Reflecting on the last five years, it seems clear that Thermo Fisher Scientific’s growth strategy has largely centered on acquiring service providers to maximize their impressive reach. The company most recently announced the acquisition of PPD, a clinical service provider. The boards of directors for both companies agreed that it was in the best interest of both parties for Thermo Fisher to acquire PPD for $47.50 per share, or $17.4 billion in cash, along with the assumption of approximately $3.5 billion in net debt. This price was 24% to the unaffected closing price of PPD's common stock on the Nasdaq as of Tuesday, April 13, 2021, or 32% to the 60-day VWAP inclusive of that date.
PPD was an attractive buy for Thermo based on the company’s current and predicted future growth. PPD operated as a key player in a $50 billion industry, fueled by ongoing innovation in drug development and a growing consumer need for treatment, including for rare disease. As the largest clinical trial in history takes place, fresh off the heels of a global pandemic, it’s clear how important trials will be into the future.
The acquisition is expected to generate nearly immediate returns, adding $1.40 in the first 12 months after close to Thermo’s adjusted EPS. Within three years, Thermo is expecting to gain $125, which will consist of approximately $75 million of cost synergies and approximately $50 million of adjusted operating income benefit from revenue-related synergies, according to a statement by the company.
The transaction is expected to close by the end of the year and is subject to regulatory approval as well as the standard terms of the closing conditions. Thermo Fisher used proceeds from debt financing and cash on hand to finance the buyout.
This deal highlights the importance of clinical research to the industry and indicates that having embedded CRO capacity is a key differentiator among the top players. By acquiring PPD, Thermo may have kicked off a trend – acquiring in-house commercial may no longer be enough; to truly compete, players might want to claim a clinical division all for themselves and put billions on the table to make it happen.
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