The Health Care M&A Monthly: The Carlyle Group Buys PPDI--
Makes Largest Privatization Of A CRO Ever Recorded
Financial buyers usually account for about 5 percent of the deal volume in the health care M&A market. But when a REIT or a private equity group announces a deal, it is almost always hot news because it is generally larger than the average transaction. Financial buyers need scale to make money and are thus more likely to pick up a portfolio company rather than a stand-alone facility such as a mom-and-pop home health agency. But they also need targets that have room to grow so they can reap a return on their investment.
At the beginning of October, two private equity firms, The Carlyle Group and Hellman & Friedman LP, (H&F) joined forces to make a $3.9 billion bid for Pharmaceutical Product Development (NASDAQ: PPDI). The target is a contract research organization, or CRO, that provides drug discovery, development and life-cycle management services in clinical development and laboratory services. On a trailing 12-month basis, PPDI generated revenue of $1.54 billion, EBITDA of $294.0 million and net income of $170.0 million. PPDI is based in Wilmington, North Carolina; the state has been the cradle for many a CRO.
The CRO industry appears to have all the right ingredients for good growth. As more pharmaceutical and biotechnology companies outsource their research and development activities, the CROs step in to provide a variety of drug development services. This has naturally spurred M&A activity within the CRO industry to capture a share of this economic activity; 2011 has already seen 18 deals. Carlyle and H&F will likely use PPDI as a platform to take advantage of both the ongoing growth in, and the consolidation of, the industry.
Under terms of the deal, the buyers will pay $33.25 per share in cash, a level which the stock has not seen in three years. The deal offers shareholders a 29.6% premium to the stock’s prior-day price. With a total purchase price of approximately $3.9 billion, the price to revenue and EBITDA multiples are 2.5x and 13.3x, respectively. The transaction has fully committed financing, consisting of a combination of equity provided by Carlyle Partners and Hellman & Friedman Capital Partners, and external debt financing commitments provided by Credit Suisse, JP Morgan, Goldman Sachs and UBS.
Carlyle and Hellman & Friedman are by no means the first financial buyers of CROs. That began with the management buyout of Quintiles Transnational in 2003 for $1.7 billion, backed by One Equity Partners. Currently, The Blackstone Group backs Catalent Pharma Solutions (bought in 2007 for $3.3 billion)...Want to read more? Click here for a free trial to The Health Care M&A Monthly and download the current issue today