Nuance-Transcend Deal’s Valuation Implication on MModal

Nuance Communication announced this morning that it is acquiring Transcend for $300 million in cash.  Following are the acquisition metrics:

TRCR 2011 2012E
Revenue 125 144
EBITDA 28 29
Price/Rev 2.4 2.1
Price/EBITDA 10.7 10.3

After this transaction closes, the only remaining pure-play in the healthcare transcription service sector will be MModal, a company which I had written-up on February 12, 2012

NUAN/TRCR deal highlights the depressed valuation of MODL stock.  Based upon this transaction, the implied stock price upside in MODL ranges from 48% to 101%.

MODL 2011 2012E
Revenue 442 490
EBITDA 109 125
EV per Rev         1,061         1,021
EV per EBITDA         1,168         1,293
MODL Stock Price per Rev         15.21         14.46
MODL Stock Price per EBITDA         17.25         19.62
Implied Upside per Rev Mult 56% 48%
Implied Upside per EBITDA Mult 77% 101%


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