What happened
Shares of INC Research Holdings, Inc. (NASDAQ: INCR) were up 20% as of 2:31 p.m. EDT Tuesday after the contract research organization (CRO) announced first-quarter 2017 results and its plans to merge with privately held inVentive Health.
So what
Quarterly net service revenue climbed 1.2% year over year to $252.1 million, and translated to 1.8% growth in adjusted net income to $33.1 million, or $0.60 per diluted share. Analysts, on average, were expecting slightly lower adjusted net income of $0.59 per share on service revenue of just $250.5 million. Given the relative gravity of today's pop, then, it's obvious that the market is more excited about INC's merger plans.
Image source: INC Research.
Now what
More specifically, INC will combine with fellow CRO and contract commercial organization (CCO) inVentive Health in an all-stock transaction valuing inVentive at an enterprise value of roughly $4.6 billion. The combined company will boast an enterprise value of roughly $7.4 billion, and will represent the world's second-largest biopharmaceutical outsourcing provider, a top-3 CRO, and the largest CCO, with annual revenue of over $3.2 billion.
INC also points out the two companies serve "highly complementary" customer bases, with INC focusing on small and midsized biopharmaceuticals and inVentiv bringing substantial relationships with large biopharmas to the table. The deal is also expected to generate around $100 million in annual run-rate cost synergies within three years following its close, and should be accretive to INC's adjusted earnings per share after the first year.
The merger is expected to close in the second half of 2017, after which INC Research shareholders will own roughly 53% of the combined company. The transaction is subject to the approval of both regulators and INC Research shareholders.
With shares now flirting with a fresh 52-week high -- which was set just before INC stock plunged in February after its disappointing fourth-quarter 2016 report -- I wouldn't blame INC Research investors for taking at least some of their profits off the table today.
