1
Confidential
Presentation to:
Board of Directors of
Sheridan Healthcare, Inc.
FAIRNESS OPINION
March 24, 1999
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
2
SHERIDAN HEALTHCARE
Confidential Material
Presented to the Board of Directors
The following pages contain material provided to the Board of Directors of
Sheridan Healthcare, Inc. ("Sheridan" or the "Company") in the context of a
meeting of the Board of Directors held to consider the proposed acquisition of
the Company by Vestar Capital Partners III, L.P. ("Vestar") in a cash offer. The
accompanying material was compiled or prepared on a confidential basis solely
for use by the Board of Directors and not with a view toward public disclosure
under state or federal securities laws or otherwise. The basic information
utilized in preparing this presentation was obtained from the Company and other
public sources. Any estimates and projections for the Company contained herein
have been prepared by management, or are based upon such estimates and
projections, and involve numerous and significant subjective determinations,
which may or may not prove to be correct. No representation or warranty, express
or implied, is made as to the accuracy or completeness of such information and
nothing contained herein is, or shall be relied upon as, a promise or
representation, whether as to the past or the future. Because this material was
prepared for use in the context of an oral presentation to the Board of
Directors, which is familiar with the business and the affairs of the Company,
neither the Company nor Salomon Smith Barney nor any of their respective legal
advisors or accountants take any responsibility for the accuracy or completeness
of any of the material if used by persons other than the Board of Directors of
the Company. Neither the Company nor Salomon Smith Barney undertakes any
obligation to update or otherwise revise the accompanying materials.
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
3
SHERIDAN HEALTHCARE
Table of Contents
1 EXECUTIVE SUMMARY
2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW
3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS
4 SUMMARY VALUATION ANALYSIS
APPENDIX
A. COMPARABLE PUBLICLY TRADED COMPANIES
B. PRECEDENT PPM TRANSACTIONS
C. WACC ANALYSIS
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
4
SHERIDAN HEALTHCARE
1 EXECUTIVE SUMMARY
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
5
SHERIDAN HEALTHCARE
Introduction
GENESIS OF THE TRANSACTION
o Salomon Smith Barney and Bowles Hollowell Conner have been engaged by
Sheridan Healthcare, Inc. to evaluate strategic alternatives, including a
possible sale of the Company.
o Salomon Smith Barney and Bowles Hollowell Conner initiated an auction
process in December 1998, and contacted a wide range of possible strategic
and financial buyers.
o On February 19, 1999 final bids were received, with Vestar Capital
Partners as the winning bidder at $11.50 per share.
o After completing further due diligence and focusing on the Company's
strategic acquisition plan, Vestar Capital Partners submitted a revised
bid of $9.25 per share on March 16, 1999.
As part of its engagement, Salomon Smith Barney will render a fairness opinion.
HISTORY OF SALOMON SMITH BARNEY'S RELATIONSHIP WITH SHERIDAN
o Salomon Smith Barney was Sheridan's lead underwriter for its IPO on
October 31, 1995 at $13.00 per share.
o Since the IPO, Salomon Smith Barney has maintained a close relationship
with Sheridan, but has not executed any further business until this sale
process began.
SALOMON SMITH BARNEY
----------------------------
4 A member of citigroup [LOGO]
6
SHERIDAN HEALTHCARE
Overview of Transaction Contemplated
TRANSACTION STRUCTURE
o Cash merger resulting in ownership of 100% of Sheridan stock (excluding
management rollover shares)
o Effective rollover of Management equity into Vestar equity
SHERIDAN'S CURRENT SITUATION
o Sheridan does not have access to capital to pursue its acquisition
strategy
o Current debt of $74 million already exceeds credit facility of $65
million
o Exception on credit facility valid only until September
o No current access to high-yield or equity markets
o The Company has already delayed on several possible acquisitions because
of the lack of financing.
STRATEGIC BENEFITS
o Provides Sheridan with capital support to proceed with its acquisition
strategy, a primary driver of growth.
o Eliminates Sheridan's dependence on capital markets in the face of
uncertainty surrounding the PPM industry.
o Provides Sheridan with the base to build out a regional physician network
in Texas in the long-term, similar to the current network in Florida.
o Gives shareholders the option to cash out at a premium to market.
- - --------------------------------------------------------------------------------
Vestar is to acquire Sheridan for $9.25 per share.
SALOMON SMITH BARNEY
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5 A member of citigroup [LOGO]
7
SHERIDAN HEALTHCARE
Summary of Preliminary Purchase Agreement Terms
- - --------------------------------------------------------------------------------
Feature Comments
- - --------------------------------------------------------------------------------
Consideration $9.25 per share in cash
- - --------------------------------------------------------------------------------
Structure Tender offer; Newly-formed Vestar subsidiary to
own stock
- - --------------------------------------------------------------------------------
Selected Conditions Management shares to be tendered and subscriptions
for interests in Vestar subsidiary
Management Agreements negotiated with key
executives
- - --------------------------------------------------------------------------------
Board Seats 2 Board Seats for existing Sheridan Management
3 Board Seats for Vestar Employees
2 Board Seats for Outside Directors
- - --------------------------------------------------------------------------------
Events of Termination By mutual consent
Material adverse change Financing out
Break-up fee for topping bids
- - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
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6 A member of citigroup [LOGO]
8
SHERIDAN HEALTHCARE
Sources and Uses
($ in millions)
- - --------------------------------------------------------------------------------
Uses
- - --------------------------------------------------------------------------------
Equity Value at $9.25 (a) $66.3
Bank Debt $74.0
Texas June Payment 6.1
Est. Remaining Share Price Guarantees at Closing 0.1
Deferred Compensation 1.4
Capital Leases 0.8
Notes Payable 0.3
Mgmt COC Pmt/D&O Tail Policy 2.5
- - --------------------------------------------------------------------------------
Total Debt Consideration $85.1
Transaction Expense 12.0
- - --------------------------------------------------------------------------------
Total Uses $163.3
================================================================================
- - --------------------------------------------------------------------------------
Sources
- - --------------------------------------------------------------------------------
Option Proceeds $4.2
Bank Debt $75.0
Mezzanine $20.0
Vestar Equity Investment 61.1
Mgt. Equity Rollover 3.0
- - --------------------------------------------------------------------------------
Equity Financing $64.1
Total Sources $163.3
================================================================================
(a) Assumes 7.163 million fully diluted shares, including 0.577 million
in-the-money options at the $9.25 purchase as of 3/16/99.
SALOMON SMITH BARNEY
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7 A member of citigroup [LOGO]
9
SHERIDAN HEALTHCARE
Pro Forma Capitalization
($ in millions)
- - --------------------------------------------------------------------------------
Pro Forma Capitalization
- - --------------------------------------------------------------------------------
% of
Total Cap
---------
Bank Debt $75.0 47.1%
Mezzanine 20.0 12.6
Vestar Common Equity $61.1 38.4
Management Common Equity 3.0 1.9
- - --------------------------------------------------------------------------------
Total Common Equity $64.1 40.3%
Total Capitalization $159.1 100.0%
- - ------------------------------------------------------------------- ---------
- - --------------------------------------------------------------------------------
Pro Forma Common Equity Ownership (a)
- - --------------------------------------------------------------------------------
Vestar 95.3%
Management 4.7
- - --------------------------------------------------------------------------------
Total Common Equity Ownership 100.0%
(a) Before conversion of mezzanine warrants.
SALOMON SMITH BARNEY
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8 A member of citigroup [LOGO]
10
SHERIDAN HEALTHCARE
Comparative Valuation Multiples
Public Market
====================================================================================================================
Firm Value/LTM Price/Earnings
------------------------- --------------
Revenues EBITDA EBIT 1998A 1999E
Sheridan Healthcare 1.2x 7.3x 9.5x 10.6x 8.6x
- - ----------------------------------------------------------------------------------------------------------
Multi-Specialty Comparables Median 0.4 4.8 7.1 7.1 7.3
Single Specialty Comparables Median 1.5 6.4 8.5 8.6 7.4
- - ----------------------------------------------------------------------------------------------------------
Private Market
====================================================================================================================
Firm Value/LTM Premium
------------------------- -------------------------
Revenues EBITDA EBIT 1 Day 1 Week 1 Month
Vestar Proposed Price - $9.25 (a) 1.3x 7.7x 10.0x 12.1% 12.1% 17.5%
- - --------------------------------------------------------------------------------------- -------------------------
Selected Acquisition Multiples (b)
Team Health / Madison Dearborn (1/99) 0.7x 6.0x 7.0x NA NA NA
Spectrum Emergency Care / Laidlaw (10/97) NA 5.0 NA NA NA NA
Health Partners / FPA Medical Management (7/97) 0.8 NM NM NA NA NA
- - --------------------------------------------------------------------------------------------------------------------
(a) Premium based on 3/19/99 Sheridan closing price of $8.25.
(b) Recent acquisitions which are most comparable to the proposed transaction.
SALOMON SMITH BARNEY
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9 A member of citigroup [LOGO]
11
SHERIDAN HEALTHCARE
Recent Stock Price Performance
DAILY DATA: 3/19/98 THROUGH 3/19/99
[GRAPHIC OMITTED]
Summary Statistics:
High Low Average Latest
17.06 6.56 10.34 8.25
407 20 27
- - --------------------------------------------------------------------------------
Sheridan is currently trading at $8.25 per share, a 51.6% discount to its
year-to-date high, and a 25.8% premium to its year-to-date low.
