Dive Brief:
- LabCorp is acquiring contract research organization (CRO) Chiltern International for more than one billion dollars in a deal that stands to scale up the buyer's life science capabilities, particularly in the Asia-Pacific region.
- The all-cash transaction has an enterprise value of $1.2 billion that LabCorp plans to pay through a mix of bank financing and bonds. LabCorp, a provider of clinical laboratory products and services, reported $300 million in cash and cash equivalents as of June 30, according to the its most recent quarterly financial statement.
- LabCorp expects the deal to be accretive to adjusted earnings per share in the first year following its close, which is slated for the fourth quarter. LabCorp anticipates that, in the three years after the deal's close, Chiltern will become accretive to earns cost of capital and trigger $30 million worth of cost synergies.
Dive Insight:
The pressure facing many drugmakers to diversify their portfolios or restock their pipelines has increasingly trickled down to CROs, entities which can often conduct clinical work at lower costs than in-house research.
The trend has helped balloon CRO bottom lines, yet also stretched their capabilities to capacity. Consolidation has become one solution to meet the pharmaceutical industry's demand, and Chiltern's takeout is just the latest example.
LabCorp, which used to run a pure-play diagnostics company, first entered the CRO space in late 2014 when it announced it was taking over Covance Inc. in a deal that gave the Princeton, N.J.-based target an enterprise value of $5.6 billion.
Bringing Chiltern on board furthers LabCorp's CRO goals. In a presentation released Thursday, the buyer revealed that the deal adds about 4,500 people to its CRO workforce, with roughly 2,000 employees based in the Americas, 1,800 based in Europe and 700 from the Asian-Pacific region. Notably, the deal increases the Asia-Pacific employee count more than 40% to 2,400. Combined, the Covance and Chiltern businesses give LabCorp a CRO staff of about 11,100 employees.
"Our acquisition of Covance has demonstrated the value of combining diagnostic and CRO capabilities, expertise, data and leadership," LabCorp CEO David King CEO said in a July 31 statement. "The addition of Chiltern furthers our strategy and will provide us with enhanced capabilities across a broader client base as we continue to innovate and grow."
The company's beefed up footprint and offerings should also give it a better chance at competing in the CRO market against other players that have used dealmaking to become mega-sized service providers.
Those providers include QuintilesIMS, which formed less than two years ago, as a merger between IMS Health and Quintiles, the world's largest CRO. The consolidations haven't slowed down since that transaction, either. In May alone, InVentiv Health and INC Research disclosed a merger that made the combined company the third largest CRO. Even Chiltern took a turn in the buyer's seat, disclosing in May as well its acquisition of Japanese company Integrated Development Associates.
