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PRA refinancing gives financial flexibility for acquisitions; S&P

By Nick Taylor , 11-Jun-2012

S&P thinks PRA will use the flexibility in its new credit facility to grow its business through acquisitions.

Financial flexibility at PRA increased when it refinanced with a new $410m (€326m) credit facility and Standard & Poor’s Rating Services expects the firm to use this newfound freedom to fund takeovers.

S&P analysts wrote: “We expect PRA to use the substantial flexibility under the new credit facility to grow the business through acquisitions and to pay dividends to its financial sponsor.” Adding assets could help PRA build on the two years of double-digit growth that pushed 2011 sales up to $568m.

Financial performance at PRA over the past two years has outstripped the industry average and S&P expects the CRO to maintain double-digit sales growth in 2012. However, PRA faces many of the same problems as its public peers and earnings growth is predicted to lag the continued sales boom.

Following a Moody’s note on the refinancing Tim Evans, senior analyst at Wells Fargo, wrote that use of contract labour and wage inflation have dragged on margins at PRA. “Margin pressure is not just a reality in the public markets – private companies are seeing it too”, Evans wrote.

S&P bases its expectation of high-single digit earnings growth on the impact of pricing pressures and headcount growth. Hiring likely reflects the need to add staff to serve strategic deals PRA inked with UCB and Shire.

The deals may also have contributed to pricing pressure. In the wake of the UCB deal in November David Windley, equity analyst at Jefferies & Company, wrote: “We believe the terms of this agreement are very favourable to UCB.”

PRA said its central nervous system (CNS) expertise and eClinical assets helped it win the UCB deal and it could use acquisitions to further strengthen its technological and therapeutic capabilities. In May 2011 PRA bought Kinship Technologies, an India-based provider of data analysis software.  

Talk of takeovers comes a year after PRA-owner Genstar Capital was reportedly looking to sell PRA. Catalent Pharma Solutions-owner Genstar bought PRA in a 2007 leveraged buyout and is also poised to take over eResearchTechnology (ERT) in a $400m deal.

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