SALOMON SMITH BARNEY
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10 A member of citigroup [LOGO]
12
SHERIDAN HEALTHCARE
Relative Stock Price Performance
DAILY DATA: 3/19/98 THROUGH 3/19/99
[GRAPHIC OMITTED]
Summary Statistics:
High Low Average Latest
111% 43% 67% 54%
151% 49% 100% 51%
105% 20% 48% 24%
- - --------------------------------------------------------------------------------
Sheridan has under-performed the single specialty PPMs over the last six months.
However, that gap has nearly disappeared due to the recent drop in Pediatrix
share price. In addition, Sheridan has consistently out-performed
multi-specialty PPMs over the last year.
SALOMON SMITH BARNEY
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11 A member of citigroup [LOGO]
13
SHERIDAN HEALTHCARE
Trading History
SHERIDAN HEALTHCARE: PRICES AND VOLUME
[GRAPHIC OMITTED]
Weighted Volume Traded/
Average Shares Outstanding
$9.89 58.9%
$7.65 13.4%
- - --------------------------------------------------------------------------------
Over the last three months, the volume of Sheridan shares traded has largely
remained in the range of $7.00 to $8.00 per share.
SALOMON SMITH BARNEY
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12 A member of citigroup [LOGO]
14
SHERIDAN HEALTHCARE
Valuation Summary
[The following table was depicted as a bar chart in the printed material.]
Equity Value
Per Share
(In Dollars)
Current Price-3/19/99 $8.25(a)
Private Market Comparable
Analysis Valuation $8.00-$13.00
5-Year DCF (without acquisitions) $3.75-$5.50
5-Year DCF (with acquisitions-
7.0x EBITDA purchase price) $4.00-$8.50
5-Year DCF (with acquisitions-
6.0x EBITDA purchase price) $9.50-$14.00
5-Year DCF (with acquisitions-
5.0x EBITDA purchase price) $15.00-$19.50
(a) $9.25 represents Vestar Capital's offer price.
Note: Equity value reflects debt and contingencies of $85.2 million, and option
proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted
shares before treasury method share buy-back. All assumptions as of March 19,
1999.
Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for
acquisitions in the event a 5.0x multiple were not to be sustained going forward
(in light of recent trend toward higher acquisition multiples).
SALOMON SMITH BARNEY
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13 A member of citigroup [LOGO]
15
SHERIDAN HEALTHCARE
Background on Vestar
Vestar Capital Partners is a New York-based investment firm specializing in
management buyouts and recapitalizations.
o Since its founding in 1988, the firm has completed 26 transactions with a
total value in excess of $5 billion.
o Companies acquired include: Celestial Seasonings, Consolidated Cigar, La
Petite Academy, Prestone Products Corporation, Remington Products Company,
and Westinghouse Air Brake Company.
o Currently manages over $1 billion of equity capital for a number of top
tier investors including Harvard University, the Rockefeller Foundation,
and the General Motors Pension Fund.
SALOMON SMITH BARNEY
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14 A member of citigroup [LOGO]
16
SHERIDAN HEALTHCARE
2 SHERIDAN HEALTHCARE BUSINESS OVERVIEW
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
17
SHERIDAN HEALTHCARE
Company Overview
BUSINESS DESCRIPTION
o Sheridan Healthcare is a physician practice management company currently
affiliated with approximately 233 physicians practicing under 55 specialty
service contracts at 37 hospitals and 28 office locations
o Sheridan Healthcare operates and manages specialist physicians providing
services at hospitals and ambulatory surgical facilities in the areas of:
o anesthesia
o neonatology
o pediatrics
o emergency services
o obstetrics
o pain management
o Sheridan also owns, operates, or manages office-based physician practices
which provide services in the areas of:
o gynecology
o obstetrics
o infertility
o perinatology
o primary care
o general surgery
SALOMON SMITH BARNEY
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15 A member of citigroup [LOGO]
18
SHERIDAN HEALTHCARE
Company Overview
GEOGRAPHICAL LOCATION
o Sheridan's hospital affiliations are located in Florida, New York, Ohio,
Pennsylvania, Texas, Virginia and West Virginia
o Sheridan's office-based group practices are regionally concentrated in
Florida and Texas
[GRAPHIC OMITTED]
Multi-Specialty Group Physician Practices Hospital Outsourcing
- - ----------------------------------------- --------------------
151 Physicians 78 Physicians
- - -------------- -------------
o 69 Anesthesiologists o 28 Anesthesiologists
o 37 Neonatologists/Pediatricians o 15 Neonatologists/Pediatricians
o 34 Obstetricians o 35 Emergency
o 4 Surgeons
o 4 Gynecological Oncologists
o 2 Perinatologists
o 1 Infertility Specialist
Note: Excludes 4 primary care physicians in 3 locations.
SALOMON SMITH BARNEY
----------------------------
16 A member of citigroup [LOGO]
19
SHERIDAN HEALTHCARE
Summary Market Data
SHERIDAN HEALTHCARE PUBLIC MARKET STATISTICS
Stock Price as of 3/19/99 $8.25
Equity Value (in millions) (a) $57
Firm Value (in millions) (b) $140
-------------------------------------------------------------
1998 P/E 10.6x
1999E P/E (c) 8.6
-------------------------------------------------------------
Firm Value / 1998 EBITDA 7.3x
Firm Value / 1999E EBITDA (d) 5.5
-------------------------------------------------------------
52-Week High (3/30/98) $17.06
52-Week Low (10/28/98) $6.56
Average Daily Trading Volume (in thousands) (e) 18.2
-------------------------------------------------------------
(a) Assumes 6.916 million fully diluted shares outstanding, before treasury
stock method share buy back.
(b) Firm Value equals Equity Value plus total straight debt and contingencies
of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of
Texas June Payment, $0.2 million of remaining share price guarantees, $1.4
million of deferred compensation, $0.8 of capital leases, $0.3 million of
notes payable, $2.5 million of management change of control payment and
D&O Tail Policy), less options proceeds of $2.0 million.
(c) Based on First Call 1999E EPS of $0.96.
(d) EBITDA estimates based on equity research median.
(e) Average daily trading volume over the last twelve months.
SALOMON SMITH BARNEY
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17 A member of citigroup [LOGO]
20
SHERIDAN HEALTHCARE
Sheridan's Multi-Specialty Group Physician Practices
DEFINITION
o "Multi-Specialty Group Physician Practices" is Sheridan's term for the
provision of a variety of regionally-based physician services to
Sheridan's patients by both:
o office-based Sheridan physicians (e.g. obstetricians, gynecologists)
and
o hospital-based Sheridan physicians (e.g. anesthesiologists,
neonatologists)
o The term also alludes to the interaction of referrals between Sheridan's
office-based and hospital-based physician services.
MECHANICS
o Sheridan employs or affiliates with office-based obstetricians or
gynecologists practicing in a limited geographic area (e.g. in Florida).
o Patients who use these office-based physicians for obstetrical or
gynecological physician services are often referred to Sheridan's key
hospitals where Sheridan's physicians provide neonatology and/or
anesthesia physician services.
o Revenue synergies are thus created as the introduction of new patients to
the Company's office-based practices results in higher revenues (through
higher volumes) for hospital-based physician services.
- - --------------------------------------------------------------------------------
In November 1996, Sheridan decided to focus its principal growth strategy on
operating regionally-focused multi-specialty group physician practices
SALOMON SMITH BARNEY
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18 A member of citigroup [LOGO]
21
SHERIDAN HEALTHCARE
Sheridan's "Win-Win" Multi-Specialty Model
- - --------------------------------------------------------------------------------
Competitors Gate Keeper Model
- - --------------------------------------------------------------------------------
Focus
o How to cut the pie
- - --------------------------------------------------------------------------------
Features
o Fixed capitation model
o Earnings generated via cost reduction
o Encourages a reduction in hospital-care provided to patients
- - --------------------------------------------------------------------------------
Results
o Patients resentful as physician's earnings are tied to reducing patient
care
o Divergence of physician / patient care
- - --------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------
Sheridan's "Win-Win" Model
- - --------------------------------------------------------------------------------
Focus
o How to grow the pie
- - --------------------------------------------------------------------------------
Features
o Emphasizes physician productivity
o Allows Sheridan to pay attractive compensation to physicians
o Growth by attracting new patients into the system
- - --------------------------------------------------------------------------------
Results
o Model creates value for patients, hospitals, physicians and health plans
o Alignment of interest between patients and doctors
- - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
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19 A member of citigroup [LOGO]
22
Historical Revenue Mix
(Dollars in Thousands)
HISTORICAL REVENUE MIX
[The following table was depicted as a bar graph in the printed material.]
1996 1997 1998
Multi-Specialty Groups $40,788 $52,923 $76,573
Hospital Outsourcing $24,528 $27,487 $28,653
Priary Care $27,451 $18,206 $ 7,691
- - --------------------------------------------------------------------------------
Since 1996, Sheridan Healthcare has divested most of its higher-risk primary
care business, and has instead focused on higher-margin multi-specialty group
business.
SALOMON SMITH BARNEY
----------------------------
20 A member of citigroup [LOGO]
23
Physician Mix
[The following tables were depicted as pie charts in the printed material.]
