INC Research and inVentiv Health to merge
INC Research Holdings, a global phase I–IV CRO, and inVentiv Health, a privately held, global CRO and Contract Commercial Organization (CCO), have announced that their Boards of Directors have unanimously approved a definitive merger agreement pursuant to which their businesses would combine in an all-stock transaction, creating a global biopharmaceutical solutions organization.
Based upon the closing price of INC Research common stock on Tuesday, May 9, 2017, the transaction values inVentiv at an enterprise value of approximately $4.6 billion, and the combined company at an enterprise value of approximately $7.4 billion.
Upon closing of the transaction, INC Research shareholders are expected to own approximately 53% and inVentiv shareholders are expected to own approximately 47% of the combined company on a fully diluted basis. Advent International and Thomas H. Lee Partners, two preeminent private equity firms, are currently equal equity owners of inVentiv and will remain investors in the combined company upon closing of the merger.
The announcement creates:
- The second largest biopharmaceutical outsourcing provider focused on creating value for customers, patients, physicians, payers and employees.
- A Top 3 CRO globally and the leading CCO provider focused on improving customer performance and accelerating new products to market. The combined company will have more than 22,000 employees spanning more than 60 countries, and will serve customers in more than 110 countries.
- Leadership positions in the growing CRO and CCO markets. The Commercial market represents an underpenetrated opportunity with only 16% penetration and outsourcing potential of $150 billion, providing substantial growth potential.
Upon completion of the transaction the combined company will leverage commercial insights to inform the clinical trial process, designing studies to be more efficient and effective to address evolving patient and payer needs. Commercial solutions informing accelerated clinical trial design include market access, data-driven Real World Evidence (RWE), advocacy relations and medical affairs. The new organization’s combined clinical scale, therapeutic depth and expertise will allow it to partner with biopharmaceutical companies of all sizes to navigate an increasingly complex biopharmaceutical development and commercialization environment.
Alistair Macdonald, chief executive officer of INC Research, said, “Today marks a significant milestone for INC Research. Customers are increasingly seeking simultaneous approvals and product launches in multiple markets worldwide. Through this strategic combination we are bringing together two of the most innovative and respected players in the field to create a leading global biopharma solutions organization with a full suite of clinical and commercial solutions to address the needs of biopharmaceutical companies, patients, physicians and payers. The combination of INC Research and inVentiv will expand our global scale and add capabilities to grow our addressable market.”
He continued, “Both companies have a history of successfully integrating acquisitions, and I am confident that we will capitalize on the many opportunities this combination creates for all stakeholders. We look forward to working closely with the talented inVentiv employees, who share our dedication to making the world a better place by bringing new therapies to patients, while building significant value for our shareholders.”
Michael Bell, chief executive officer of inVentiv Health, said, “As biopharmaceutical companies of all sizes face increasingly complex challenges to bring products to market, they are seeking comprehensive outsourced solutions across the clinical and commercial spectrum. The new company is purpose-built to address market realities where clinical and commercial must work together, sharing expertise, data and insights, to improve client performance.”
He continued, “We believe this merger has significant client advantages as it deepens our scale, scope and therapeutic expertise. The combination also provides the opportunity to leverage INC Research’s Trusted Process—a proven methodology to accelerate success—which can improve the overall cost of development and time to market for our customers. We have long-admired INC Research, and this is an exciting opportunity to bring together two best-in-class, industry-leading teams who share the commitment to shorten the distance from lab to life.”
Benefits of the Merger
- Offers customers a comprehensive suite of outsourced services across the drug development and commercialization continuum: INC Research’s strong therapeutic focus and proven Trusted Process, combined with inVentiv’s differentiated CRO/functional service provider (“FSP”) and CCO capabilities, including selling solutions, communications, consulting and medication adherence, delivers a leading portfolio of services designed to address the evolving challenges of the biopharmaceutical industry.
- Competes in two highly attractive markets: The clinical development market served by CROs is expected to reach $36 billion by 2020, growing at an approximate 6% CAGR, while the CCO market is expected to reach $34 billion by 2020, growing at an approximate 8% CAGR, providing substantial growth potential.
