 | O.R. Solutions, Inc. | Ecolab Inc. | — |
| 2010-10-01 | Gaymar Industries, Inc. | Stryker Corporation | — |
| 2010-08-27 | AVID Medical, Inc. | Medical Action Industries Inc. | — |
| 2010-07-06 | SenoRx, Inc. | Bard Peripheral Vascular, Inc. | — |
| 2009-02-26 | Advanced Medical Optics, Inc. | Abbott Laboratories | — |
| 2008-07-28 | NeedleTech Products, Inc. | Theragenics Corporation | — |
| 2008-06-05 | Specialized Health Products International, Inc. | C.R. Bard, Inc. | — |
| Multiple | Low | Median | High | Range applied | Implied per share |
|---|---|---|---|---|---|
| Total purchase price / LTM Revenue (applied to 2012E revenue) | 0.5x | 2.8x | 5.0x | — | $9.18–$72.09 |
| Total purchase price / LTM EBITDA (applied to 2012E EBITDA) | 7.5x | 10.9x | 16.1x | — | $30.95–$63.54 |
| Total purchase price / LTM EBIT (applied to 2012E EBIT) | 9.7x | 13.5x | 23.5x | — | $34.21–$78.97 |
Other analyses
| Analysis | Summary | Implied per share |
|---|---|---|
| Implied Valuation and Transaction Multiples | At $39.50/share, implied equity purchase price of $314.0 million and total purchase price of $291.4 million; implied multiples: LTM/2012E/2013P revenue 2.7x/2.7x/2.6x, EBITDA 9.9x/9.8x/9.2x, EBIT 11.5x/11.3x/10.7x, EPS 18.2x/18.4x/17.5x. | — |
| Leveraged Buyout Analysis | Illustrative LBO assuming transaction date of 12/31/2012, total debt/LTM EBITDA of 6.0x, exit at end of 2017 at 9.0x-10.0x LTM EBITDA and sponsor IRRs of 18%-25%. Implied equity values per share: 9.0x exit $34.69-$39.06; 9.5x exit $35.67-$40.35; 10.0x exit $36.64-$41.65. | $34.69–$41.65 |
| Price Activity / Historical Trading | High and low closing prices for Young common stock over the last five years were $39.67 and $9.48; stock rose 24.7% over LTM, 49.2% over three years and 57.0% over five years, outperforming an index of the selected companies. | $9.48–$39.67 |
| Premiums Paid Analysis | Implied merger premiums vs. prices as of 11/30/12: 10.9% (1-day, $35.62), 10.2% (7-days, $35.84), 15.7% (30-days, $34.15), 16.0% (180-days, $34.04), 36.1% (360-days, $29.03), compared with 75 U.S. target announced transactions with enterprise value between $100 million and $1 billion from 11/30/2011 to 11/30/2012 (medians 37.1%, 37.1%, 33.4%, 47.6%, 48.1%). | — |
| Pro Forma Financial Effects Review | Baird reviewed certain potential pro forma financial effects of the merger furnished and prepared by the Company's management. | — |
Transaction fee equal to 1% of transaction value, approximately 84% of which is contingent upon consummation of the merger; plus a non-refundable retainer of $100,000 and a $400,000 fee payable upon delivery of the opinion (both creditable against the transaction fee). Baird previously received $2,600,000 for advisory services to BarrierSafe Solutions International, a portfolio company affiliated with the controlling equity owner of Parent, and $50,000 for evaluating strategic alternatives with Young over the past three years.
3,000+ healthcare deal-level valuation multiples
The Valuation database includes financial details for more than 3,000 healthcare M&A transactions, private and public, with deal-level multiples, categorized by segment, type, and year.
Management projections
Baird relied on internal financial forecasts for 2012-2017 concerning the Company's business and operations prepared by Young management (the "Forecasts"), plus Baird equity research earnings estimates for 2012 and 2013. The DCF used projected unlevered free cash flows from 2013 to 2017 (present values computed 2012-2017), with an assumed 35% tax rate; the LBO analysis used management projections for fiscal 2012 through fiscal 2017. Specific revenue and EBITDA dollar amounts were not disclosed in the excerpted sections, though implied 2012E multiples (2.7x revenue, 9.8x EBITDA) were shown.
Process notes
Going-private LBO by Linden Capital Partners; financing consisted of $125 million of equity commitments, $140 million of senior secured facilities ($130M term loan, $10M revolver) and a $65 million mezzanine facility. Baird was sole advisor and delivered the only fairness opinion (to the full Board; no special committee). The merger agreement included a 40-day go-shop period ending January 12, 2013, with a reduced $5.494 million break fee; Baird contacted 90 potential bidders (62 financial, 28 strategic) and 13 signed confidentiality agreements, but no acquisition proposals were received as of January 2, 2013. Shareholders holding ~30% (2,345,691 shares) placed their shares in a voting trust administered by Parent. Baird had previously advised BarrierSafe Solutions International, a portfolio company affiliated with Parent's controlling equity owner, receiving $2.6 million. Expense reimbursement to Parent capped at $1 million; Linden Capital Partners II LP guaranteed 100% of the $18.838 million reverse termination fee.
Other Medical Devices and Supplies fairness opinions
- Kensey Nash / Royal DSM 2012 · 11.4x EV/EBITDA
- Solta Medical / Valeant Pharmaceuticals International 2013 · 11.2x EV/EBITDA
- Rochester Medical / C. R. Bard 2013 · 13.1x EV/EBITDA
- Theragenics / Juniper Investment 2013 · 9.6x EV/EBITDA
- Conceptus / Bayer HealthCare 2013 · 28.0x EV/EBITDA
- Synthes / Johnson & Johnson 2011 · 9.6x EV/EBITDA
All Medical Devices and Supplies opinions → · Robert W Baird opinions