Physicians By Division
Multi-Specialty 64.8%
Primary Care 1.7%
Hospital Outsourcing 33.5%
Physicians by Specialty
Anesthesia 41.7%
Infertility 0.4%
Perinatology 0.9%
Primary care 1.7%
Gynecological oncology 1.7%
Surgery 1.7%
Obstetrics (office based) 13.3%
Obstetrics (hospital based) 1.3%
Emergency 15.0%
Neonatology/Pediatrics 22.6%
Total Physicians: 233
SALOMON SMITH BARNEY
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21 A member of citigroup [LOGO]
24
Sheridan's Competitive Advantages
o Sheridan is a dominant niche player in a relatively unconsolidated market.
o Sheridan is a physician practice management company with the market
strategy of forming women's health networks.
o Does not face high competition in hiring physicians compared to
other single-specialty or national multi-specialty physician
practice management companies.
o Numerous opportunities to expand on a regional or national scale.
o During its 45 years of operation, Sheridan has operated very
conservatively and avoided the problems associated with rapid expansion.
o One of the most prudent users of its capital and stock in the
industry.
o The Company is very selective in its acquisitions and continues to
actively manage these acquisitions reducing the risks associated
with integration.
o Sheridan's women's health network provides doctors with a single source
delivery platform to satisfy patients, managed care providers and
hospitals in numerous markets.
o Provides quality, consistent care to women during various stages of
their lives.
o Produces scale necessary to function with managed care payors.
o Simplifies billing and payment for both hospitals and managed care
providers.
o Hospital based outsourcing operations are not capital intensive and
provide continual cash flow necessary to expand the Company's women's
health network.
o Sheridan is not exposed to capitation risks that plague many other
physician practice management companies.
o The Company is regionally focused in two of the largest health care
markets in the country
o Regional focus creates opportunities for synergies and value-added
services that are not present in more geographically distributed
practices.
o The populations of Texas and Florida are currently the 2nd and 4th
largest state populations.
o These two markets represent the 3rd and 4th largest health care
markets in the United States.
SALOMON SMITH BARNEY
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22 A member of citigroup [LOGO]
25
SHERIDAN HEALTHCARE
Summary Historical Financials - Income Statement
($ in millions)
Actual
-----------------------------
1996(a) 1997 1998 CAGR
=============================================================== ======
Internal Revenue $52.9 $55.5 $56.6 3.4%
Acquired Revenue 39.8 43.3 56.3 18.9
======= ======= =======
Total Net Revenue $92.8 $98.7 $113.0 10.4
Growth -- 6.4% 14.4%
Gross Margin $23.0 $25.6 $31.0 16.1
% of Revenues 24.8% 26.0% 27.5%
EBITDA $11.5 $13.3 $19.1 29.0
% of Revenues 12.4% 13.5% 16.9%
EBIT $8.0 $10.5 $14.8 35.9
% of Revenues 8.6% 10.7% 13.1%
Net Income $5.2 $5.2 $6.4 10.3
% of Revenues 5.6% 5.3% 5.6%
- - -------------------------------------------------------------------------
(a) Excludes write-down of $17.4 million on 11/4/96 related to change in
strategic direction away from primary care business and non-strategic
office based physician practices. Write down consists of $13.9 million of
goodwill, $1.1 million of property and equipment, $0.4 million of
intangible assets and $2.0 million in accrued expenses.
SALOMON SMITH BARNEY
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23 A member of citigroup [LOGO]
26
SHERIDAN HEALTHCARE
Historical Schedule of Sheridan's Acquisitions (1996-1997)
(Dollars in thousands)
EBITDA
Acquisition Acquired Purchase
Practice Name Description Date EBITDA Consideration Multiple
- - -----------------------------------------------------------------------------------------------------------------------------
Harold Williams, M.D. Office-Based 2/96 NA $175 NM
Internal Medicine
Neonatology Certified, Inc. & Hospital-Based 3/96 $2,100 9,600 4.6x
Childrens' Hospital Services, Inc. Neonatology & Pediatrics
Rubin, Mehta, Davila, P.A. Office-Based 7/96 300 1,335 4.5
Obstetrics and Gynecology
Kenneth Blaze, D.O., P.A. Office Based 10/96 175 875 5.0
Internal Medicine
West Broward OB/Gyn Office-Based 3/97 600 3,126 5.2
Obstetrics and Gynecology
Becerra and Augustino, M.D., Inc. Office-Based 5/97 525 2,000 3.8
Obstetrics and Gynecology
Castillo-Plaza and Associates, M.D., Inc. Office-Based 5/97 250 1,025 4.1
Obstetrics and Gynecology
Aventura Ob/Gyn Associates & Office-Based 9/97 600 2,400 4.0
Woman to Woman Obstetrics and Gynecology Obstetrics and Gynecology
Frederick N. Herman, M.D., Inc. Office-based 11/97 400 2,000 5.0
General Surgery
Physicians' Neonatal Group Hospital-Based 12/1/97 145 435 3.0
Neonatology
--------------------------------------------------------------------------------
Total (a) $5,095 $22,971 4.5x
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
High $2,100 $9,600 5.2x
Mean 566 2,297 4.3
Median 400 1,668 4.5
Low 145 175 3.0
--------------------------------------------------------------------------------
(a) Weighted average multiple.
SALOMON SMITH BARNEY
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24 A member of citigroup [LOGO]
27
SHERIDAN HEALTHCARE
Historical Schedule of Sheridan's Acquisitions (1998)
(Dollars in thousands)
EBITDA
Acquisition Acquired Purchase
Practice Name Description Date EBITDA Consideration Multiple
- - -----------------------------------------------------------------------------------------------------------------------------------
Taranco & Associates Hospital-Based 1/9/98 $1,600 $8,000 5.0x
Anesthesiology
Comprehentsive Pain Management Hospital-Based & Office-Based 2/1/98 1,800 9,900 5.5
Northwest Florida Anesthesiology Consultants Anesthesiology & Pain Mgt.
Gynecology Oncology Associates Office-Based 3/6/98 550 2,200 4.0
Gynecology
North Texas Perinatology Hospital-Based 3/4/98 2,500 20,200 8.1
Michael Cavenee, M.D., P.A. Perinatology/Neonatolgy
Kenneth Trimmer, M.D., P.A.
Gynecology Associates, Dr. Craig Woodard Office-Based 4/24/98 100 300 3.0
Gynecology
Dr. Eliezer Livnat Office-Based 5/19/98 100 500 5.0
Infertility
Dr. Santiago Triana Office-Based 6/24/98 160 650 4.1
General Surgery
Dr. Odalis Sijin Office Based 7/1/98 140 740 5.3
Obstetrics and Gynecology
Miami Neonatal Associates Hospital-Based 6/26/98 455 1,500 3.3
Neonatology
Dr. Henry Parl Hospital-Based 8/1/98 50 250 5.0
Obstetrics and Gynecology
Dr. Rafael Pratts Office Based 8/20/98 450 2,300 5.1
Obstetrics and Gynecology
Newman, Schneider, Santos and Semple Office-Based 9/10/98 300 1,500 5.0
Obstetrics and Gynecology
-----------------------------------------------------------------------------------
Total (a) $8,205 $ 48,040 5.9x
-----------------------------------------------------------------------------------
-----------------------------------------------------------------------------------
High $2,500 $ 20,200 8.1x
Mean 684 4,003 4.9
Median 375 1,500 5.0
Low 50 250 3.0
-----------------------------------------------------------------------------------
(a) Weighted average multiple.
- - --------------------------------------------------------------------------------
Although Sheridan's mean acquisition multiple for 1998 was 5.0x, it paid
substantially higher multiples for larger transactions, raising its weighted
average multiple for 1998 to 5.9x
SALOMON SMITH BARNEY
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25 A member of citigroup [LOGO]
28
SHERIDAN HEALTHCARE
Public Market Values: Sheridan Peer Rankings
------------------------------------------------
Projected 5 Year EPS Growth
------------------------------------------------
1. Advanced Health 35.0%
2. Pediatrix Medical Group 30.0
3. American Oncology Resources, Inc. 25.0
------------------------------------------------
4. Sheridan Healthcare, Inc. 25.0
------------------------------------------------
5. PhyMatrix Corporation 22.5
6 American Physician Partners, Inc. 22.5
7. MedPartners, Inc. 20.0
8. AmeriPath, Inc. 20.0
9. Response Oncology, Inc. 20.0
10. ProMedCo Management 19.0
11. PhyCor, Inc. 15.0
------------------------------------------------
Median 21.3%
------------------------------------------------
------------------------------------------------
LTM Gross Margin
------------------------------------------------
1. AmeriPath, Inc. 45.2%
2. American Physician Partners, Inc. 39.0
3. Pediatrix Medical Group 38.4
4. PhyMatrix Corporation 37.4
5. American Oncology Resources, Inc. 31.5
6 Response Oncology, Inc. 30.2
------------------------------------------------
7. Sheridan Healthcare, Inc. 27.5
------------------------------------------------
8. PhyCor, Inc. 26.4
9. ProMedCo Managment 15.6
10. Advanced Health Corporation 12.0
11. MedPartners, Inc. 4.1
------------------------------------------------
Median 30.8%
------------------------------------------------
------------------------------------------------
LTM EBITDA Margin
------------------------------------------------
1. Pediatrix Medical Group 31.1%
2. AmeriPath, Inc. 29.6
3. American Physician Partners, Inc. 28.0
4. American Oncology Resources, Inc. 18.6
------------------------------------------------
5. Sheridan Healthcare, Inc. 16.9
------------------------------------------------
6. PhyCor, Inc. 15.6
7. Response Oncology, Inc. 13.9
8. ProMedCo Management 13.1
9. PhyMatrix Corporation 11.9
10. Advanced Health Corporation 0.6
11. MedPartners, Inc. NM
------------------------------------------------
Median 15.6%
------------------------------------------------
(a) Based on First Call
Note: Sheridan not included in median calculations
Bolded companies are Single Specialty PPMs.
