I’m not surprised that the handful of multi-billion dollar transactions generate the most interest in the trade press and the investment community, or that deals with announced purchase prices in the hundreds of millions of dollars also receive a great deal of attention.
But there’s no disputing the fact that we have long been in a very robust period for M&A activity at every size level and across many different segments of the pharmaceutical outsourcing industry. Indeed, for every transaction with an announced value in the hundreds of millions, or billions of dollars, there have probably been a few dozen deals in which less than $100 million changed hands.
When assessing the likely extent of future M&A activity, several observers thinking only of a handful of the industry’s largest players have suggested that “. . . the pace will definitely slow.” I suspect they are correct; there are only so many reasonably large clinical research organizations that are likely to become a party to a large-sized acquisition in 2012. However, I believe there is plenty of evidence to support the contradictory declaration that M&A activity among the hundreds of smaller and mid-sized industry participants “. . . will continue at a breakneck pace . . .” for the foreseeable future.
In making what may seem a bold assertion, I hasten to point out that my description covers a much broader swath of the pharmaceutical outsourcing business than is frequently included in various Wall Street analysts’ definition. Most of them concentrate only on clinical research organizations; a small number follow non-clinical development firms such as Cambrex, Patheon or ShangPharma.
Firms that specialize in contract manufacturing, clinical packaging, databases, publications, transportation logistics, laboratory analysis, patient recruiting, et al. are important components of the industry. To ignore the M&A activity among those firms is to ignore a critical storyline across the industry. The providers of clinical services are trying to find the perfect mix of offerings that will enable them to generate the maximum amount of revenue dollars from their most important clients. Similarly, firms specializing in production, packaging, analytical processes, equipment and instrumentation, or commercialization services are seeking their own optimal assortment of products/services. In both arenas, making tuck-in acquisitions that bring a new capability or new geography can be much more lucrative than attempting to swallow a large competitor in pursuit of size for the sake of size.
Two recent announcements bring to mind another aspect of the M&A world not always appreciated by those focusing intently on just the most obvious participants in drug development, i.e. the increasing participation of non-traditional players.
- The drug distributor AmerisourceBergen is acquiring World Courier Group, a specialty transportation and logistics provider to the biopharma industry.
- The diversified manufacturer General Electric is buying Xcellerex, thus broadening its participation in the biomanufacturing business.
As I’ve noted several times in my firm’s Outsourcing Industry Monitors and my columns and articles in Contract Pharma, there has been (and continues to be) strong interest in outsourcing service providers by non-traditional participants in the drug development industry. Some purchases are large; most are relatively small.
Drug development, writ large, is a task that will never disappear. Most current participants are constantly looking to expand their horizons. And the industry continues to attract new entrants seeking growth. I expect to be reading about many more $$Acquisitions$$ and ¢¢acquisitions¢¢ as the months and the years go by.
Michael A. Martorelli is a Director at the investment banking firm Fairmount Partners. For additional commentary on the topics covered in this column contact him at Michael.firstname.lastname@example.org or at Tel: (610) 260-6232; Fax (610) 260-6285.