Private equity takeovers of CROs (contract research organisation) ramped up in 2011, culminating in PPD being sold, and reports suggest activity could continue this year. The latest news, covered in The Deal Reporter, surrounds preclinical CRO Charles River, a longstanding target for private equity firms.
“[Charles River] has been viewed as a takeout candidate since the WuXi acquisition was terminated in 2010, with private equity firms showing interest recently and in past”, Eric Coldwell, equity analyst at RW Baird, said.
Opponents to the WuXi deal, notably Jana Partners, which then owned a seven per cent stake in Charles River, said other transactions would better serve shareholders. Options Jana discussed in 2010 included selling the business or splitting research models and preclinical into two companies.
Both strategies are now being reported as possibilities. Sources quoted by The Deal Reporter said the research models unit, which Coldwell said is underappreciated by investors, is of interest to strategic buyers. Thermo Fischer Scientific is suggested as a possible buyer of the research models business.
Coldwell is yet to “verify the accuracy of the report” but noted that “Deal Reporter and other financial publications have a strong history of identifying takeouts in the CRO space”.
Amy Cianciaruso, director of public relations at Charles River, told Outsourcing-Pharma: "It is our policy not to comment on rumour or speculation."
Deal possibilities
While buyers may want to split the company it goes against the strategy pursued by Charles River. “We question Charles Rivers’ interest in a transaction, especially one that breaks the two units, given a multi-year strategy to more fully integrate research models and preclinical services”, Coldwell said.
Charles River also has “known apprehensions about selling to private equity”, Coldwell said, and this may favour strategic buyers. A Deal Reporter source suggests Charles River may have called potential buyers, with an emphasis on strategic possibilities, and hired a sell-side advisor.
James Foster, CEO of Charles River, is speaking at JP Morgan Healthcare Conference on Wednesday.