SALOMON SMITH BARNEY
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26 A member of citigroup [LOGO]
29
SHERIDAN HEALTHCARE
Public Market Values: Sheridan Peer Comparison
Market Value Divided by:
Fully Dil. Adj ----------------------------------
Price Market Market Cal. 98 Cal. 99(E) Cal. 00(E)
Company Name 3/19/99 Value Value (1) Net Inc. Net Inc. Net Inc.
- - --------------------------------- ------- ---------- ---------- -------- ---------- ----------
Multispecialty/ Primary Care PPMs
Advanced Health Corporation $3.13 $31,458 $19,529 NM NM NM
MedPartners, Inc. (5) $3.38 $671,715 $2,280,915 NM 8.0x 5.5x
PhyCor, Inc. $5.25 $399,809 $979,753 7.1x 8.2x 7.2x
PhyMatrix Corporation $1.97 $64,990 $156,083 5.3x 4.2x 3.4x
ProMedCo Management $4.56 $96,451 $119,574 7.4x 6.5x 5.5x
-----------------------------------------------------------------------------------------------
Mean 6.6x 6.7x 5.4x
Median 7.1x 7.3x 5.5x
-----------------------------------------------------------------------------------------------
Single Specialty PPMs (non-dental)
American Oncology Resources (4) $7.78 $770,533 $998,971 12.8x 10.4x 8.0x
American Physician Partners (2) $6.00 $119,004 $222,260 8.6x 6.7x 5.2x
AmeriPath, Inc. $7.50 $161,693 $270,668 8.4x 7.4x 6.2x
Pediatrix Medical Group $22.06 $367,306 $384,572 12.5x 9.9x 8.3x
Response Oncology, Inc. $2.50 $30,317 $73,925 6.1x 5.2x 4.3x
-----------------------------------------------------------------------------------------------
Mean 9.7x 7.9x 6.4x
Median 8.6x 7.4x 6.2x
-----------------------------------------------------------------------------------------------
Sheridan Healthcare, Inc. $8.25 $57,053 $140,252 10.6x 8.6x 7.4x
----------------------------------------------------------------------------------------------------------------------------
Premium / (Discount) to Multi Specialty Median 49.1% 18.1% 33.6%
Premium / (Discount) to Single Specialty Median 23.4% 16.9% 18.8%
----------------------------------------------------------------------------------------------------------------------------
Adjusted Market Value
-----------------------------------------------------------------------
Net Revenue EBITDA EBIT
----------- --------------------- ---------------------
Latest Qtr. Latest Qtr. Latest Qtr.
Company Name LTM Annualized LTM Annualized LTM Annualized
- - --------------------------------- ------ ----------- ------- ---------- ------- -----------
Multispecialty/ Primary Care PPMs
Advanced Health Corporation 0.3x 0.4x 41.2x(3) NM NM NM
MedPartners, Inc. (5) 0.3x 0.3x NM 7.6x NM 14.4x
PhyCor, Inc. 0.7x 0.6x 4.4x 4.4x 7.1x 7.7x
PhyMatrix Corporation 0.4x 0.5x 5.4x NM 10.4x NM
ProMedCo Management 0.6x 0.5x 4.8x 3.8x 6.4x 5.1x
-----------------------------------------------------------------------------------------------
Mean 0.5x 0.5x 4.9x 4.1x 7.9x 6.4x
Median 0.4x 0.5x 4.8x 4.1x 7.1x 6.4x
-----------------------------------------------------------------------------------------------
Single Specialty PPMs (non-dental)
American Oncology Resources (4) 1.3x 1.1x 6.7x 6.0x 9.5x 9.0x
American Physician Partners (2) 1.8x 1.6x 6.4x 5.8x 9.2x 8.4x
AmeriPath, Inc. 1.5x 1.4x 5.4x 4.9x 6.6x 6.2x
Pediatrix Medical Group 2.3x 1.9x 7.3x 6.2x 8.5x 7.4x
Response Oncology, Inc. 0.6x 0.6x 4.4x 4.2x 6.3x 6.4x
-----------------------------------------------------------------------------------------------
Mean 1.5x 1.3x 6.0x 5.4x 8.0x 7.5x
Median 1.5x 1.4x 6.4x 5.8x 8.5x 7.4x
-----------------------------------------------------------------------------------------------
Sheridan Healthcare, Inc. 1.2x 1.2x 7.3x 6.9x 9.5x 9.1x
----------------------------------------------------------------------------------------------------------------------------
Premium / (Discount) to Multi Specialty Median 198.7% 156.8% 52.2% 68.8% 33.9% 41.4%
Premium / (Discount) to Single Specialty Median (18.7%) (16.2%) 14.3% 18.3% 11.7% 23.1%
----------------------------------------------------------------------------------------------------------------------------
(1) Adjusted Market Value = Fully Diluted Market Value + Debt Outstanding -
Cash.
(2) Pro forma presentation of analyst model.
(3) Outlier not calculated in mean and median.
(4) Pro forma for announced acquisition of PHYN.
(5) Excluded from EBIT and EBITDA mean and median calulation because of its
announced plan to exit the PPM business.
SALOMON SMITH BARNEY
----------------------------
27 A member of citigroup [LOGO]
30
SHERIDAN HEALTHCARE
Summary of Equity Research View on Sheridan
ANALYST COMMENTARY
- - --------------------------------------------------------------------------------
Firm/ Comments
Analyst/
Date
- - --------------------------------------------------------------------------------
Wheat First Union "It appears that the company's acquisition
Christopher D. McFadden pipeline is very robust, supported by the
4/22/98 company's growing reputation within the
hospital-based physician segment as an efficient
operator and integrator of physician networks."
- - --------------------------------------------------------------------------------
Prudential Securities "Two years ago, Sheridan made a radical change ...
Kenneth C. Bohringer with the decision to exit office-based primary
10/27/98 care medicine, where capitated managed contracts
were proving extremely onerous; going forward, the
focus would be on positioning the company's core
hospital-based specialists ... as hubs around
which to form "spokes" of office based
physicians."
- - --------------------------------------------------------------------------------
Salomon Smith Barney "The company continues to meet earnings
Geoffrey E. Harris expectations by wisely managing its growth and
10/20/98 capital consumption. There are clearly abundant
growth opportunities available to the company
through acquisitions/affiliations however the
company is currently constrained by the
availability of capital to aggressively grow."
- - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
----------------------------
28 A member of citigroup [LOGO]
31
SHERIDAN HEALTHCARE
3 PPM INDUSTRY OVERVIEW AND RECENT EVENTS
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
32
SHERIDAN HEALTHCARE
Overview of the Physician Practice Management Industry
THE RISE OF PHYSICIAN PRACTICE MANAGEMENT
There are more than 600,000 physicians in the United States. Physician services
represented over $200 billion of total 1997 medical expenditures of nearly $1.2
trillion. Furthermore, physicians control an additional $600 billion through the
referral of patients.
o Six years ago, the PPM sector did not exist.
o Coastal Physician Group and PhyCor were really the only public "Doc"
companies, with the combined companies representing less than $500
million in market value in 1992.
o The PPM sector has emerged over the past few years through a wave of
initial public offerings, driven by one major theme - the acquisition and
management of medical practices.
o The trend toward more and larger physician groups and membership in
independent practice associations has been driven by the following:
o Managed Care. A key driver of PPM growth is the entry of managed
care into a market. In 1993 and 1994, the power of managed care in
health care was rapidly increasing. As a result, many PPM companies,
as well as industry leaders, emerged during that period.
o Risk management needs. In order to assume the risk associated with
an increasingly capitated system, it is necessary for physicians to
form groups. This enables them to contract for larger pools of
patients, thus diversifying the risk.
o Increased competition. Physicians find it advantageous to combine in
groups in order to share overhead costs and realize economies of
scale.
SALOMON SMITH BARNEY
----------------------------
29 A member of citigroup [LOGO]
33
SHERIDAN HEALTHCARE
Overview of the Physician Practice Management Industry
CURRENT TRENDS IN PHYSICIAN PRACTICE MANAGEMENT
o At the end of 1997, the industry comprised more than 25 public companies,
with a market value of nearly $14 billion.
o Major players included MedPartners, PhyCor, PhyMatrix and FPA Medical
Management.
o Since the end of 1997, however, the market value of the PPM sector has
dropped by more than 50%, with companies such as MedPartners, FPA, PhyCor
and Pediatrix losing value in their stock prices.
o This dramatic decline in valuations and company performance is due to a
variety of reasons including:
o Lowered earnings expectations for some companies,
o Accounting changes that have taken place in the industry,
o Recent bankruptcies that have been announced, and
o The speed at which this industry has moved out of favor (both from a
stock performance standpoint and a physician satisfaction
standpoint, in some instances).
- - --------------------------------------------------------------------------------
Due to a variety of reasons including a changed industry environment and several
execution failures, the Physician Practice Management industry is out of favor
with investors.
SALOMON SMITH BARNEY
----------------------------
30 A member of citigroup [LOGO]
34
SHERIDAN HEALTHCARE
PPM Market Performance
WEEKLY DATA -- 1/5/96 THROUGH 3/19/99
[GRAPHIC OMITTED]
Summary Statistics:
High Low Average Latest
210% 97% 145% 210%
129% 29% 84% 29%
- - --------------------------------------------------------------------------------
The PPM sector has significantly under-performed the S&P 500 Index since October
1997.
