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As Of Filer Filing For·On·As Docs:Size Issuer Agent 1/04/06 Neoforma Inc SC 13E3/A 3:1.7M Neoforma Inc RR Donnelley/FA Global Healthcare Exchange, LLC University Healthsystem Consortium Vha Inc |
Document/Exhibit Description Pages Size
1: SC 13E3/A Amendment No. 1 to Schedule 13E-3 HTML 262K
2: EX-99.(C)(3) Preliminary Presentation of Merill Lynch, HTML 106K
Pierce, Fenner & Smith- 08/29/05
3: EX-99.(C)(4) Preliminary Presentation of Merrill Lynch, HTML 179K
Pierce, Fenner & Smith- 08/05/05
| Preliminary presentation of Merill Lynch, Pierce, Fenner & Smith- 08/29/05 |
 Neoforma Special Committee Confidential Presentation Materials Prepared For: Regarding Project LeapFrog DRAFT Exhibit (c)(3) |
 DRAFT Preliminary Valuation |
 CONFIDENTIAL DRAFT 1 Preliminary Valuation Neoforma Operating Environment Overview VUN approach to Marketplace@ Novation and relationship with Neoforma has
changed materially VUN has changed its e-commerce strategy to
“low cost” from “highly differentiated”
Certain Neoforma offerings (e.g., Spend Intelligence) now perceived as
competitive to VUN Change in VUN appears to be driven by GPO
competitive landscape and resultant change in underlying VUN
business strategy Unclear whether VUN remains desirous of any
ongoing relationship with Neoforma Revenue from core M@N business likely to fall under renegotiated contract or benchmarking VUN committed to achieving $15 - $25mm drop in fee Benchmarking theoretically could keep $61mm level, but VUN unlikely to renew
upon contract expiration in March 2010 and operating dynamic would
be difficult Ability to utilize member-based pricing to overcome OA fee reduction doubtful given current VUN mindset |
 CONFIDENTIAL DRAFT 2 Preliminary Valuation Neoforma Operating Environment Overview (cont’d) Value of VUN relationship and channel declining Primary growth avenue – ability to leverage channel – is now questionable (e.g., new developments re competitive nature of Spend Intelligence) Supplier adoption difficult with VUN relationship in place Prior base case NSG projections (30% CAGR 2005-2010) now appear
very aggressive GHX in strong position to aggressively compete with Neoforma in all areas
under status quo scenario Benefit of full company due diligence (products, services, future
development, strategy, customer lists, weaknesses, etc.) and
intimate knowledge of VUN Ability of Neoforma to succeed given
current VUN mindset and desired control questionable Financial
projections exercise challenging given role and rights of VUN
Impossible to predict outcome of negotiations with VUN or benchmarking
process Impossible to predict NSG revenue growth absent discussions
with VUN |
 CONFIDENTIAL DRAFT 3 Preliminary Valuation We have analyzed three primary scenarios with respect to the Outsourcing
Agreement Scenario 1: Contract Terminated in 2010 – The OA is assumed to remain in place, but is not extended at its termination
in 2010 – $37 - $61mm revenue per year from OA – Only NSG business continues Scenario 2: Contract Extended through 2015 – The OA is renegotiated effective January 2006, and is assumed to be extended
through 2015 (feasibility of this unclear); OA is not extended
beyond this point – $37 - $49mm revenue per year from OA – Only NSG business continues Scenario 3: Contract Renewed in Perpetuity – The OA is renegotiated effective January 2006 and is assumed to be extended in perpetuity (feasibility of this unclear) at 0% growth – $37 - $49mm revenue per year from OA – OA and NSG business continue The cost structure is sensitized to OA
revenue – below $49mm of OA revenue, gross operating costs decrease ~$1mm for each $4mm drop in revenue as the number of employees
required to service the contract decreases Above $49mm of OA revenue, the cost structure is assumed to remain unchanged – a $1mm increase in OA fee above $49mm results in a $1mm increase in EBITDA Scenario Analysis |
 CONFIDENTIAL DRAFT 4 Preliminary Valuation Key Model Assumptions Source: Management Flat OA revenue growth MMS business (provider & supplier) is divested Move to new facility at 4/1/07 or earlier at a significantly reduced cost
No Ideal or Inobis transaction Plan B implementation including: Management reduction Modesto PDS Modesto CSS Expense assumptions are per management Use of outsourced contract workers falls as OA revenue falls Scenario 1 assumes the OA contract expires in March of 2010 – only one quarter of revenue is realized All but $12mm of the full year’s projected gross operating costs remain Base Case Projections through 2008E |
 CONFIDENTIAL DRAFT 5 Preliminary Valuation Key Model Assumptions NSG revenues are projected using a 20% growth rate in 2009E and 2010E
