Carlyle Group and Hellman & Friedman will buy contract research firm Pharmaceutical Product Development Inc in a $3.9 billion cash deal, the latest in a string of private equity takeovers in the healthcare industry.
The offer price of $33.25 per PPD share is nearly 30 percent higher than the stock's Friday close.
The deal follows on the heels of Apax Partners' $5 billion deal for Kinetic Concepts Inc, TPG Capital's $2 billion buy of diagnostics firm Immucor and KKR's $2.38 billion buyout of a Pfizer unit.
It would also mark the second deal in the contract research sector since May, when privately held global contract research organization INC Research bought Kendle International for $232 million.
PPD shares were trading up 26 percent at $32.25 in morning trade on Nasdaq, a dollar shy of the offer price, suggesting some investors have doubts about the transaction.
"The event-driven investors that remained in the stock as it weakened over the last couple of weeks are going ahead and selling their positions on the news, rather than wait for the final dollar," Jefferies analyst David Windley said.
"The price is satisfactory but it obviously was impacted by the challenging market conditions -- comes at the low end of the range that was discussed in the news earlier in the quarter."
Industry analysts were predicting an offer in the range of $35-$37 a share, after a media report in July first said the company was looking to sell itself.
Although PPD has 30 calendar days to solicit acquisition proposals from third parties, Windley does not expect a better offer for the company.
FOCUS ON CRO
Contract research organizations (CROs), which provide drug research services to the pharmaceutical and biotechnology industry, were hit hard during the credit crunch when drugmakers halted or shelved a lot of drug development to cut costs.
However, drugmakers are turning to new development with renewed vigour as they have exhausted all methods to streamline operations and the patent cliff on several blockbuster drugs looms. CROs should reap the benefits of any new development.
PPD shares, however, have lost 8 percent of their value since July, when its board had asked management to review its strategic plan. In August, sources told Reuters that Carlyle was in talks to buy the company.
The shares were trading at a multiple of 16 times forward earnings as of Friday, compared with a sector average of 30, according to Thomson Reuters data.
Bigger rival and industry bellwether Covance and peer Charles River Laboratories International have also been trading at similar multiples.
The chance of a competing offer from its rivals was widely dismissed by analysts, citing the limited number of large CROs with resources to mount a bid as well as the lack of meaningful savings from a potential combination.
Last year, peer Charles River was forced to drop its plans to buy Chinese peer Wuxi PharmaTech for $1.6 billion, after investors and proxy advisory firms opposed the deal.
The PPD deal will be funded by a combination of equity provided by Carlyle Partners and Hellman & Friedman Capital Partners and external debt financing from Credit Suisse, JP Morgan, Goldman Sachs and UBS.
The transaction is expected to close in the fourth quarter and PPD said it will not host a conference call to discuss financial results for the third quarter of 2011.
Morgan Stanley advised PPD on the deal, while Credit Suisse advised Carlyle and Hellman & Friedman.
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