In the years since being taken private in a $3.9bn (€3.5bn) deal, the accounts of PPD have largely been hidden from public view, with its private equity owners only revealing rare snapshots of the financial performance of the contract research organization (CRO).
That changed recently when PPD published the paperwork for its planned initial public offering (IPO), details of which first emerged last year. The financial filing shows PPD plans to raise up to $100m and outlines why it thinks investors should commit the money.
In 2014, PPD’s sales were $1.9bn. By 2018, sales came in above $3.7bn.
The 95% growth achieved by PPD between 2014 and 2018 compares favorably to the performance of the CRO’s peers. Covance, for example, grew sales by close to 60% over the same period, taking them from $2.7bn in 2014 up to $4.3bn in 2018.
PPD relied on a fairly broad base of clients for growth – no single client accounted for more than 10% of revenues in 2016, 2017 or 2018, although PPD’s top 10 customers generate close to half of its sales.
The CRO fueled its growth with a series of acquisitions. Between May 2015 and September 2019, PPD bought Synarc, Medimix International, Optimal Research, Evidera, Synexus Clinical Research, CRA Intermediate Holdings and the clinical research arm of Shin Nippon Biomedical Laboratories.
Most of the takeovers were valued at less than $100m, although PPD did strike triple-digit deals to buy Evidera and Synexus, paying $171m and $267m, respectively, to land those targets.
The growth of the business has enabled PPD to pay sizable dividends to its current shareholders. In May 2019, PPD paid out more than $1bn. Months later, PPD issued another special cash dividend of $160m.
PPD took on debt to fund some of the transactions, resulting in what the IPO paperwork describes as a “significant amount of indebtedness”. The IPO proceeds will enable PPD to repay some loans but the CRO expects to have “a significant amount of indebtedness” even after that happens.
The CRO’s ability to service that debt without running into problems will depend on its free cash flow. Since 2015, annual free cash flow at PPD has ranged from $254m to $352m, figures it attributes to “optimal utilization of billable staff and prudent cost management.”