Bids from private equity firms valuing PPD at up to $4.3bn have been made as part of the strategic review the company confirmed in July, reports Bloomberg. PPD was only interested in private equity bids and Carlyle is now said to lead the pack as it seeks to re-enter the clinical services sector.
“Carlyle knows the space. It may have been many years ago, but Carlyle owned PRA International for many of its early growth years prior to selling to Genstar and then the IPO [initial public offering]”, David Windley, equity analyst at Jefferies & Company, said in a note to investors.
A sale price of $35 to $36 a share, close to $4bn in total, “seems achievable”, Windley said. Before news of the Carlyle bid broke PPD shares were trading at $27 and analyst target prices seen by Outsourcing-Pharma range from $36 to $38.
Valuing PPD in light of private equity takeovers of smaller CROs (contract research organisations), such as INC Research, would make $38 reasonable. However, Windley said PPD lacks the top-line growth forecast, cost savings synergies or asset sale opportunities that would justify this price.
“It is not hard to imagine the management of a better positioned company believing they should be worth a higher valuation”, Windley said.
Private benefits
As well as unlocking value for shareholders, the stated goal of the strategic review, going private would free PPD from the reporting requirements of publicly traded companies.
“Quintiles has been "the next IPO" in the CRO industry for about four years. Meanwhile, [the CEO] seems to enjoy the communication luxuries of being a private company. In other words, he doesn't have to tell the world what he is up to”, Windley said.
As a private company Quintiles has entered into “some fairly exotic contract structures and strategic relationships” that would be disliked by some shareholders, Windley said. PPD could have more scope to enter into these types of deals if it enters private ownership.