Is Private Equity Interested in Buying PPD?

PPD (NYSE: PPDI  ) released second-quarter earnings yesterday, and in the conference call to follow this morning, I would bet on at least two questions analysts will pose to management of the North Carolina clinical research organization:

  • How is the search progressing for a new CEO to replace retired CEO David Grange?
  • Is PPD in talks with anyone to buy the company?

PPD will probably provide an update on the search to answer the first question. The second, they will probably decline to answer at all. But the question is out there, generated by a Wall Street Journal article that reported that the Wilmington, North Carolina-based company was up for sale. The Journal cited "people familiar with the matter" in a story that reported the possible sale. The report identified other CROs or private equity as possible acquirers.

PPD's stock is climbing on the news, which has prompted the company to respond by issuing a statement. Founder and executive chairman Fred Eshelman said that PPD is "not engaged in any discussions around a combination with other clinical research providers. We remain laser-focused on executing our business and serving our customers with the quality and service they expect and deserve."

The statement added that PPD's board of directors has asked management to review the company's strategic plan and capital structure "with a focus on unlocking value for shareholders."

It would take a lot of money to acquire PPD, a global company that is the third-largest CRO by revenue with $1.4 billion in 2010 sales behind only Covance (NYSE: CVD  ) and Durham, North Carolina-based Quintiles. As one of the industry's largest CROs, PPD is thought of more as a potential acquirer rather than acquiree. Indeed, in the company's annual report, PPD describes acquisitions as part of its business strategy.

"We will continue to actively seek strategic acquisitions and investments, both within and complementary to our current business," the company said. "Our criteria for acquisitions and investments include complementary client lists, ability to increase market share within and across clients."

North Carolina CROs have been active in M&A this year. The biggest deal so far has been Raleigh-based INC Research's $232 million acquisition of Cincinnati, Ohio CRO Kendle. INC has also made other acquisitions that broaden its services offerings as well as its global territory. But INC's activity does have a private equity angle. The company last year was purchased by private equity firm Avista Capital Partners and the Ontario Teachers' Pension Plan.

Private equity has been active acquiring other CROs. Nautic Partners acquired Pennsylvania CRO Omnicare in April. CCMP Capital bought a majority stake in Cincinnati, Ohio CRO MedPace in May. Eshelman only went as far as to say PPD is not talking to other CROs about M&A. He said nothing about private equity.

Private equity firms have demonstrated a clear interest in the CRO space. Until PPD does say something more definitive about its status as an acquisition target, the private equity question will linger. If the company is talking with private equity, don't expect Eshelman to say anything about it. But a private equity firm that can come up with enough money to buy PPD would certainly, as the company might put it, unlock value for shareholders.

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