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What Does PPD's Latest Deal Mean?

By Cece Nunn, posted Apr 27, 2017
What struck industry expert Andrew Schafer the most about Wednesday's announcement from Wilmington-based Pharmaceutical Product Development LLC was the value the new deal places on the company: more than $9 billion.

The announcement said PPD's owners plan to recapitalize and add two new investors, news that came after months of speculation that the clinical research organization was on the market for sale and that specific companies might be interested in buying it. The transaction, based on a total enterprise value of $9.05 billion, is expected to close in the second quarter this year.

The agreement "doesn't preclude PPD from being bought or merging with any of the other rumored companies, but it's certainly an interesting play for them because it puts a valuation on the company out there that other people have to react to or deal with," said Schafer, president of Cary-based Industry Standard Research, which specializes in market research in the clinical development and manufacturing areas of the pharmaceutical industry.

The deal means a subsidiary of the Abu Dhabi Investment Authority (ADIA) and an affiliate of GIC, Singapore’s sovereign wealth fund, will be direct investors in PPD, while private equity firms The Carlyle Group and Hellman & Friedman will maintain joint ownership of PPD. Affiliates of Hellman & Friedman and Carlyle bought PPD in 2011 for about $3.6 billion and returned it to a privately held company. ADIA and the GIC affiliate investing in PPD are both longtime investors in The Carlyle Group and Hellman & Friedman.

Under the latest agreement, Hellman & Friedman assumes majority ownership of PPD, and Carlyle will retain a substantial minority position in PPD. 

Analysts said there are numerous advantages to the deal.

"No. 1, I'd call it minimally disruptive to their business," said David Windley, managing director of Jeffries LLC who specializes in the health care sector. "Two, it gives the existing owners an ability to adjust their ownership where maybe one of them may have wanted to monetize some of their investment. Three, I don't know this for sure, but a lot of times the strategic benefit that an investor brings is knowledge of a geography, access to strategic contacts, strategic introductions in a geography ... and so one of the value adds of that [the addition of investors from Abu Dhabi and Singapore] could be helping PPD to further strengthen its business in those areas of the world."

The deal is subject to customary regulatory approvals in the U.S., but the company did not say what specific approvals are necessary.

PPD's announcement has lessened general local concerns about a potential buyer that might want to move PPD's headquarters from Wilmington.

"We have some private investors that have reviewed the business and have felt that it is a great business and invested a considerable amount of money in the company. What I gather is they're going to remain here in Wilmington and continue to operate as PPD and continue to generate lots of profit and employ lots of people," said Wilmington Mayor Bill Saffo.

Windley said it's not a very realistic concern that PPD would pull up roots completely. He said a more realistic possibility might be that, if a certain type of buyer bought the company, the senior management team could relocate, as in the case of Covance, the CRO bought by LabCorp (one of the firms whose name came up in recent months as interested in buying PPD) in 2015. Covance's senior managers moved from Princeton, New Jersey, to LabCorp's headquarters in Burlington, North Carolina.

But even that possibility, Windley said, would appear to be rendered moot by Wednesday's announcement. 

When asked about the impact of the announcement on new projects or hiring in Wilmington, Elizabeth Kuronen, vice president of corporate communications for PPD, said in an email Thursday, "Our employees and operational teams will continue to focus on delivering for our clients and maintaining our business momentum, as they have successfully done. We will continue to progress our strategy, and we remain dedicated to our purpose and mission of improving health by helping our customers deliver life-changing therapies. 

"PPD has been headquartered in Wilmington since 1986, and the community continues to offer an outstanding location for our operations. We look forward to building on that relationship in the years to come."

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