In that same piece, the Journal also said PRA was for sale. Not much has been written about that, though. That’s likely because a sale of PRA—if such a thing were to be under way—makes a bit more sense, analysts say. Unlike publicly traded PPD, which has 11,000 employees and is the third largest CRO, PRA is a third of the size with 4,100 employees and has been owned by private equity firm Genstar Capital since 2007.
Private equity firms don’t tend to keep their holdings for very long, thus the time is likely right for selling it off, said Neal McCarthy, managing director of investment firm Fairmount Partners, which focuses on the clinical outsourcing space.
“The average hold period for PE firms is more than three years and less than five,” said McCarthy. “Genstar is getting to the point where a PE firm might think about selling.”
It’s also a good time to sell a mid-tier CRO, said McCarthy, because other PE firms are buying them. He pointed to CCMP Capital’s purchase of Medpace in May and Nautic Partners’ April purchase of Omnicare Clinical Research. Then there was Avista Capital’s acquisition of INC in August 2010, followed by INC’s purchase of Kendle International in May of this year. In May 2010, Thomas H. Lee Partners purchased inVentiv, and then inVentiv bought i3, a deal announced in January. And finally, in December 2010, Warburg Pincus purchased RPS.
“There’s been a lot of deals, and surprisingly most of them seem to be among the middle-tier CROs like PRA,” added John Kreger, financial analyst with William Blair who focuses on the clinical outsourcing space. “The middle-tier guys are doing well, driven by a return of demand from small to mid-tier clients, in contrast to last year, when most of the action was coming from the top tier.”
Last year, with diminished access to capital due to the recession, small and medium-sized pharma companies and biotechs were starting fewer trials, which spelled disaster for small to mid-sized CROs. That has turned around. “We’re far enough away from the recession now that small and mid-tier CROs are putting up pretty good numbers, and good numbers always make a good sale easier,” said Kreger.
PRA, based in Raleigh, N.C., is not revealing its plan. When asked if it was officially on the block, a PRA spokesman would say only, “No comment.” Word on the street, according to the Wall Street Journal, is that Genstar is seeking more than $1 billion for PRA. Analysts are watching closely. And just like speculation about who exactly might buy PPD, industry observers also say a buyer for PRA likely wouldn’t be another CRO.
“When PRA went private in 2007, it went for $790 million,” said McCarthy. “There are few CROs who could afford that. You’d have to be big enough to afford it, but small enough to have it be strategically important for you, so industry speculation is that they’d go to another private equity firm—maybe one that’s not yet in the CRO business but wants to get into it.”
PRA was founded in 1976. In 2001, San Francisco-based Genstar bought it, taking it public in 2004. In 2007, Genstar bought it again, taking it private after the company had disappointed the market.
In its most recent incarnation as a private company, PRA has pursued organic growth, opening offices in Sophia, Bulgaria; Lund, Sweden; Tel Aviv, Israel; Kiev, Ukraine; Warsaw, Poland; Seoul, South Korea; Milan, Italy; Sao Paulo, Brazil; Mexico City, Mexico; Munich, Germany; and Mumbai, India, as well as new phase 1 units in Prague, Czech Republic; and Budapest, Romania.
PRA has also beefed up its leadership, hiring two former PPD executives. Colin Shannon, formerly PPD’s executive vice president of global clinical operations, came on as PRA’s president and chief operating officer in May 2007, and was appointed president, CEO and director in January 2010. Linda Baddour, formerly chief financial officer of PPD, was named executive vice president and CFO of PRA in June of 2007.
Earlier this year, PRA bought small, India-based software developer and services company Kinship Technologies. The firm’s last major acquisition was that of Zuidlaren, The Netherland-based Pharma Bio-Research, a large phase 1 and bioanalytical company, in 2006.
“They have not been very active with acquisitions,” said McCarthy, in sum. “Instead, they’ve brought on heavy hitters and concentrated on expanding their offices, particularly overseas, and they’ve opened some phase I offerings while highlighting their expertise in oncology. And it looks like they’ve set out to improve their profitability by focusing on their biotech customer base. Are they ready for a sale? Quite possibly.”