What's Next for CRO M&As? More of Them
With all of the activity in CRO M&As the past three years, it?s slightly amazing that it continues...
With all of the activity in CRO M&As the past three years, it’s slightly amazing that it continues—and that analysts expect it will continue to continue. In fact, investment analysts speaking to the Partnerships in Clinical Trials event in early April believe that from a Wall Street perspective, the publicly-traded CROs are heading into a three-year bull market. And from an investment perspective, these firms have delivered a 900% return to investors, said Eric Coldwell, Analyst for Robert W. Baird.
Now, having said that, many CROs in this industry are privately held. In a recent analysis,1 these were the top seven CROs ranked by market capitalization in 2013, which is the number of shares outstanding multiplied by the share price.
- WuXi PharmaTech, $8.84B
- Quintiles, $5.02B
- Covance, $4.46B
- Parexel, $2.68B
- Charles River Laboratories, $2.19B
- ICON, $2.1B
- Patheon, $872.2M
On the first day of the conference, ICON announced that it had acquired Aptiv Solutions, on the slight heels of private equity firm Cinven acquiring Medpace in late February, and the late summer 2013 stunners: PRA taking on RPS and Quintiles purchasing Novella Clinical after its return to the publicly-traded world in May. Other privately held CROs, which would not be on this list include Catalent, Cato Research, INC Research, and inVentiv Health.
And yet, the analysts gathered believe that M&A is going to pick up quickly in the next couple of years.
How will this play out? What types of activity will the market see? According to Michael Martorelli, Director, Fairmount Partners, the following will occur:
- Major players will continue to add selective services, particularly in the areas of late phase services, or what is lacking in an end-to-end service chain.
- Mid-size players will continue to seek partners and growth
- Small players will seek partners or will exit the market
- More mixing and matching, both conventional and unconventional deals.
Additionally, there will be more…more new entrants in the market, more private equity investing, including trades between firms, and more IPOs.
While this data from Tufts CSDD can outline a direct correlation between M&As among pharma and a negative impact on drug development timelines, the output metric among CRO M&A would be hard to quantify.
As an entirely different business model, the asset of a CRO, according to Douglas Tsao, MPH, Research Analyst, Barclays, is its people, compared to the asset of the pharma is its IP and product. And says Tsao, the “CROs most valuable assets walk out the door everyday.”