- Creates a global leader in phase I–IV clinical development: The combined company will become one of the Top 3 CROs globally. Scale is increasingly becoming a key consideration for CRO customers and the combined company will be well-positioned to capitalize on this dynamic. The transaction will expand the combined company’s global presence in important strategic geographies such as Asia/Pacific and specifically Japan, where there is significant opportunity for growth. The combined company’s global reach will enable it to continue to serve as a leading outsourcing partner on a full service, functional and hybrid basis to biopharmaceutical customers.
- Capitalizes on growing commercial outsourcing trend: The demand for outsourced commercialization services is growing, with specialized knowledge and expertise increasingly required for the successful launch and commercialization of products. inVentiv is well-positioned to capitalize on this trend and enhance the clinical development process with commercial capabilities, including selling solutions, communications, consulting and medication adherence. inVentiv also has access to subject matter experts such as medical science liaisons (MSL), nurse educators, patient advocates and strategic consultants.
- Deepens therapeutic expertise: Both inVentiv and INC Research have significant therapeutic expertise in core areas, including oncology and central nervous system (CNS), which together represent a combined 2016 net revenue of over $1.2 billion. The merger will deepen the combined company’s therapeutic experience in these complex disease areas and enhance expertise in areas such as cardiovascular, metabolic and respiratory diseases. Having therapeutic breadth and depth is an increasingly important factor in customers’ outsourcing selection decisions.
- Improves access to data assets informing clinical and commercialization design and execution: The combination of inVentiv’s pharmacy data through its Adheris pharmacy network, RWE programs and other data sets, along with INC Research’s Real World & Late Phase business, site relationships, and predictive clinical data sets, increases the combined company’s access to physicians, investigators and patients, generating actionable insights. These are all key factors to inform the design and execution of clinical development and commercialization programs.
- Serves a diversified and highly complementary customer base: INC Research’s strong relationships and expertise providing services to small and mid-sized biopharmaceutical companies, combined with inVentiv’s relationships with large biopharma, including all of the top 20 biopharma, will create a complementary and diversified customer base with leadership across large, mid-sized and small biopharma. INC Research and inVentiv have limited client overlap, and foresee no revenue dis-synergies. The companies see this merger as an opportunity to deepen client relationships and expand the combined company’s share of outsourced clinical development and commercialization spend.
- Provides significant cost synergy potential: The transaction is estimated to achieve approximately $100 million in annual run-rate cost synergies, which the companies expect will be fully realized within three years.
- Creates cross-selling opportunities: INC Research and inVentiv can cross-sell their complementary services to their respective clients. INC Research’s small to mid-sized biopharmaceutical clients will now be able to access inVentiv’s comprehensive commercialization services, including selling solutions, communications, consulting and medication adherence. This capitalizes on the growing trend for small to mid-sized companies to bring their own products to market. INC Research and inVentiv will be able to cross-sell their complementary clinical capabilities, including enhanced therapeutic expertise and service delivery models (full service, hybrid, and FSP).
- Provides accretion: The transaction is projected to be accretive to INC Research’s adjusted earnings per share in the first 12 months following close, mid to high single-digit accretive in 2018 and accretive by more than 20% in 2019 and beyond.
- Maintains strong balance sheet with robust free cash flow generation: With over $600 million of pro forma EBITDA for the Trailing Twelve Months ended March 31, 2017, and the expectation of approximately $100 million in annual run-rate cost synergies, plus the ability to realize nearly $850 million in NOLs, net leverage is expected to be reduced from approximately four times at closing to under three times within 18 months to two years of closing.
Management and Headquarters
Following the close of the transaction, Alistair Macdonald will serve as chief executive officer of the combined company, with Greg Rush serving as chief financial officer and Michael Bell serving as executive chairman. The Board of Directors of the combined company will consist of 10 directors, with five directors designated by INC Research, including Alistair Macdonald, and with five directors designated by inVentiv, including two directors designated by Advent International, two directors designated by Thomas H. Lee Partners, and Michael Bell serving as executive chairman of the Board. The global organization will be headquartered in Raleigh, North Carolina, with a significant presence in the Northeast corridor of the United States, and operations worldwide, including in Asia and Europe.
Additional Transaction Details
The companies intend to refinance certain debt in connection with the merger. Credit Suisse has provided committed financing for the transaction.
The transaction, which is expected to be completed in the second half of 2017, is subject to, among other things, approval by INC Research shareholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the satisfaction of other regulatory requirements and other customary closing conditions.