PPD has named a new CEO, a move that strikes some in the industry as a little strange in the face of rumors that the publicly traded CRO is close to selling itself to a private equity firm.
Naming a new CEO just before being acquired and taken private is not a typical corporate move, say some analysts who watch the CRO space.
The appointment of Raymond Hill, formerly president of IMS Health’s Consulting Group, could mean PPD’s rumored deal with the Carlyle Group is off. Or, it simply could indicate that acquisition talks are taking more time than anticipated and the company needed to fill the hole left by David Grange, who stepped down in February after just two years as CEO.
No one knows for sure. And there is another possibility, said Neal McCarthy, managing director of investment banking firm Fairmount Partners.
“We don’t know whether or not Hill was a suggestion of one or more of the equity investors” PPD has been rumored to be in talks with, said McCarthy.
But John Kreger, CRO-focused analyst with William Blair, said that’s not a likely scenario. “Are you going to let a potential investor tell you who to hire? What if that potential investor walks away?” said Kreger.
Instead, he thinks hiring a CEO to replace one who stepped down eight months ago is right in line with what a strategic investor would want. “We recently asked an equity investment firm for their thoughts on this, and they said, ‘We’d rather see a CEO in place, rather than us having to go though the process after a sale,’” said Kreger. “It’s more likely that the process (of an acquisition) is held up until you fill this key position.”
One reason this may look odd to the industry is that most large companies do not operate for eight months without a CEO, regardless of whether a sale is in the offing.
Hill, whose move to PPD became effective Sept. 16, worked for IMS for eight years, during which the formerly public company was acquired and taken private for $6 billion and was named one of Fortune’s World’s Most Admired Companies 2011.
The large, 55-year-old pharmaceutical services company provides data, market research and consulting services to clients in the pharmaceutical and health care industries. McCarthy said there is some overlap in marketing data and consulting services between the two companies.
According to PPD, during Hill’s tenure at IMS he oversaw a strategy of aggressive organic and acquisition-based growth, and annual revenue increased five-fold. Hill also served on the executive leadership team of IMS, helping to set the overall direction of the company.
Despite Hill’s lack of CRO experience, Kreger thinks he’s a good match. “His experience and track record make him well suited for the CEO role at PPD, in our view, and we believe he will be a strong addition to the company’s senior management team,” wrote Kreger in an analyst report.
Rumors began circulating in July that PPD was for sale. At that time, PPD issued a statement saying, “We are looking at our long-term plan and our capital structure to see if there are any actions which might create value at this time.” On Aug. 16, Bloomberg News reported through unnamed sources that the lead contender was Washington, D.C.-based Carlyle Group, a private equity firm with assets exceeding $150 billion in 84 funds. Bloomberg also reported Carlyle was talking to other private equity firms about joining it in an offer for PPD, and that Morgan Stanley was advising PPD.
But PPD, which has 11,000 employees and brought in close to $1.5 billion in revenue last year, has neither confirmed nor denied the Bloomberg report.
The last 18 months has seen a constant stream of CRO-private equity firm activity. In May, CCMP Capital bought Medpace, and in April, Nautic Partners acquired Omnicare Clinical Research. In December 2010, Warburg Pincus purchased RPS. Last August, Avista Capital acquired INC Research, which then bought Kendle International in May. Thomas H. Lee Partners acquired inVentiv in May 2010, and then inVentiv bought i3 in January and recently completed its purchase of PharmaNet.
When can some action be expected? Wrote Kreger in his analyst report, “Considering that Mr. Hill has just joined the company, we now expect no further news on the strategic review from the company until the third-quarter call at the earliest.”