In its analysis of the two companies Standard & Poor’s (S&P) noted the risks posed by integration of Kendle, i3, and PharmaNet. For inVentiv, S&P notes “the company has had a very limited presence” in the CRO (contract research organisation) sector and this creates integration and retention risks.
“Given the absence of its own key scientific and management expertise in the CRO space, inVentiv depends on retaining key leadership talent from i3 and PharmaNet”, S&P wrote. Despite these challenges S&P is broadly positive about inVentiv, giving it a “fair” business risk profile.
INC is classed as “weak”. The rating is based on volatility in the sector, the need to compete against bigger CROs, and the risks associated with integrating Kendle. Speaking to Outsourcing-Pharma last month Andrew Townsend, vice president of alliances at INC, talked about the integration challenges.
“We don’t have the luxury of time. It all has to be done very, very quickly”, Townsend said. Despite the potential pitfalls, Townsend said integration has gone “very well”, in part because management “made hard decisions quickly”.
Moving quickly limits the period in which clients may view the upheaval as too big a risk and choose to work with other CROs. Attendees of Partnerships in Clinical Trials last month found some sponsors are taking this cautious approach.
“The private equity consolidation plays are deep into integration and some clients are taking a wait-and-see approach to working with companies going through significant change”, Eric Coldwell, equity analyst at RW Baird, wrote last month.
Buy to grow
While noting the integration risks, S&P expects the acquisitions made by INC and inVentiv to drive growth in coming years. The Kendle acquisition will “substantially increase” sales and help medium-term growth too, S&P wrote, while margins at inVentiv will benefit from its CRO expansion efforts.
Last month inVentiv continued its acquisition-driven expansion policy, inking a deal $50m (€37m) for Kforce Clinical Research. After the deal inVentiv told Outsourcing-Pharma it is “continuously” looking at takeovers and S&P expects this activity to lead to more acquisitions in the coming years.
“Management's appetite for growth through acquisitions also remains, and while it currently does not have the capacity for another transformative acquisition, it is likely to conduct smaller, tuck-in acquisitions at least annually”, S&P wrote.