Two for the top three

INC and inVentiv sign merger agreement; combined company would be one of the top three CROs

Kelsey Kaustinen
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RALEIGH, N.C. & BOSTON—In a deal expected to create one of the top three contract research organizations (CROs) and the largest contract commercial organization by net revenue, INC Research Holdings Inc. and privately held inVentiv Health Inc. have announced a definitive merger agreement by which the companies will combine in an all-stock transaction. Based on the closing price of INC’s common stock on May 9, the last day before the deal was made public, the transaction values inVentiv at an enterprise value of roughly $4.6 billion. The combined company has an enterprise value of approximately $7.4 billion.
 
Once the deal closes, it’s expected that INC and inVentiv shareholders will own approximately 53 percent and 47 percent of the combined company on a fully diluted basis, respectively. Advent International and Thomas H. Lee Partners are at present equal equity owners of inVentiv and will remain investors in the combined company. The transaction is expected to close in the second of this year, subject to customary closing conditions, including approval by INC shareholders and the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Act.
 
“Today marks a significant milestone for INC Research,” Alistair Macdonald, CEO of INC Research, said in a press release. “Customers are increasingly seeking simultaneous approvals and product launches in multiple markets worldwide. Through this strategic combination we are bringing together two of the most innovative and respected players in the field to create a leading global biopharma solutions organization with a full suite of clinical and commercial solutions to address the needs of biopharmaceutical companies, patients, physicians and payers. The combination of INC Research and inVentiv will expand our global scale and add capabilities to grow our addressable market.”
 
The combined company, according to an INC presentation on the merger, will be the second-largest biopharmaceutical outsourcing provider, one that will boast over 22,000 employees in more than 60 countries and will serve customers in more than 110 countries worldwide. It will come second only to Quintiles, which in 2016 recorded approximately $7.7 billion in net revenue.
 
The company will have extensive experience not just in clinical work, but in commercial efforts as well. With inVentiv, the top contract commercial organization, the new company will be able to offer services in selling solutions, communications, consulting and medical adherence. INC offers clinical development services from Phase 1 to Phase 4 for biopharmaceutical and medical device industries. INC’s customer base largely consists of small and mid-size biopharmaceutical companies, while inVentiv works with large biopharmas, including all of the top 20 biopharmaceutical firms, giving the new organization a wide customer base with little overlap. In addition, between the two of them, INC and inVentiv have worked in areas such as oncology, central nervous system, cardiovascular, metabolic and respiratory diseases.
 
Michael Bell, CEO of inVentiv Health, said, “As biopharmaceutical companies of all sizes face increasingly complex challenges to bring products to market, they are seeking comprehensive outsourced solutions across the clinical and commercial spectrum. The new company is purpose-built to address market realities where clinical and commercial must work together, sharing expertise, data and insights, to improve client performance.
 
“We believe this merger has significant client advantages as it deepens our scale, scope and therapeutic expertise. The combination also provides the opportunity to leverage INC Research’s Trusted Process—a proven methodology to accelerate success—which can improve the overall cost of development and time to market for our customers. We have long admired INC Research, and this is an exciting opportunity to bring together two best-in-class, industry-leading teams who share the commitment to shorten the distance from lab to life.”
 
The merger is anticipated to generate roughly $100 million in annual run-rate cost synergies, which are expected to be fully realized within three years. INC expects the transaction to be accretive to its adjusted EPS in the first 12 months following close, mid to high single-digit accretive in 2018 and accretive by more than 20 percent in 2019 and beyond.
 
Macdonald will hold the position of CEO in the combined company, with Greg Rush, INC’s executive vice president and chief financial officer, serving as chief financial officer in the new firm. Bell will serve as the combined company’s executive chairman. The new company’s board will consist of 10 directors, with five chosen by INC, including Macdonald, and five chosen by inVentiv, including Bell, two directors selected by Advent International and two selected by Thomas H. Lee Partners.
 
INC and inVentiv intend to decide on a name for the combined organization prior to the close of the transaction.
 
Motley Fool’s Steve Symington noted that INC’s shares jumped 20 percent after news of the merger broke and as INC shared its Q1 2017 results. Those shares, he noted, were “flirting with a fresh 52-week high” given the planned merger and INC beating analysts’ average expectations for the quarter. Net service revenue for the quarter was up 1.2 percent year-over-year to $252.1 million, with 1.8 percent growth in adjusted net income, which came to $33.1 million or 60 cents per diluted share, as reported by INC. This just topped analyst expectations of “slightly lower adjusted net income of 59 cents per share on service revenue of just $250.5 million,” according to Symington.

Kelsey Kaustinen

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