SALOMON SMITH BARNEY
----------------------------
31 A member of citigroup [LOGO]
35
SHERIDAN HEALTHCARE
Sheridan vs. Pediatrix Stock Price Performance
DAILY DATA: 3/19/98 THROUGH 3/19/99
[GRAPHIC OMITTED]
Summary Statistics:
High Low Average Latest
111% 43% 67% 54%
148% 44% 100% 50%
- - --------------------------------------------------------------------------------
Pediatrix, Sheridan's leading local competitor, lost approximately half of its
value when it restated its earnings in early February due to an accounting
change.
SALOMON SMITH BARNEY
----------------------------
32 A member of citigroup [LOGO]
36
SHERIDAN HEALTHCARE
Overview of the Physician Practice Management Industry
CONCLUSION
o Market Exit. One of the conclusions reached by several companies in this
area was to get out of the PPM business, and focus on more prosperous,
profitable and growing product lines.
o The biggest example of this decision came through MedPartners, which
announced broad PPM market exit with its September, 1998 Q3 results,
reported in early November of this past year.
o In addition, PhyMatrix also sought to get out of their physician
organization structures.
o Restricted Access to Capital. The decline in the PPM sector's valuation
will restrict its access to capital.
o Growth in the PPM sector is based on access to large amounts of
capital for the consolidation of doctors and investments in systems.
o The decline in the access to capital should continue to drive an
accelerated shake-out in the industry, as those companies that use
high-multiple stock to create earnings growth are differentiated
from the companies that truly add value to the practices under
management.
SALOMON SMITH BARNEY
----------------------------
33 A member of citigroup [LOGO]
37
SHERIDAN HEALTHCARE
4 SUMMARY VALUATION ANALYSIS
SALOMON SMITH BARNEY
----------------------------
A member of citigroup [LOGO]
38
SHERIDAN HEALTHCARE
Overview of Methodologies
We used several methodologies to determine a summary valuation range(a) :
o Public Market Valuation
o Discounted Cash Flow Valuation:
o At Management's assumption of 5.0x EBITDA for acquisitions
o Sensitivity cases of 6.0x and 7.0x EBITDA for acquisitions
o No acquisitions
o Private Market Valuation
- - --------
(a) These summary valuations do not take into account any additional strategic
value or synergies that a buyer may realize.
Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for
acquisitions in the event a 5.0x multiple were not to be sustained going forward
(in light of recent trend toward higher acquisition multiples).
SALOMON SMITH BARNEY
----------------------------
34 A member of citigroup [LOGO]
39
SHERIDAN HEALTHCARE
Valuation Summary
[The following table was depicted as a bar chart in the printed material.]
Equity Value
Per Share
(In Dollars)
Current Price-3/19/99 $8.25(a)
Private Market Comparable
Analysis Valuation $8.00-$13.00
5-Year DCF (without acquisitions) $3.75-$5.50
5-Year DCF (with acquisitions-
7.0x EBITDA purchase price) $4.00-$8.50
5-Year DCF (with acquisitions-
6.0x EBITDA purchase price) $9.50-$14.00
5-Year DCF (with acquisitions-
5.0x EBITDA purchase price) $15.00-$19.50
(a) $9.25 represents Vestar Capital's offer price.
Note: Equity value reflects debt and contingencies of $85.2 million, and option
proceeds of $2.0 million. Equity value per share reflects 6.916 million diluted
shares before treasury method share buy-back. All assumptions as of March 19,
1999.
Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for
acquisitions in the event a 5.0x multiple were not to be sustained going forward
(in light of recent trend toward higher acquisition multiples).
SALOMON SMITH BARNEY
----------------------------
35 A member of citigroup [LOGO]
40
SHERIDAN HEALTHCARE
Discounted Cash Flow Analysis
OVERVIEW
o Salomon Smith Barney has performed a DCF analysis of Sheridan looking at
four cases:
o Case 1: Including management's projected acquisitions (at
management's projected 5.0x EBITDA purchase price)
o Case 2: Including management's projected acquisitions (at a 6.0x
EBITDA purchase price)
o Case 3: Including management's projected acquisitions (at a 7.0x
EBITDA purchase price)
o Case 4: Excluding projected acquisitions
KEY ASSUMPTIONS
o Sheridan projections based on 1999-2003 forecasts provided by the
Company's management
o Valuations as of March 22, 1999
o Total debt and shares outstanding balances as of March 16, 1999
o Excess cash is not available
o No acquisition expenditures occur in the first quarter of 1999
VALUATION PARAMETERS
o WACC rate range of 10.00% - 11.00%
o Midpoint EBITDA multiples:
o 6.0x for cases 1 - 3 (with acquisitions)
o 4.5x for case 4 (without acquisitions)
Note: Salomon Smith Barney ran sensitivity cases of 6.0x and 7.0x EBITDA for
acquisitions in the event a 5.0x multiple were not to be sustained going forward
(in light of recent trend toward higher acquisition multiples).
SALOMON SMITH BARNEY
----------------------------
36 A member of citigroup [LOGO]
41
SHERIDAN HEALTHCARE
Financial Projections - Income Statement
(Management's Base Case)
($ in millions)
Projected
---------------------------------------------------
1999 2000 2001 2002 2003 CAGR
============================================================================== ======
Net Revenue $172.8 $216.4 $264.6 $313.5 $380.0 21.8%
Growth NM 25.3% 22.3% 18.5% 21.2%
EBITDA $32.1 $40.6 $52.7 $67.0 $82.9 26.8
% of Revenues 18.6% 18.8% 19.9% 21.4% 21.8%
EBIT $24.4 $30.8 $40.7 $52.5 $66.3 28.4
% of Revenues 14.1% 14.2% 15.4% 16.8% 17.4%
Net Income $9.9 $12.4 17.2 $22.8 $28.8 30.7
% of Revenues 5.7% 5.7% 6.5% 7.3% 7.6%
- - ------------------------------------------------------------------------------
Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0
Acquisition Expenditure 60.0 35.0 40.0 50.0 65.0
- - ------------------------------------------------------------------------------
SALOMON SMITH BARNEY
----------------------------
37 A member of citigroup [LOGO]
42
SHERIDAN HEALTHCARE
Financial Projections - Income Statement
(Without Acquisitions)
($ in millions)
Projected
---------------------------------------------------
1999 2000 2001 2002 2003 CAGR
================================================================================ ======
Net Revenue $122.2 $136.7 $152.6 $162.4 $178.6 10.0%
Growth NM 11.9% 11.6% 6.4% 10.0%
% of Base Case Revenues 70.7% 63.2 57.7 51.8 47.0
EBITDA $19.5 $21.2 $25.6 $27.1 $29.7 11.1
% of Revenues 16.0% 15.5% 16.8% 16.7% 16.6%
% of Base Case EBITDA 60.7 52.1 48.6 40.4 35.8
EBIT $14.0 $14.9 $18.8 $19.8 $22.8 13.0
% of Revenues 11.4% 10.9% 12.3% 12.2% 12.8%
% of Base Case EBIT 57.3 48.4 46.2 37.6 34.4
Net Income $4.7 $5.5 $8.2 $7.3 $8.7 16.4
% of Revenues 3.9% 4.0% 5.4% 4.5% 4.9%
% of Base Case Net Income 48.0 44.0 47.8 32.0 30.3
- - --------------------------------------------------------------------------------
Capital Expenditure $4.0 $3.5 $3.0 $3.0 $3.0
Acquisition Expenditure 0.0 0.0 0.0 0.0 0.0
- - --------------------------------------------------------------------------------
SALOMON SMITH BARNEY
----------------------------
38 A member of citigroup [LOGO]
43
SHERIDAN HEALTHCARE
Case 1: Management Projections With Acquisitions
(5.0x EBITDA Purchase Price)
o A DCF valuation of unlevered free cash flows, which includes projected
acquisitions at a 5.0x EBITDA purchase price, generates a valuation range
of approximately $15.00-$19.50 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range
================================================== ===================================================
5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x
-------------------------------------------------- ---------------------------------------------------
Terminal Value Implied Terminal P/E Multiple
================================================== ===================================================
$456 $477 $498 $518 $539 9.61x 10.33x 11.05x 11.77x 12.49x
-------------------------------------------------- ---------------------------------------------------
WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a)
=========================================================== ============================================================
10.0% $182 $195 $208 $222 $235 10.0% $99 $112 $125 $138 $152
----------------------------------------- -------------------------------
10.3% 179 192 205 218 231 10.3% 96 109 122 135 148
10.5% 177 190 203 215 228 10.5% 94 106 119 132 145
10.8% 174 187 200 212 225 10.8% 91 104 116 129 142
----------------------------------------- -------------------------------
11.0% 172 184 197 209 222 11.0% 88 101 114 126 139
- - ----------------------------------------------------------- ------------------------------------------------------------
WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c)
=========================================================== ============================================================
10.0% 2.0% 2.4% 2.7% 2.9% 3.2% 10.0% $14.31 $16.21 $18.11 $20.02 $21.92
----------------------------------------- -------------------------------
10.3% 2.3 2.6 2.9 3.2 3.4 10.3% 13.92 15.80 17.68 19.56 21.44
10.5% 2.5 2.8 3.1 3.4 3.7 10.5% 13.53 15.39 17.26 19.12 20.98
10.8% 2.7 3.1 3.4 3.6 3.9 10.8% 13.15 14.99 16.83 18.68 20.52
----------------------------------------- -------------------------------
11.0% 3.0 3.3 3.6 3.9 4.1 11.0% 12.78 14.60 16.42 18.24 20.06
- - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies
of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of
Texas June Payment, $0.2 million of remaining share price guarantees, $1.4
million of deferred compensation, $0.8 million of capital leases, $0.3
million of notes payable and $2.5 million of management change of control
payments and D&O Tail Policy), plus options proceeds of $2.0 million.
