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Quintiles' investor day: Has Private Equity called time on the CRO sector?

By Dan Stanton contact

- Last updated on GMT

Quintiles' investor day: Has PE called time on the CRO sector?

Related tags: Private equity, Venture capital

An under-attended investor day at Quintiles, the world’s largest CRO, is indicative of waning interest in the clinical sector according to a William Blair analyst.

Quintiles' first investors day since returning to the public sector in May 2013​ was wholly positive, according to industry analysts. Jefferies' David Windley described the firm as “competing from an advantageous position,”​ thanks to the firm’s 32 years of experience, large revenue base, broad geographic reach, and number of therapeutic experts, while William Blair’s John Kreger said the firm was “clearly the leader in pharmaceutical outsourcing and is using this scale advantage to aggressively invest in technology and data analytics.”

However, despite the upbeat guidance, Kreger noted that surprisingly “the meeting was not particularly well attended, providing another indication that investor interest in clinical CROs has waned somewhat of late.”

All quiet on the investment front?

Over the past four years, private equity investors have acquired 14 US-based CROs – including inVentiv, INC, Theorem, and PPD - but in the fifteen months since Quintiles’ IPO, M&A activity by investment firms has been relatively quiet.

Medpace​ was bought by a European private equity group from a US-based firm, while PRA International, after announcing an IPO​, was bought and merged with private equity owned RPS​. Furthermore, Kestor Capaital, a private equity investor, sold its stake in Chiltern to a group of existing investors last December​.

According to a recent report by M&A advisory group 11T Partners on Outsourced Pharma Services, the top eight players in the clinical research industry - controlling 62% of the market – are split equally in number between private and public owners, but the change in ownership at Quintiles last year tipped the market share in favour of publically owned CROs.

The top eight CROs, in order of most market share are: Quintiles, Covance, PRA (private), Parexel, PPD (private), Icon, INC (private) and inVentiv Healthcare (private).

Furthermore, Parexel’s CFO Ingo Bank suggested last week​ at the Baird 2014 Healthcare Conference more CROs are likely to go public in the near future, and PRA, PPD and INC could be potential candidates.

In light of all this, we are asking you for your opinions. Is private equity still interested in the CRO industry, or are the investors who struck so many deals in the past few years now looking to cash in and get out? Which CRO may be the next to go public? Have we reached the end of the investment cycle for CROs or could private equity now be eyeing up preclinical or even non-US based CROs? Please answer the poll and leave comments below:

Survey

Is interest in the CRO industry from private equity groups on the decline?

  • Yes

    19%
  • No

    36%
  • Has been for a while

    15%
  • Too early to tell

    30%

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1 comment

Other factors at play

Posted by Vlad Walko,

My firm, Medical Growth Partners, has represented PE buyers of Contract Research Organizations for over 20 years and the interest level is still strong. he current problem is valuations. Following the public markets, most sellers have over-inflated expectations on price. Also, there is a shortage of deals as many private companies saw EBITDA depressed after 2008 and are waiting until it returns to levels that can justify 10X valuations before selling.

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