Clinical research organization PPD (NYSE:PPDI) is talking with private equity firm The Carlyle Group about an M&A deal.
Bloomberg News reports that Carlyle is in exclusive talks to possibly acquire Wilmington, North Carolina-based PPD, which is the third-largest CRO in the industry with more than $1.4 billion in 2010 revenue. Bloomberg cited five unnamed sources “with knowledge of the discussions.”
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Several private equity firms expressed interest, including Blackstone Group (NYSE:BX), KKR & Co. and Hellman & Friedman, two unnamed sources told Bloomberg. Carlyle’s bid topped all of them. Bids were between $33 and $38 a share — as much as $4.3 billion. PPD shares were trading at about $32.16 a share midday, a 65 cent increase over Monday’s closing price.
M&A activity among CROs has been on the rise this year and private equity firms are in the thick of it as they seek to get pieces of the business or entire companies that they see as being particularly lucrative. The CRO industry is projected to grow as pharmaceutical outsourcing grows and CROs take on a growing role of helping pharmas commercialize their products globally. John Herndon, a veteran of several California biotechnology companies and now a lecturer of accounting and finance at California State University, East Bay, told MedCity News that as CRO business grows, public CROs might be looking to go private to escape requirements to disclose financial, operational and strategic details that come with being public.
“If you’re a publicly traded organization, the level of public scrutiny you’re under is quite high,” Herndon said.
Jefferies & Co. analyst David Windley told Bloomberg that going private would allow PPD “to explore more complex deal structures with clients.” Such deals could mean strategic partnerships, arrangements where a CRO takes on a greater role in developing and commercializing a drug. Financial terms of such deals typically remain under wraps, but these arrangements move CROs away from the standard fee-for-service contract work that has long characterized CRO business. In exchange for taking on a greater share of the work and the risk in developing a drug, these partnerships give CROs a greater share of the rewards of a successfully commercialized product. The CRO industry’s larger players, such as Quintiles and Covance (NYSE:CVD), have increasingly pursued these kinds of deals. When Raleigh, North Carolina CRO INC Research acquired Kendle to vault into the CRO industry’s top five, the company said that one of the reasons for the deal was to secure the global scale that would enable INC to compete with the largest CROs for such contracts.
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Speculation of a PPD sale rose in July after The Wall Street Journal, also citing unnamed sources familiar with the matter, reported that PPD was exploring a sale that could attract offers from other CROs or private equity. After that report, PPD founder and Executive Chairman Fred Eshelman stated publicly that PPD was not talking “with other clinical research providers” about an M&A deal. But he said nothing about private equity. Only private equity firms bid on PPD; no pharmaceutical firms were given the opportunity to try to buy the company, two sources told Bloomberg.
Reuters, also citing an unnamed source, reported that Carlyle may look to another private equity firm to join the company in a deal. An acquisition is far from a foregone conclusion. The source said that discussions may yet falter.
Carlyle is no stranger to the CRO business. The firm backed PRA International and acquired a stake in that CRO in 1996. PRA went public in 2004 before being taken private again by private equity firm Genstar in a 2007 deal worth $797 million.
