After less than three years as a public company, troubled US contract research organisation (CRO) PRA International is putting itself back in the hands of its one-time majority shareholder.

PRA has entered into a definitive agreement to be acquired by affiliates of Genstar Capital, a private equity firm that still owns 12.8% of the CRO’s shares. Genstar originally acquired PRA in consortium with the latter’s management from The Carlyle Group in July 2001. It subsequently reduced its holding but retained close links with PRA when the CRO floated in November 2004.

Under the agreement endorsed by the PRA board and a special committee of independent directors, shareholders would receive US$30.50 in cash for each share of PRA common stock, a premium of around 13% to the CRO’s closing share price on 24 July 2007 and 24% to the company’s average closing share price for the three months to that date.

While PRA’s shares rose firmly on the deal, the premium was not enough for some analysts and investors, who felt the company had not been given time to deliver value from its restructuring programme. There were also mutterings of cronyism: for example, Jean-Pierre Conte, chairman and managing director of Genstar Capital, only stepped down as chairman of the PRA board last December, while continuing to serve as a director.

The deal with Genstar is not done and dusted yet. It includes a 50-day grace period (ending on 12 September) in which PRA may solicit “proposals for alternative transactions from third parties”, subject to a break-up fee of about US$7.9 million to Genstar should any of these negotiations lead to a definitive agreement. PRA says it intends to “actively solicit superior proposals” over the coming weeks.

Logical fit

Nonetheless, PRA and Genstar insisted the merger agreement was a boon to shareholders and a logical fit to secure the CRO’s future.

“We are pleased that this transaction appropriately recognises the value of PRA as one of the world’s leading global CROs while providing our stockholders with an immediate cash premium for their investment in PRA,” said Armin Kessler, chairman of the special committee that unanimously recommended the merger. “In Genstar, we are pleased to have an experienced group of investors committed to maintaining our company’s client-focused culture, building upon our core therapeutic expertise, and expanding our product offering across all business segments.”

“We believe PRA has a strong business model and intend to invest in the strategic initiatives necessary to allow the company to capitalise on the favourable dynamics of the CRO industry,” added Conte. “By making the right investments and empowering employees to succeed, we fully expect to accelerate PRA’s current growth trajectory.”

In February PRA said it was restructuring and refocusing its operations under interim chief executive officer (CEO) Terrance Bieker, following a difficult year marked by low revenue growth, high staff turnover and a sharp drop in income. The expectation was that 2007 would be a “rebuilding year”, after which growth might return to market levels or better in 2008. First, though, PRA needed to capitalise on progress in its Early Development and Scientific & Medical Affairs businesses while turning around its much larger Product Registration arm.

Restructuring charges of US$6.65 million, mainly related to office closures in Eatontown, New Jersey and Ottawa, Canada, hit PRA hard in the second quarter ended 30 June. Operating income plummeted by 94.7% to US374,000, which also included a US$682,000 charge for amortisation of intangible assets from the acquisition of Dutch clinical development and bioanalytical laboratory company Pharma Bio-Research in July 2006.

Service revenue was up by 28.7% to US$90.2 million in the quarter, however, while PRA’s order backlog grew by 35% to US$693.8 million. “The rebound in our top-line performance continues,” commented Bieker, who became permanent CEO during the reporting period.