After indicating it was gearing up for an imminent initial public offering, CRO inVentiv Health last week went in a different direction. Instead, the equity group Advent International Corp. has purchased a 50% stake in the company, making Advent a co-owner of the CRO with Thomas H. Lee Partners, which bought inVentiv in 2010 for approximately $1.1 billion.

The deal values inVentiv at $3.8 billion.

“We’re pleased to have two preeminent private equity firms—Thomas H. Lee Partners and Advent—backing our unique biopharma outsourcing model,” said Michael Bell, chairman and CEO of inVentiv, in a release. “It’s a $250 billion market with tremendous potential. ... This will allow us to realize our full potential so we can better serve the biopharmaceutical industry in navigating an increasingly complex scientific and regulatory environment.”

Said David Blume, co-founder and managing director of the health sector-focused investment banking firm Edgemont Capital, the deal looks like solid one, with two natural partners coming together.

“Pharma services is a highly attractive sector for private equity, and inVentiv represents one of the very few sizable CROs potentially available for private equity sponsor investment,” Blume said. “Advent also can add considerable value given their lineage in global pharmaceutical industry investment. It’s a great marriage.”

But why sell instead of going public? Said Neal McCarthy, managing partner of investment firm Fairmount Partners, which focuses heavily on the life sciences, staying private is a lot more comfortable for large companies in growth mode.

“Being public is like being under a magnifying glass—and sometimes you feel like an ant being burned by the sunlight coming through that glass. You get to replay that pain four times a year at each quarterly report,” said McCarthy. “With this deal, inVentiv only answers to the bank and sophisticated professional investors, and they have the opportunity to make sensible investments that may harm earnings in the short term, but build long-term value.”

Perhaps inVentiv wasn’t really serious about going public in the first place. Said Blume, the IPO market is soft, and inVentiv’s talk of an IPO may have just been posturing for better negotiating leverage at the sale table. The message to bidders is that the company has options other than a sale.

The move doesn’t change the CRO landscape in any significant way, said McCarthy, though he added that, with the new investor, inVentiv could now become more acquisitive. He recommends watching for announcements that inVentiv plans to buy other companies in the space, either complementary ones that round out offerings or competitors so inVentiv can grow even bigger.

With this move, the CRO industry continues to evolve toward a future where fewer than a handful of large, global CROs will control a large majority of the market, likely more than 75%, said Blume. He added that the resources required to conduct global studies dictate scale as a competitive requirement, and this deal seems to assure inVentiv’s place among the leading global players.

“We see this as a positive for the industry as it continues to demonstrate the attractiveness of pharmaceutical services as a compelling sector for investment evidenced by the recent high profile transactions involving Quintiles and IMS, Covance and LabCorp, PPD and Synexus, ERT and Nordic Capital, as well as Medpace’s pending IPO and Bioclinica’s publicly announced transaction discussions,” Blume said.

Healthcare had long been a pillar of Advent’s portfolio, Blume said. Over the last decade, however, the firm was underweighted in U.S. healthcare company investments, given some staff turnover and a focus on ex-U.S. investing. In more recent years, it has focused on rebuilding its U.S. healthcare presence. 

Added Blume, the structure of this deal gives the current inVentiv shareholders a healthy amount of liquidity, which returns their initial investment and a partial return on that investment at an attractive valuation in a strong mergers and acquisitions market. This is what private equity firms like to see.

“Private equity sponsors typically prefer a non-IPO alternative as it can take an extended time period to achieve liquidity in a public company when holding such a large equity position,” he said. “This appears to be a great outcome for Thomas H. Lee Partners.” 

This article was reprinted from Volume 20, Issue 31, of CWWeekly, a leading clinical research industry newsletter providing expanded analysis on breaking news, study leads, trial results and more. Subscribe »