INC Research Holdings Inc (INCR.O) said on Wednesday it would merge with private equity-owned inVentiv Health Inc, a fellow contract research services provider, in a $4.6 billion all-stock deal to help it win contracts with large pharma companies.
The deal is the latest in the contract research space, which has benefited in recent years from pharmaceutical companies' drive to cut costs, reduce clinical trial times and expand their research and development presence globally.
INC mainly caters to small and mid-sized pharma companies, while InVentiv – equally owned by private equity firms Advent International and Thomas H. Lee Partners – works with larger firms, including the top 20 biopharmaceutical companies.
The combined company's services will range from running clinical trials to advising on drug pricing, with its annual revenue growth rate of 9 percent expected to outpace the roughly 6 percent growth in the broader contract research market.
William Blair analyst John Kreger said INC's lack of inroads with large pharma clients was a weakness and that the new company would be the third- or fourth-largest by clinical revenue.
INC's shares shot up about 19 percent to $52 and were set for their biggest one-day percent gain ever. INC shareholders will own about 53 percent of the new company, with the rest held by Advent International and Thomas H. Lee Partners.
The deal also highlights INC's aim to boost its ability to produce commercialization data and insights to help guide its drug development and marketing efforts, amid an increasingly challenging pricing environment.
"If you look at the M&A activity over the past year or two in the sector, you see a lot of contract research organizations reaching out for various types of commercial data," inVentiv Chief Executive Michael Bell said in an interview.
"We very much see it as a trend."
That trend has seen British company Chiltern International Ltd, as well as Pharmaceutical Product Development LLC and Parexel International Corp (PRXL.O) seeking a sale, among deals Reuters has reported in the past two months.
Thomas H. Lee Partners acquired inVentiv in 2010 for about $1.1 billion. Advent offered to buy inVentiv last July, when the company was seeking to go public at a valuation of over $4 billion including debt, Reuters had reported.
Advent ultimately invested in the company in November, valuing it at $3.8 billion on a cash-free, debt-free basis.
INC Chief Executive Alistair Macdonald will lead the new company and Bell will be board chairman. The new company will have an enterprise value of about $7.4 billion and net revenue of more than $3.2 billion.
Centerview Partners LLC is INC's financial adviser and Sullivan & Cromwell LLP is its legal counsel. Credit Suisse is inVentiv's financial adviser and Weil, Gotshal & Manges LLP gave legal advice.
(Reporting by Divya Grover in Bengaluru; Editing by Savio D'Souza)