Pharmaceutical Product Development (PPD) has put an end to speculation about its future and joined the swelling ranks of contract research organisations putting their faith in private equity investment, announcing a definitive agreement to be acquired by affiliates of The Carlyle Group and Hellman & Friedman in an all-cash transaction valued at US$3.9 billion.

Under the merger agreement, which was backed unanimously by the PPD board and is subject to shareholder approval, asset manager the Carlyle Group and private equity firm Hellman & Friedman will acquire the outstanding common shares of PPD for US$33.25 per share in cash.

That amounts to a premium of 29.6% over PPD’s closing price on 30 September 2011, the last business day before the deal was announced. The CRO’s shares rose by more than 25% on the announcement, although when rumours started circulating about a PPD sale last July, some commentators were talking about a price tag of up to US$4.3 billion.

Queue of suitors

In mid-August The Carlyle Group was reported to be at the head of the queue of suitors, with the possibility of enlisting other private equity firms in a bid for PPD. That is what Carlyle has now done, teaming up with Hellman & Friedman and securing additional financing from four banks to push the deal through.

The full package comprises equity from Carlyle Partners V, L P, a US$13.7 billion US investment fund, and from Hellman & Friedman Capital Partners VII, L P, a US$8.9 billion fund, as well as external debt financing commitments provided by Credit Suisse, JP Morgan, Goldman Sachs and UBS.

Under the terms of the merger agreement, PPD can solicit alternative offers for 30 calendar days from the date of agreement and “may at any time respond to unsolicited proposals that the board determines are reasonably likely to result in a superior proposal”, the company notes.

Carlyle and Hellman & Friedman also have the right to match any superior offer. The agreed transaction is expected to close in the fourth quarter of 2011.

Secure foundation

Putting the CRO in the hands of The Carlyle Group and Hellman & Friedman “provides an attractive return for our shareholders, while also ensuring a secure foundation and commitment to investment, innovation and excellence for PPD clients and employees as the company builds on its 25-year history of success”, stated Fred Eshelman, founder and executive chairman of PPD.

Karen Bechtel, managing director and head of the healthcare group at Carlyle, said Eshelman and the PPD management team had “built a leading and extremely high quality global research and services organisation that will continue to help pharmaceutical and biotech companies develop new drugs at lower costs. We look forward to helping expand and enhance PPD’s platform and broad spectrum of therapeutic expertise”.

The CRO appointed a new chief executive officer - Raymond Hill from IMS Health – just last month, filling a position that had been vacant since mid-May. In July PPD moved to quell speculation that it was up launching a review of its strategic planning and capital structure to see whether more value could be unlocked for shareholders.

Eshelman insisted at the time that the company was “not engaged in any discussions around a combination with other clinical research providers”. That did not rule out private equity interests throwing their hat in the ring, though.

Increasing appetite

Private equity has been showing increasing appetite for the contract research market of late, as a wave of consolidation hits the sector.

INC Research, which was acquired by private equity firm Avista Capital Partners and Ontario Teachers’ Pension Plan in August 2010, completed its takeover of Kendle in mid-July, while InVentiv Health closed on PharmaNet Development Group at around the same time.

The latter deal had a strong private-equity component. PharmaNet ended a rough financial patch in February 2009 by agreeing to a merger with affiliates of private equity firm JLL Partners, valuing PharmaNet’s common stock at around US$100 million. InVentiv Health was snapped up by private equity firm Thomas H Lee Partners for around US$1.1 billion in May 2010.

Other CROs that have staked their future on private-equity investment in recent years include Omnicare Clinical Research, which in April announced it had been acquired for an undisclosed sum by private equity firm Nautic Partners; Medpace, which in May announced plans for an “equity recapitalisation” with affiliates of CCMP Capital Advisors; and, in the UK, Phlexglobal, ClinTec and Premier Research Group.