Another big buyout is on the horizon: the Caryle Group and Hellman & Friedman recently announced that they will buying Pharmaceutical Product Development, a clinical research company, for $3.9 billion, making it one of the largest private equity deals of the year. Even as the stock market tumbles, Pharmaceutical Product Development owners will receive $33.25 a share, which is 30% premium from Friday’s closing stock price.
Why are the buyout firms willing to pay up in such a climate? It is because Pharmaceutical Product Development has both stable cash flow and a bright future. Steady cash flow is obviously always an attractive trait; it will allow the firms to use money from Pharmaceutical Product Development to fund other purchases. Equally important, however, is the firm’s bright future. With the uncertainty in the market, Pharmaceutical Product Development provides an easy solution because it has a clear niche in the market. The company operates in the clinical research and laboratory services industry and provides these services to drug companies who prefer to outsource research and lab work. More and more drug companies are doing exactly that as it has becoming increasingly difficult for pharmaceutical companies to increase profit margins and deal with the costs of drug approval.
Pharmaceutical Product Development will also be joining others in the industry that are controlled private equity firms. Private equity firms have owned one of its main competitors, Quintiles Transnational, for almost a decade. Currently, the firm is owned by Bain Capital, TPG Capital and 3i Group. Various buyout shops have also recently bought InVentiv Health, a pharmaceutical support company, and Kendle International, a clinical research firm. Overall, the health care industry has witnessed a number of large buyouts in the years following the financial crisis.
This specific buyout as well as the general trend in the health care industry is definitely a much-needed positive force in private equity, which has not seen very much activity recently. Read more about the deal at: http://dealbook.nytimes.com/2011/10/03/carlyle-and-hellman-friedman-to-buy-ppd-for-3-9-billion/
By Meha Patel