(b) Terminal free cash flow adjusted to exclude acquisition expenditures.
(c) Equity Value per Share equals Equity Value divided by Diluted shares
outstanding of 6.916 million, before Treasury Stock Method share buy-back.
SALOMON SMITH BARNEY
----------------------------
39 A member of citigroup [LOGO]
44
SHERIDAN HEALTHCARE
Case 2: Management Projections With Acquisitions
(6.0x EBITDA Purchase Price)
o A DCF valuation of unlevered free cash flows, which includes projected
acquisitions at a 6.0x EBITDA purchase price, generates a valuation range
of approximately $9.50-$14.00 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range
================================================== ===================================================
5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x
-------------------------------------------------- ---------------------------------------------------
Terminal Value Implied Terminal P/E Multiple
================================================== ===================================================
$456 $477 $498 $518 $539 8.79x 9.61x 10.43x 11.25x 12.07x
-------------------------------------------------- ---------------------------------------------------
WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a)
=========================================================== ============================================================
10.0% $144 $157 $170 $183 $196 10.0% $60 $74 $87 $100 $113
----------------------------------------- -------------------------------
10.3% 141 154 167 180 193 10.3% 58 71 84 97 110
10.5% 139 152 164 177 190 10.5% 55 68 81 94 107
10.8% 136 149 162 174 187 10.8% 53 66 78 91 104
----------------------------------------- -------------------------------
11.0% 134 146 159 172 184 11.0% 51 63 76 88 101
- - ----------------------------------------------------------- ------------------------------------------------------------
WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c)
=========================================================== ============================================================
10.0% 1.9% 2.2% 2.5% 2.8% 3.1% 10.0% $8.74 $10.64 $12.54 $14.44 $16.35
----------------------------------------- -------------------------------
10.3% 2.1 2.4 2.7 3.0 3.3 10.3% 8.38 10.26 12.14 14.02 15.90
10.5% 2.3 2.7 3.0 3.3 3.5 10.5% 8.02 9.88 11.74 13.60 15.46
10.8% 2.6 2.9 3.2 3.5 3.8 10.8% 7.66 9.50 11.35 13.19 15.03
----------------------------------------- -------------------------------
11.0% 2.8 3.1 3.4 3.7 4.0 11.0% 7.32 9.14 10.96 12.78 14.60
- - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies
of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of
Texas June Payment, $0.2 million of remaining share price guarantees, $1.4
million of deferred compensation, $0.8 million of capital leases, $0.3
million of notes payable and $2.5 million of management change of control
payments and D&O Tail Policy), plus options proceeds of $2.0 million.
(b) Terminal free cash flow adjusted to exclude acquisition expenditures.
(c) Equity Value per Share equals Equity Value divided by Diluted shares
outstanding of 6.916 million, before Treasury Stock Method share buy-back.
SALOMON SMITH BARNEY
----------------------------
40 A member of citigroup [LOGO]
45
SHERIDAN HEALTHCARE
Case 3: Management Projections With Acquisitions
(7.0x EBITDA Purchase Price)
o A DCF valuation of unlevered free cash flows, which includes projected
acquisitions at a 7.0x EBITDA purchase price, generates a valuation range
of approximately $4.00-$8.50 for the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range
================================================== ===================================================
5.50x 5.75x 6.00x 6.25x 6.50x 5.50x 5.75x 6.00x 6.25x 6.50x
-------------------------------------------------- ---------------------------------------------------
Terminal Value Implied Terminal P/E Multiple
================================================== ===================================================
$456 $477 $498 $518 $539 7.71x 8.66x 9.62x 10.57x 11.52x
-------------------------------------------------- ---------------------------------------------------
WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a)
=========================================================== ============================================================
10.0% $105 $118 $131 $145 $158 10.0% $22 $35 $48 $61 $75
------------------------------- -------------------------------
10.3% 103 116 129 142 155 10.3% 20 33 46 59 72
10.5% 101 113 126 139 152 10.5% 17 30 43 56 69
10.8% 98 111 124 136 149 10.8% 15 28 40 53 66
------------------------------- -------------------------------
11.0% 96 109 121 134 146 11.0% 13 25 38 51 63
- - ----------------------------------------------------------- ------------------------------------------------------------
WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c)
=========================================================== ============================================================
10.0% 1.7% 2.1% 2.4% 2.7% 2.9% 10.0% $3.17 $5.07 $6.97 $8.87 $10.78
------------------------------- -------------------------------
10.3% 2.0 2.3 2.6 2.9 3.2 10.3% 2.83 4.71 6.60 8.48 10.36
10.5% 2.2 2.5 2.8 3.1 3.4 10.5% 2.50 4.36 6.22 8.08 9.94
10.8% 2.4 2.8 3.1 3.4 3.6 10.8% 2.17 4.02 5.86 7.70 9.54
------------------------------- -------------------------------
11.0% 2.7 3.0 3.3 3.6 3.9 11.0% 1.85 3.67 5.49 7.32 9.14
- - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies
of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of
Texas June Payment, $0.2 million of remaining share price guarantees, $1.4
million of deferred compensation, $0.8 million of capital leases, $0.3
million of notes payable and $2.5 million of management change of control
payments and D&O Tail Policy), plus options proceeds of $2.0 million.
(b) Terminal free cash flow adjusted to exclude acquisition expenditures.
(c) Equity Value per Share equals Equity Value divided by Diluted shares
outstanding of 6.916 million, before Treasury Stock Method share buy-back.
SALOMON SMITH BARNEY
----------------------------
41 A member of citigroup [LOGO]
46
SHERIDAN HEALTHCARE
Case 4: Management Projections Without Acquisitions
o A DCF valuation of unlevered free cash flows, which excludes projected
acquisitions, generates a valuation range of approximately $3.75-$5.50 for
the Company.
Terminal EBITDA Multiple Range Terminal EBITDA Multiple Range
================================================== ===================================================
4.00x 4.25x 4.50x 4.75x 5.00x 4.00x 4.25x 4.50x 4.75x 5.00x
-------------------------------------------------- ---------------------------------------------------
Terminal Value Implied Terminal P/E Multiple
================================================== ===================================================
$119 $126 $134 $141 $148 9.54x 10.39x 11.24x 12.10x 12.95x
-------------------------------------------------- ---------------------------------------------------
WACC Firm Value as of 3/22/99 WACC Equity Value as of 3/22/99 (a)
=========================================================== ============================================================
10.0% $108 $113 $118 $122 $127 10.0% $25 $30 $34 $39 $44
------------------------------- -------------------------------
10.3% 107 112 116 121 126 10.3% 24 29 33 38 43
10.5% 106 111 115 120 125 10.5% 23 28 32 37 41
10.8% 105 110 114 119 123 10.8% 22 26 31 36 40
------------------------------- -------------------------------
11.0% 104 109 113 118 122 11.0% 21 25 30 34 39
- - ----------------------------------------------------------- ------------------------------------------------------------
WACC Implied Perpetuity Growth Rate (b) WACC Equity Value per Share as of 3/22/99 (c)
=========================================================== ============================================================
10.0% 2.4% 2.8% 3.2% 3.5% 3.8% 10.0% $3.60 $4.28 $4.96 $5.64 $6.32
------------------------------- -------------------------------
10.3% 2.6 3.0 3.4 3.7 4.0 10.3% 3.45 4.13 4.80 5.47 6.15
10.5% 2.8 3.2 3.6 4.0 4.3 10.5% 3.31 3.98 4.64 5.31 5.98
10.8% 3.1 3.5 3.9 4.2 4.5 10.8% 3.17 3.83 4.49 5.15 5.81
------------------------------- -------------------------------
11.0% 3.3 3.7 4.1 4.4 4.7 11.0% 3.03 3.68 4.34 4.99 5.64
- - ----------------------------------------------------------- ------------------------------------------------------------
(a) Equity Value equals Firm Value less total straight debt and contingencies
of $85.2 million (comprised of $74.0 million of bank debt, $6.1 million of
Texas June Payment, $0.2 million of remaining share price guarantees, $1.4
million of deferred compensation, $0.8 million of capital leases, $0.3
million of notes payable and $2.5 million of management change of control
payments and D&O Tail Policy), plus options proceeds of $2.0 million.
(b) Terminal free cash flow adjusted to exclude acquisition expenditures.
(c) Equity Value per Share equals Equity Value divided by Diluted shares
outstanding of 6.916 million, before Treasury Stock Method share buy-back.
SALOMON SMITH BARNEY
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42 A member of citigroup [LOGO]
47
SHERIDAN HEALTHCARE
Private Market Valuation Summary
Implied Equity
Private Market Comparables Implied Firm Implied Equity Value per
Multiple Range Value Range Value(a) Share(b)
Sheridan -------------- ---------------- --------------- ---------------
(Dollars in millions, Except per Share Data) Data Low High Low High Low High Low High
======================================================= ============== ================ =============== ===============
Firm Value/
1998 Revenues $113.0 1.2x 1.5x $135.6 $169.5 $52.4 $86.3 $7.58 $12.48
1998 EBITDA $19.1 6.0x 9.0x $114.9 $172.3 $31.7 $89.1 $4.58 $12.89
- - -----------------------------------------------------------------------------------------------------------------------------------
==============================================
Sheridan Valuation Range $8.00 $13.00
==============================================
===================================================================================================================================
Note: Equity Value equals Firm Value less total debt and contingencies, plus
cash and options and warrants proceeds.