(yielding CAGR of 30% for 2005-2010 NSG revenue growth) and 10%
beyond 2010E Given current discussions with VUN re Spend
Intelligence, this is now aggressive Projected consolidated EBITDA
margin assumed to remain flat at 2008E level Gross operating
expenses and capitalized software costs flat at 2008E percent of sales Capital expenditures projected at 4.0% of sales (based on 2006E –
2008E average) Change in net working capital held flat at 2008E level (-$3.3 million)
For Scenarios 1 and 2, Perpetuity Value is derived entirely
from NSG business NSG EBITDA margin assumed to be 10.0% (business burdened by entire corporate
overhead and public company costs) For analysis of Scenario 2, we have extended projections through 2015 NSG revenues are projected using a 10% growth rate in 2011E through 2015E
Base Case Projections beyond 2008E |
 CONFIDENTIAL DRAFT Valuation based on Discounted Cash Flow analysis of 2006 – 2010 (or through 2015), including sensitivity to changes in the OA revenue, as of 9/30/05 using mid- year convention at
discount rate of 14% Terminal Value calculated using two
methods: Blended Perpetuity growth rate of 3.0% to 5.0% on
continuing cash flows LTM EBITDA exit multiple of 10.0x to 12.0x
on continuing EBITDA Operating cash flows are not tax-effected
due to utilization of NOL Perpetuity cash flows are taxed at
35% Assumes $39.1mm of cash as of 9/30/05, $3.9mm cash restructuring costs, and 20.7mm shares outstanding 6 Preliminary Valuation Valuation Methodology Indicative Cash Flows – $49mm OA Fee Fiscal Year Ended 2006 2007 2008 2009 2010 Revenue $66.1 $71.8 $80.1 $86.3 $93.8 Y-o-Y
growth % (10.2%) 8.6% 11.6% 7.7% 8.6% EBITDA $12.4 $20.5 $24.9 $26.8 $29.1 Margin % 18.7% 28.5% 31.0% 31.0% 31.0% Less: changes in working capital (3.6) (0.8) (3.3) (3.3) (3.3) Less: capital expenditure (3.0) (5.0) (3.0) (3.5) (3.8) Capitalization of SW Development (4.9) (5.9)
(5.9) (6.4) (6.9) Unlevered Free Cash Flow $0.8 $8.8 $12.6 $13.6 $15.1 Free Cash Flow Growth Rate (93.5%) 975.3% 43.5% 8.0% 10.7% ____________________ (1) Untaxed cash flow from continuing operations. For valuation purposes,
taxed at 35% in perpetuity. (1) |
 CONFIDENTIAL DRAFT 7 Discounted Cash Flow – Sensitivity Analysis Preliminary Valuation Scenario 1 – Contract Terminated in 2010 ____________________ (1) Equity Value = Enterprise Value + Net Cash – Severance and other one-time costs
of $3.9mm. (2) Assumes NSG 2005-2010 revenue CAGR of 30%. Midpoint of 3.0% to 5.0% Growth Rate $37.0 $45.0 $50.0 $55.0 $61.0 13.0% 2.01 2.74 3.23 3.92 4.74 14.0% 1.94 2.64 3.13 3.80 4.59 15.0% 1.88 2.57 3.04 3.69 4.47 Value Per Share - Perpetuity Method (1) (2) Novation Annual
Revenue - '06 and forward Midpoint of 10x to 12x LTM EBITDA Multiple $37.0 $45.0 $50.0 $55.0 $61.0 13.0% 2.69 3.43 3.94 4.64 5.47 14.0% 2.64 3.36 3.86 4.54 5.34 15.0% 2.59 3.29 3.78 4.44 5.22 Value Per Share - EBITDA Method (1) (2) Novation Annual Revenue - '06 and forward |
 CONFIDENTIAL DRAFT 8 Discounted Cash Flow – Sensitivity Analysis Preliminary Valuation Scenario 2 – Contract Extended through 2015 ____________________ (1) Equity Value = Enterprise Value + Net Cash – Severance and other one-time costs of
$3.9mm. (2) Assumes NSG 2005-2010 revenue CAGR of 30%. Value Per Share - Perpetuity Method (1) (2) Midpoint of 3.0% to 5.0% Growth Rate Novation Annual Revenue - '06 and forward 4.9 $37.0 $41.0 $45.0 $49.0 13.0% 3.04 3.76 4.48 5.19 14.0% 2.88 3.57 4.25 4.93 15.0% 2.75 3.40 4.06 4.70 Value Per Share -
EBITDA Method (1) (2) Midpoint of 10x to 12x LTM EBITDA Multiple Novation Annual Revenue - '06 and forward 5.5 $37.0 $41.0 $45.0 $49.0 13.0% 3.57 4.30 5.02 5.73 14.0% 3.42 4.11 4.80 5.48 15.0% 3.28 3.94 4.59 5.24 |
 CONFIDENTIAL DRAFT 9 Discounted Cash Flow – Sensitivity Analysis Preliminary Valuation Scenario 3 – Contract Renewed in Perpetuity ____________________ (1) Equity Value = Enterprise Value + Net Cash – Severance and other one-time costs of
$3.9mm. (2) Assumes NSG 2005-2010 revenue CAGR of 30%. Value Per Share - Perpetuity Method (1) (2) Midpoint of 3.0% to 5.0% Growth Rate Novation Annual Revenue - '06 and forward $37.0 $41.0 $45.0 $49.0 13.0% 3.01 4.03 5.03 6.02 14.0% 2.83 3.75 4.66 5.56 15.0% 2.69 3.53 4.36 5.19 Value Per Share - EBITDA
Method (1) (2) Midpoint of 10x to 12x LTM EBITDA Multiple Novation Annual Revenue - '06 and forward $37.0 $41.0 $45.0 $49.0 13.0% 5.41 6.73 8.04 9.34 14.0% 5.24 6.51 7.76 9.00 15.0% 5.07 6.29 7.49 8.69 |
| This ‘SC 13E3/A’ Filing | Date | Other Filings | ||
|---|---|---|---|---|
 | ||||
| Filed on: | 1/4/06 | 8-K, PRER14A | ||
| 8/29/05 | ||||
| List all Filings | ||||