(Adds JLL partner comments, updates stock price, adds bylines)
By Anuradha Ramanathan and Paritosh Bansal
BANGALORE/NEW YORK, Feb 3 (Reuters) - PharmaNet Development Group Inc PDGI.O, which provides drug development services, agreed to be bought by private equity firm JLL Partners for about $100 million.
New York-based JLL, which has about $4 billion of capital under management and has a history of investing in the health care sector, has made a $250 million equity commitment to finance the deal, which is expected to close in March.
The offer price of $5 per share in cash is nearly four times PharmaNet’s closing price on Monday.
The deal includes the funds necessary to retire $144 million principal amount of PharmaNet’s outstanding convertible notes, helping the company tackle refinancing issues amid tight credit and equity markets.
“It was facing a bad credit environment with near-term maturity on its notes,” Pete Strothman, a principal at JLL Partners, told Reuters. “But the underlying fundamentals of the business are very attractive.”
The refinancing issue faced by PharmaNet is not unique to the Princeton, New Jersey-based company. Many companies in several sectors with debt coming due are likely to face refinancing difficulties as markets remain tight amid the global financial crisis, and that could lead lead to more deals such as this buyout.
“We are seeing more and more opportunities where fundamentally sound businesses are having refinancing problems because credit markets are so bad,” Strothman said.
JLL will finance the deal with only equity.
“At this point we wanted to give the company a flexible capital structure,” Strothman said. “So the customers of PharmaNet know that the company has a very solid capital base and maximum flexibility to be able to operate going forward.”
In September, PharmaNet forecast a loss for 2008, reversing an earlier estimate of a profit, facing setbacks on some projects.
PharmaNet, which has about 2,500 employees, provides services such as consulting during the drug development process to pharmaceutical, biotech and other companies.
“We believe continuing operations as a private company is probably best for PharmaNet,” Ladenburg Thalmann analyst Jeff Nelson wrote in a research note. He downgraded the stock to “neutral” from “buy” and trimmed his price target to $5 from $6.
UBS Investment Bank is acting as exclusive financial adviser to PharmaNet, and Morgan, Lewis & Bockius LLP is acting as the company’s legal counsel.
PharmaNet shares were up $3.31 at $4.65 during afternoon trading on Nasdaq. (Editing by Amitha Rajan and Gerald E. McCormick) (For more M&A news and our DealZone blog, go to www.reuters.com/deals)