In the wake of last week’s Wall Street Journal report claiming PPD might be putting itself on the block, the top-tier CRO responded with a statement that it is not discussing mergers with other CROs. But what about private equity firms?

Notably, the company did not address that issue in its statement. And yet, if PPD did sell itself, private equity firms would be the most likely buyers. “Recent deal flow would suggest financial buyers are far more likely than strategic ones to be attracted to this sort of transaction,” wrote William Blair financial analyst John Kreger in his report on the rumors. “If PPD does opt to consider a sale, we suspect it would most likely partner with a private equity buyer.”

That, wrote Kreger, is because Wilmington, N.C.-based PPD is already a huge CRO—the third biggest in the market behind Quintiles and Covance—and few other CROs are large enough to buy an asset the size of PPD. Those that are big enough by definition already have the scale to compete for strategic partnerships with big pharma, so buying a CRO of PPD’s heft would be unnecessary. Also, Kreger wrote, PPD’s unique flat management structure would be tough to integrate with another large CRO.

Acquisition by a private equity firm would fit with recent industry activity, in which a number of mid-tier CROs have been taken over by investors. And yet, PPD is far from the mid-tier. It’s huge, with 11,000 employees across the globe and contracts that took in close to $1.5 billion in revenue last year.

The morning after rumors of a sale surfaced, PPD shares rose 16% to levels not touched in more than two-and-a-half years, closing up 10% last Monday. The Wall Street Journal story attributed the rumors to unnamed sources.

Analysts say PPD could fetch around $4 billion, or about $35 to $39 a share. PPD, which mostly provides late-stage drug research services, has a market capitalization of $3.15 billion.

The entire research sector was badly hit during the credit crunch, with several research-stage biotechs going belly up or halting specific drug programs, but the industry finally is seeing a resurgence in bookings. However, PPD’s valuation has taken a hit over the past quarter, its shares having lost 12% of their value since the company posted a weak quarterly profit in April, hurt by higher cancellations.

While PPD didn’t say if it was talking to private equity investors are anyone else about a sale, the company said in its statement that its “board of directors has asked management to review PPD’s strategic plan and capital structure with a focus on unlocking value for shareholders.”

That statement is a bit perplexing, said Michael Martorelli, director at investment banking firm Fairmount Partners and a consultant to the CRO industry. “It’s curious that they talked about unlocking shareholder value; you usually only do that when you’re a multi-division company with multiple revenue lines and Wall Street isn’t giving you what you think is full credit for one of your revenue lines,” he said.

Martorelli pointed to PPD’s spin-off of its compound partnering division Furiex Pharmaceuticals last summer, before which PPD’s language was similar. Could PPD be preparing to spin off a division or two, rather than sell itself?

But the one clear thing, he said, is that times are changing rapidly in the healthcare sector, and one must think more expansively when trying to determine who might want to/be able to buy a CRO as large as PPD.

Instead of considering only pure-play private equity firms, he suggested looking at large healthcare-focused conglomerates such as McKesson, a drug-distribution corporation currently ranked 15th on the Fortune 500. McKesson, he said, recently bought an oncology-focused practice management firm and it wouldn’t be too shocking for it to now look to add a clinical research holding to its portfolio. Consider also huge pharmacy benefits manager Medco Health Solutions, which bought United BioSource last year, or one of the many large Indian healthcare companies that combine services such as contract manufacturing with labs and drug development (such as Piramal Healthcare or Jubilant Life Sciences).

“Look at any list of publicly held healthcare service companies and you might speculate: Does Baxter need to buy a CRO? Does this hospital group need to buy a CRO? I wouldn’t necessarily predict it, but I wouldn’t be surprised by it, either,” said Martorelli.

And thinking a few years out is the key, he said.

“Even if you think it’s a crazy idea, there’s so much that’s going to change in the healthcare sector in the next two to four years,” he said. “There might be all sorts of new partnerships that might not look like they make sense today, but may make sense in three years.”

Suz Redfearn