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business newsPrivate Equity-backed INC to Pay Whopper Premium for Kendle
By
Brett Chase
May 05, 2011 2:00 pm
Avista-owned firm is buying clinical research company Kendle for $232 million, showing buyout firms' desire to be in the drug business.
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Private equity-owned INC Research agreed to pay an eye-popping 61% premium to acquire clinical research company Kendle International (KNDL) for $232 million, or $15.25 a share, in cash Thursday.
Raleigh, North Carolina-based INC is a contract research company for the drug and biotech industry that is owned by Avista Capital Partners and Ontario Teachers’ Pension Plan. Avista and the pension plan just acquired INC last year from an investor group led by Crosspoint Venture Partners and Adams Street Partners. The pension plan is partnered with Avista through its own private equity arm, Teachers’ Private Capital.
“Joining forces with INC Research is the right decision for our customers and shareholders,” giving Kendle greater scale, Kendle CEO Stephen Cutler says in a statement.
The Kendle deal comes on the heels of a private equity takeover of a rival research business. Last week, Nautic Partners acquired the clinical research division of nursing home pharmacy company Omnicare (OCR) for an undisclosed amount.
Both deals signal private equity’s interest in the health care area, particularly in pharmaceuticals. These clinical research companies contract with drug makers and biotech companies who are testing their experimental treatments in human studies. A takeover of a pure-play drug or biotech company probably is out of the question for most PE firms given that the businesses require a lot of cash and time to take drugs from the discovery stage to market approval. That process can take many years and cost $1 billion. PE buyers would rather squeeze cash from their acquisitions and the buyout firms’ exit strategies for investments are usually three years or so.
But clearly the buyout firms big and small are interested in getting a piece of the drug business and have shown an increasing appetite in the past year or so. (See Minyanville: Private Equity Firms Lured Further Into Drugs.) Kohlberg Kravis Roberts (KKR) last month agreed to buy Pfizer’s (PFE) pill-capsule maker Capsugel for about $2.4 billion in cash.
Cincinnati-based Kendle is ranked one of the top clinical research organizations by industry tracker CenterWatch. The group recently ranked Kendle second behind Wilmington, North Carolina-based Pharmaceutical Product Development (PPDI). Ireland-based ICON (ICLR) was ranked third by the group.
Shares of Kendle rose 58% to $14.99. Pharmaceutical Product Development was little changed at $29.32 (the stock is up 15% in the past six months). ICON fell less than 1% to $24.05.
The research business ebbs and flows with the health of the drug industry. Kendle’s sales declined 19% last year to $448 million and it lost $4.6 million, or 31 cents a share. The company had cash of $21 million at year-end 2010, compared with $52 million at the end of 2009.
No positions in stocks mentioned.
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