(a) Equity Value reflects net debt and other items of $85.2 million, and
Option Proceeds of $2.0 million.
(b) Equity Value per share reflects 6.916 million diluted shares, before
treasury stock method share buyback.
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43 A member of citigroup [LOGO]
48
SHERIDAN HEALTHCARE
Private Market Values: Selected Acquisition Transactions
(Dollars in thousands)
MULTIPLES ANALYSIS
Multiples of Transaction Value
-------------------------------
Date Transaction LTM LTM LTM
Announced Target / Acquiror Value Revenues EBITDA EBIT
- - --------- ------------------------------------------- ----------- -------- ------ ------
Jan-99 Team Health (subsidiary of MedPartners) (a) $341,400 0.7x 6.0x 7.0x
Madison Dearborn Partners (Cornerstone
Equity Investors, Beecken Petty)
Dec-98 Physician Reliance Network 690,874 1.8 9.7 14.5
American Oncology Resources (b)
Oct-97 Spectrum Emergency Care Inc. (c) NA NA 5.0 NA
Laidlaw Inc.
Jul-97 Health Partners, Inc. (d) 114,000 0.8 NM NM
FPA Medical Management, Inc.
Jul-97 EmCare Holdings, Inc. (d) 379,500 1.8 15.7 19.6
Laidlaw Inc.
Apr-97 OccuSystems (d) 581,623 3.3 18.6 24.5
CRA Managed Care
Jan-97 InPhyNet Medical Management, Inc. (d) 563,300 1.2 14.6 17.0
MedPartners Inc.
Nov-96 American Ophthalmic Inc. (d) 122,100 2.0 13.3 21.1
Physicians Resource Group Inc.
Nov-96 AHI Healthcare Systems, Inc. (d) 109,600 0.9 NM NM
FPA Medical Management, Inc.
--------------------------------------------------------
Low 0.7x 5.0x 7.0x
Median 1.5 6.0 10.8
Mean 1.6 6.9 10.8
High 3.3 18.6 24.5
--------------------------------------------------------
Note: This list excludes PPMs which focus on primary care or dental.
(a) Based on Salomon Smith Barney estimates.
(b) Based on American Oncology Resources closing market price of $13.00 on
12/11/98.
(c) Terms of the transaction not disclosed. Source of EBITDA multiple: 10/6/97
press release.
(d) Transactions which occurred before October 1997 are excluded from LTM
EBITDA and EBIT transaction multiple median and mean calculations.
- - --------------------------------------------------------------------------------
The recent acquisition of Team Health by Cornerstone Equity/Madison Dearborn is
the most comparable recent precedent transaction.
SALOMON SMITH BARNEY
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44 A member of citigroup [LOGO]
49
SHERIDAN HEALTHCARE
Private Market Values: Selected Acquisition Transactions (cont.)
PREMIUM ANALYSIS
Stock Price Premium Paid
Prior to Announcement
Date Purchase --------------------------------
Announced Target / Acquiror Price (a) 1 Day 1 Week 1 Month
- - --------- ------------------------------------------- ----------- -------- ------ -------
Jan-99 Team Health (subsidiary of MedPartners) (b) -- NA NA NA
Madison Dearborn Partners (Cornerstone
Equity Investors, Beecken Petty)
Dec-98 Physician Reliance Network $12.22 6.3% 17.8% 24.1%
American Oncology Resources (c)
Oct-97 Spectrum Emergency Care Inc. (b) -- NA NA NA
Laidlaw Inc.
Jul-97 Health Partners, Inc. (b) -- NA NA NA
FPA Medical Management, Inc.
July-97 EmCare Holdings, Inc. (c) 38.00 NM NM NM
Laidlaw Inc.
Apr-97 OccuSystems 21.21 10.9 10.9 NM
CRA Managed Care
Jan-97 InPhyNet Medical Management, Inc. 26.38 7.1 28.7 46.5
MedPartners Inc.
Nov-96 American Ophthalmic Inc. (b) -- NA NA NA
Physicians Resource Group Inc.
Nov-96 AHI Healthcare Systems, Inc. 8.75 20.7 45.8 34.6
FPA Medical Management, Inc.
---------------------------------------------------------
Low 6.3% 10.9% 24.1%
Median 9.0% 23.2% 34.6%
Mean 11.2% 25.8% 35.1%
High 20.7% 45.8% 46.5%
---------------------------------------------------------
Note: This list excludes PPMs which focus on primary care or dental.
(a) Price per share at date of announcement.
(b) Target is private company.
(c) Offer represents a 63% premium to EmCare's closing price on 2/12/97, when
the company announced an agreement to pay the U.S. government $8 million
to settle allegations of false billing.
(d) Median price of collar.
SALOMON SMITH BARNEY
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45 A member of citigroup [LOGO]
50
SHERIDAN HEALTHCARE
APPENDIX
SALOMON SMITH BARNEY
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51
SHERIDAN HEALTHCARE
A. COMPARABLE PUBLICLY TRADED COMPANIES
SALOMON SMITH BARNEY
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52
SHERIDAN HEALTHCARE
Overview of Major PPM's
SINGLE SPECIALITY
(Dollars in Millions)
Market
Name Value(1) Business Focus/Description
- - --------------------------------- -------- -------------------------------
American Oncology Resources, Inc. $770.5 American Oncology Resources is
a multi-state physician
practice management company
focusing exclusively on
oncology. The Company's
physician practices provide a
broad range of medical services
to cancer patients, integrating
the specialties of medical and
gynecological oncology,
hematology, radiation oncology,
stem cell transplantation and
diagnostic radiology.
- - --------------------------------------------------------------------------------
American Physician Partners, Inc. $119.0 American Physician Partners is
a leading provider of physician
practice management services to
radiology practices. The
Company develops, consolidates
and manages integrated
radiology and imaging service
systems.
- - --------------------------------------------------------------------------------
AmeriPath, Inc. $161.7 AmeriPath is the leading
physician practice management
company focused on anatomic
pathology services.
- - --------------------------------------------------------------------------------
Pediatrix Medical Group $367.3 Pediatrix is a leading national
provider of physician
management services to
hospital-based neonatal
intensive care units, pediatric
intensive care units and to
pediatrics departments in
hospitals.
- - --------------------------------------------------------------------------------
Response Oncology, Inc. $30.3 Response Oncology is a
comprehensive cancer management
company. The Company provides
advanced cancer treatment
services through outpatient
facilities, manages the
practices of oncologists with
whom the Company has affiliated
and conducts clinical cancer
research on behalf of
pharmaceutical manufacturers.
- - --------------------------------------------------------------------------------
- - --------
(1) Fully diluted market value based on closing price at March 19, 1999.
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46 A member of citigroup [LOGO]
53
SHERIDAN HEALTHCARE
Overview of Major PPM's
MULTI SPECIALTY
(Dollars in Millions)
Market
Name Value(1) Business Focus/Description
- - --------------------------------- -------- -------------------------------
Advanced Health Corporation $31.5 Advanced Health Corporation
provides physician services
through the management of
multi-specialty and
single-specialty physician
group practices and networks.
The Company focuses its
management efforts on
high-cost, high-volume disease
specialties, such as
cardiology, oncology and
orthopedics.
- - --------------------------------------------------------------------------------
MedPartners, Inc. $671.7 MedPartners is the nation's
largest physician practice
management company. Through the
Company's network of affiliated
group and IPA physicians,
MedPartners provides primary
and specialty health care
services to prepaid physician
practices in 25 states.
- - --------------------------------------------------------------------------------
PhyCor, Inc. $399.8 PhyCor is the second largest
physician practice management
company. The Company acquires
and operates multi-specialty
medical clinics and develops
and manages independent
practice associations.
- - --------------------------------------------------------------------------------
PhyMatrix Corporation $65.0 PhyMatrix corporation is a
comprehensive health care
company focused on creating
physician-based health care
networks within specific
markets. The Company provides
management services to
disease-specific and primary
care physicians and supports
these physicians through
certain medical support
services in selected markets.
- - --------------------------------------------------------------------------------
ProMedCo Management $96.5 ProMedCo is a physician
practice management company
that consolidates its
affiliated physician groups
into primary-care-driven
multi-specialty networks.
Additionally, their services
include clinical quality
assessment, enrollment and
patient registration,
capitation and processing
payment, utilization and case
management.
- - --------------------------------------------------------------------------------
- - --------
(1) Fully diluted market value based on closing price at March 19, 1999.
SALOMON SMITH BARNEY
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47 A member of citigroup [LOGO]
54
SHERIDAN HEALTHCARE
B. PRECEDENT PPM TRANSACTIONS
SALOMON SMITH BARNEY
----------------------------
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SHERIDAN HEALTHCARE
Private Market Values: Acquisition Transactions
(dollars in thousands)
Date Equity Transaction
Announced Target / Acquiror Segment Value Value
- - --------- ---------------------------------------------- ---------------- -------- -----------
Jan-99 Team Health (subsidiary of MedPartners) (a) Emergency NA $341,400
Madison Dearborn Partners (Cornerstone
Equity Investors, Beecken Petty)
Dec-98 Physician Reliance Network Single Specialty $642,784 690,874
American Oncology Resources (b)
Sept-98 Valley Forge Dental Associates Dental $18,000 60,000
Monarch Dental Corporation
Mar-98 Medcath Single Specialty 384,598 440,000
KKR, Welsh Carson Anderson & Stowe
Mar-98 First Physician Care Primary/ 73,999 81,252
PhyCor, Inc. Multispecialty
Oct-97 Spectrum Emergency Care Inc. (c) Emergency NA NA
Laidlaw Inc.
