| CASE 30 ST. BENEDICT'S TEACHING HOSPITAL: Merger Analysis | 12/1/17 |
| Copyright 2018 Foundation of the American College of Healthcare Executives. Not for sale. |
| Model without Questions, Student Version |
| This case consists of a valuation analysis on a 400-bed acute care hospital. The model uses both |
| discounted cash flow (DCF) and market multiple methodologies for the valuation. The DCF method |
| focuses on cash flows to equityholders. The INPUT DATA section of the model contains key |
| assumptions needed to generate the pro forma (forecasted) cash flow statements. In addition, |
| historical data used in the forecasting process is contained in its own section. |
| The model consists of a complete base case analysis--no changes need to be made to the existing |
| MODEL-GENERATED DATA section. However, values in the INPUT DATA section of the student |
| spreadsheet have been replaced by zeros. Students must select appropriate input values and enter |
| them into the cells with values colored red. After this is done, any error cells will be corrected and |
| the base case solution will appear. The KEY OUTPUT section includes the most important output |
| from the MODEL-GENERATED DATA section. |
| INPUT DATA: | KEY OUTPUT: |
| (millions of $) | (millions of $) |
| Cash flow data: | Pro forma (forecasted) net cash flows: |
| Growth in revenues (2018-2022): | 2018 | $4.136 |
| Inpatient | 5% | 2019 | $4.462 |
| Outpatient | 9% | 2020 | $4.810 |
| Nonoperating | 5% | 2021 | $5.183 |
| Patient services exp as a | 2022 | $225.552 |
| % of net patient rev | 91% |
| Percent of net CF | 2018 EBITDA | $7.136 |
| retained for growth | 50% | Average 5-yr EBITDA | $7.835 |
| Annual inputs: |
| *Interest on | **Interest on | ***Cost Saving | Acquisition value: |
| Year | Current Debt | Required Loans | at Acquirer |
| 2018 | $3.000 | $0.000 | $0.344 | DCF method | $154.652 |
| 2019 | $3.000 | $0.000 | $0.344 | Market multiple method: |
| 2020 | $3.000 | $0.000 | $0.344 | Applied to 2014 EBITDA | $57.090 |
| 2021 | $3.000 | $0.000 | $0.344 | Applied to avg EBITDA | $62.676 |
| 2022 | $3.000 | $0.000 | $0.344 | Applied to discharges | $97.500 |
| Long-term (2019 and beyond) | *Interest on Lafayette General's current debt. |
| constant growth rate | 5% |
| **Interest on any borrowings required to expand |
| Market data: | the asset base or to fund the acquisition. |
| Discount rate (cost of equity) | 10% |
| EBITDA multiple | 8 | ***Cost savings at St. Benedict's due to any |
| Market value to discharges ratio | $7,500 | synergistic benefits that will accrue at |
| the acquirer as opposed to at the target. |
| Operating data: |
| Expected number of discharges | 13,000 |
| HISTORICAL DATA: |
| Lafayette General Hospital |
| Historical Income Statements: |
| (Millions of Dollars) |
| 2013 | 2014 | 2015 | 2016 | 2017 |
| Inpatient revenue | $42.472 | $46.014 | $53.410 | $58.650 | $59.513 |
| Outpatient revenue | 28.314 | 30.676 | 35.606 | 39.100 | 39.675 |
| Net patient service revenue | $70.786 | $76.690 | $89.016 | $97.750 | $99.188 |
| Nonoperating revenue | 1.922 | 1.515 | 1.367 | 1.725 | 1.048 |
| Total revenues | $72.708 | $78.205 | $90.383 | $99.475 | $100.236 |
| Patient services expenses | $60.245 | $73.858 | $81.525 | $90.645 | $89.505 |
| Interest expense | 3.045 | 3.147 | 3.093 | 3.002 | 2.980 |
| Depreciation | 3.466 | 3.689 | 4.395 | 4.258 | 6.031 |
| Total expenses | $66.756 | $80.694 | $89.013 | $97.905 | $98.516 |
| Net income | $5.952 | ($2.489) | $1.370 | $1.570 | $1.720 |
| MODEL-GENERATED DATA: |
| Lafayette General Hospital |
| Pro Forma (Forecasted) Cash Flow Statements: |
| (Millions of Dollars) |
| 2018 | 2019 | 2020 | 2021 | 2022 |
| Inpatient revenue | $62.191 | $64.989 | $67.914 | $70.970 | $74.164 |
| Outpatient revenue | 43.246 | 47.138 | 51.381 | 56.005 | 61.045 |
| Net patient service revenue | $105.437 | $112.128 | $119.295 | $126.975 | $135.209 |
| Nonoperating revenue | 1.095 | 1.144 | 1.196 | 1.250 | 1.306 |
| Total revenues | $106.532 | $113.272 | $120.490 | $128.225 | $136.515 |
| Patient services expenses | $95.95 | $102.04 | $108.56 | $115.55 | $123.04 |
| Interest expense | 3.000 | 3.000 | 3.000 | 3.000 | 3.000 |
| Total expenses | $98.948 | $105.036 | $111.558 | $118.547 | $126.040 |
| Net operating cash flow | $7.584 | $8.236 | $8.932 | $9.678 | $10.475 |
| Cost savings at teaching (other) hospital | 0.344 | 0.344 | 0.344 | 0.344 | 0.344 |
| Growth retentions | (3.792) | (4.118) | (4.466) | (4.839) | (5.237) |
| Terminal value | 219.971 |
| Net cash flow to equityholders | $4.136 | $4.462 | $4.810 | $5.183 | $225.552 |
| EBITDA | $7.136 | $7.462 | $7.810 | $8.183 | $8.581 |
| Average 5-year EBITDA | $7.835 |
| Valuation Results: |
| (Millions of Dollars) |
| Value according to DCF method | $154.652 |
| Value according to market multiple method: |
| Applied to 2014 EBITDA | $57.090 |
| Applied to average 2014-2018 EBITDA | $62.676 |
| Applied to number of discharges | $97.500 |
| Sensitivity of DCF Value to Terminal Growth Rate and Discount Rate Estimates: |
| Discount Rate |
| $154.652 | 12% | 13% | 14% | 15% | 16% | 17% | 18% |
| 1% | $71.709 | $64.548 | $58.543 | $53.442 | $49.064 | $45.269 | $41.953 |
| TV | 2% | $77.760 | $69.415 | $62.518 | $56.733 | $51.818 | $47.598 | $43.939 |
| Growth | 3% | $85.157 | $75.255 | $67.217 | $60.572 | $54.997 | $50.260 | $46.190 |
| Rate | 4% | $94.403 | $82.393 | $72.855 | $65.109 | $58.705 | $53.331 | $48.763 |
| 5% | $106.290 | $91.316 | $79.746 | $70.554 | $63.088 | $56.914 | $51.732 |
| 6% | $122.140 | $102.788 | $88.360 | $77.208 | $68.347 | $61.149 | $55.195 |
| 7% | $144.330 | $118.084 | $99.434 | $85.526 | $74.775 | $66.231 | $59.288 |
| END |
jwilly18
Case30StBenedictsTeachingHospital-Student-6thedition.xlsx