Aug-97 Talbert Medical Management Primary/ 200,300 145,300
MedPartners Inc. Multispecialty
July-97 Health Partners, Inc. IPA 119,000 114,000
FPA Medical Management, Inc.
July-97 EmCare Holdings, Inc. Emergency 333,300 379,500
Laidlaw Inc.
Apr-97 OccuSystems Single Specialty 504,033 581,623
CRA Managed Care
Jan-97 InPhyNet Medical Management, Inc. Emergency 493,700 563,300
MedPartners Inc.
Nov-96 American Ophthalmic Inc. Single Specialty 68,200 122,100
Physicians Resource Group Inc.
Nov-96 AHI Healthcare Systems, Inc. IPA 129,800 109,600
FPA Medical Management, Inc.
Nov-96 STAT Healthcare Emergency 120,905 125,703
American Medical Response
July-96 Foundation Health Clinics Primary/ 105,000 197,000
FPA Medical Management, Inc. Multispecialty
May-96 PCA Clinics (Florida) Primary/ 25,718 22,000
FPA Medical Management, Inc. Multispecialty
Multiples of Transaction Value
---------------------------------- Purchase
Date LTM LTM LTM Price / LTM Forward
Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E
- - --------- ---------------------------------------------- ---------- ------ ----- ----------- -------
Jan-99 Team Health (subsidiary of MedPartners) (a) 0.7x 6.0x 7.0x NA NA
Madison Dearborn Partners (Cornerstone
Equity Investors, Beecken Petty)
Dec-98 Physician Reliance Network 1.8 9.7 14.5 23.7x 18.2x
American Oncology Resources (b)
Sept-98 Valley Forge Dental Associates 1.0 NA NA NA NA
Monarch Dental Corporation
Mar-98 Medcath 4.0 15.3 27.8 55.3 29.2
KKR, Welsh Carson Anderson & Stowe
Mar-98 First Physician Care 1.4 NM NM NM NA
PhyCor, Inc.
Oct-97 Spectrum Emergency Care Inc. (c) NA 5.0 NA NA NA
Laidlaw Inc.
Aug-97 Talbert Medical Management 0.3 NM NM NM NM
MedPartners Inc.
July-97 Health Partners, Inc. 0.8 NM NM NM NA
FPA Medical Management, Inc.
July-97 EmCare Holdings, Inc. 1.8 15.7 19.6 29.8 24.5
Laidlaw Inc.
Apr-97 OccuSystems 3.3 18.6 24.5 37.8 17.3
CRA Managed Care
Jan-97 InPhyNet Medical Management, Inc. 1.2 14.6 17.0 27.9 21.4
MedPartners Inc.
Nov-96 American Ophthalmic Inc. 2.0 13.3 21.1 NM NA
Physicians Resource Group Inc.
Nov-96 AHI Healthcare Systems, Inc. 0.9 NM NM NM NM
FPA Medical Management, Inc.
Nov-96 STAT Healthcare 3.7 20.7 22.0 28.4 31.8
American Medical Response
July-96 Foundation Health Clinics 1.3 NM NM NM NA
FPA Medical Management, Inc.
May-96 PCA Clinics (Florida) 0.5 9.4 44.5 70.6 NA
FPA Medical Management, Inc.
(CONTINUED ON NEXT PAGE)
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48 A member of citigroup [LOGO]
56
SHERIDAN HEALTHCARE
Private Market Values: Acquisition Transactions (cont.)
(dollars in thousands)
Date Equity Transaction
Announced Target / Acquiror Segment Value Value
- - --------- ---------------------------------------------- ---------------- ---------- -----------
May-96 Caremark International Primary/ $2,464,167 $2,844,367
MedPartners/Mullikin Inc. Multispecialt
May-96 Sterling Healthcare Group Inc. Emergency 199,888 211,288
FPA Medical Management, Inc.
Mar-96 EyeCorp, Inc. (d) Single Specialty 139,100 162,200
Physicians Resource Group Inc.
Dec-95 Pacific Physician Services Primary/ 322,617 317,619
MedPartners/Mullikin Inc. Multispecialty
Aug-95 Mullikin Medical Enterprises (e) Primary/ 345,000 339,343
MedPartners Inc. Multispecialty
Apr-95 Salick Healthcare Single Specialty 223,236 204,000
Zeneca Pharmaceuticals
Aug-94 Friendly Hills Healthcare Primary/ 150,000 221,000
Caremark International Multispecialty
Jul-94 Thomas-Davis Medical Center Primary/ 465,600 474,200
Foundation Health Corp. Multispecialty
Multiples of Transaction Value
---------------------------------- Purchase
Date LTM LTM LTM Price / LTM Forward
Announced Target / Acquiror Revenues EBITDA EBIT Net Income P/E
- - --------- ---------------------------------------------- ---------- ------ ----- ----------- -------
May-96 Caremark International 1.2x 18.3x 22.5x 32.8x 20.2x
MedPartners/Mullikin Inc.
May-96 Sterling Healthcare Group Inc. 1.7 18.4 24.0 37.7 NA
FPA Medical Management, Inc.
Mar-96 EyeCorp, Inc. (d) 2.4 12.8 19.1 35.7 NA
Physicians Resource Group Inc.
Dec-95 Pacific Physician Services 0.8 10.6 16.8 31.4 19.8
MedPartners/Mullikin Inc.
Aug-95 Mullikin Medical Enterprises (e) 0.8 14.6 22.9 39.1 NA
MedPartners Inc.
Apr-95 Salick Healthcare 2.8 14.8 21.9 39.6 NA
Zeneca Pharmaceuticals
Aug-94 Friendly Hills Healthcare 1.1 8.8 NA NA NA
Caremark International
Jul-94 Thomas-Davis Medical Center 1.0 14.3 17.6 NM NA
Foundation Health Corp.
-----------------------------------------------------------------------------
Mean 1.6x 13.4x 21.4x 37.7x 22.8x
Median 1.2 14.5 21.5 35.7 20.8
High 4.0 20.7 44.5 70.6 31.8
Low 0.3 5.0 7.0 23.7 17.3
-----------------------------------------------------------------------------
- - ----------
(a) Based on Salomon Smith Barney estimates.
(b) Based on American Oncology Resources closing market price of $13.00 on
12/11/98.
(c) Terms of the transaction not disclosed.
(d) FYE 1995E net income.
(e) LTM December 1995.
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SHERIDAN HEALTHCARE
C. WACC ANALYSIS
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WACC Analysis
Comparable Companies Debt Equity Cost of Market Total Preferred Debt / Unlevered
(Dollars in Millions) Beta Beta(a) Equity(b) Cap. Debt Stock Cap.(Mkt) (Asset) Beta(c)
===============================================================================================================================
American Oncology Resources, Inc. 0.00 1.07 13.6% $771 $239 $0 23.6% 0.90
MedPartners 0.00 1.41 16.1 672 1,751 0 72.3 0.54
Pediatrix Medical Group Inc. 0.00 1.18 14.4 367 18 0 4.6 1.15
PhyCor 0.00 1.41 16.1 400 623 0 60.9 0.72
PhyMatrix 0.00 1.14 14.1 65 124 0 65.6 0.53
Physician Reliance Network, Inc. 0.00 0.91 12.4 418 60 0 12.6 0.84
- - -------------------------------------------------------------------------------------------------------------------------------
Median -- 1.16 14.26 -- -- -- 42.27 0.78
Mean 1.19 14.46 -- -- -- 39.94 0.78
- - -------------------------------------------------------------------------------------------------------------------------------
Assumptions
==========================================
Tax Rate for Companies 39.0%
Tax Rate for Target 39.0%
Risk-Free Rate (30-Year TSY) 5.6%
Pretax Cost of Debt (e) 8.0%
Equity Risk Premium (f) 7.5%
Political Risk Premium 0.0%
Debt Beta for Target 0.00
- - ------------------------------------------
Weighted Average Cost of Capital(d)
=========================================
Debt / Capitalization (Market)
Unlevered -----------------------------------------
(Asset) Beta 30% 35% 40% 45% 50%
===========================================================
0.70 10.0% 9.9% 9.7% 9.6% 9.4%
------------------------
0.75 10.3% 10.2% 10.0% 9.9% 9.7%
0.80 10.7% 10.5% 10.4% 10.2% 10.1%
0.85 11.0% 10.8% 10.7% 10.5% 10.4%
------------------------
0.90 11.3% 11.2% 11.0% 10.8% 10.7%
- - -----------------------------------------------------------
(a) Source: Bloomberg's estimate using Value Line's estimation methodology
using returns vs. the S&P 500 as of 3/16/99.
(b) Cost of Equity = Risk-Free Rate (R(F)) + Equity Beta(beta)(E) * Equity
Risk Premium (R(M) - R(F)).
(c) (beta)(A) = (beta)(E) [%E/[%E +%D * (1 - T)] + (beta)(D) * [%D * (1 -
T)/%D * (1 - t) + %E]]
(d) WACC = [(R(F) + (beta)(E) * (R(M) - R(F)) + R(P)) * %E] + [K(D) * (1 - T)
* %D]. Assumes pretax cost of debt remains constant.
(e) Any political risk premium (R(P)) is included in the pretax cost of debt
(K(D)).
(f) Source: Ibbotson Associates. Based on data from 1926 - 1996.
- - --------------------------------------------------------------------------------
An analysis of the cost of capital using the capital asset pricing model implies
a median cost of equity of 14.0%, and a weighted average cost of capital of
10.4%.
SALOMON SMITH BARNEY
----------------------------
50 A member of citigroup [LOGO]