The M&A train kept chugging along throughout 2012. I counted just under 170 transactions across the broad universe of pharmaceutical outsourcing companies. That number was closer to 135 in both 2010 and 2011.

Last year’s busy M&A agenda might surprise some readers who listened to certain analysts and industry executives suggest that the peak in such activity had passed as we ended 2011 and entered 2012. It was true that there were no more companies the size of PPD to acquire; and there were very few firms as large as Kendle or PharmNet still on the market. But it was also true that there were still dozens of firms with annual revenue ranging as high as $100 million that would make excellent acquisition candidates for a variety of strategic and financial buyers. As in the past, in summarizing the M&A activity that did occur, I only list a sample of the transactions that were consummated during the year. 

Manufacturers, Labs, and Packagers, O My!
In 2012, there were an unusually large number of deals involving the array of companies providing laboratory and manufacturing services. Indeed, if 2011 was the Year of the CRO (with no fewer than eight very large deals), 2012 should be thought of as the Year of the CMC/CMO. Strategic buyers and private equity firms alike were very active in making investments in this broad business segment. Most were pursuing a business they believe has very favorable growth characteristics, despite (or maybe because of) the manufacturing problems being encountered by the world’s major drug companies. Happily for the range of buyers, those firms seem more convinced than ever of the business case that favors outsourcing many of their activities across the broad CMC spectrum.

Strategic Buyer	Target
AAI Pharma Services	Celsis Analytical Services
Charles River Labs	Accugenix
Evans Analytical Group	PTRL West & PTRL Europe
General Electric	Xcellerex
LabCorp of America	MEDTOX
Mayne Pharma	Metrics, Inc.
Patheon	Banner Pharmacaps
QPS	JSW Life Sciences
SGS	Vitrology
Sigma-Aldrich	BioReliance
Synerlab	Lyofal IDD-Tech Orleans
United Drug	Bilcare Clinical Packaging

Private Equity Buyer	Target
Frazier Healthcare	Catalent Pharma Packaging
BC Partners	Aenova Group
RoundTable Healthcare	DPT Labs
KESA Partners	Bioserv

There were also a substantial amount of asset purchase agreements by operating companies whose managements believed it was the most cost-effective way to increase their firms’ capacity:

Buyer	Target
CMC Biologics	XOMA facility
Fuji Pharma	DKSH Group facility
Hospira	Orchid Chemicals facility
UCB	Exemed Pharma. facility
ShangPharma	Charles River Labs facility

Clinical Companies Had Many Priorities
Along with most industry analysts, I didn’t spend much time in 2012 talking with investors, executives, and journalists about the latest mega-acquisition in the clinical services segment —  because there weren’t any. Yet many large and mid-sized firms maintained an active acquisition search posture as they attempted to broaden their set of offerings and/or establish a presence in additional countries. By the way, a close reading of the news flow during the year would suggest that firms that did not make an acquisition last year may have achieved either of those objectives by hiring additional staff or opening additional offices.

Strategic Buyer	Target
CRA Holdings	Radiant Research
CROMSOURCE	Pleiad
Clinical Res. Advantage	Destiny Clinical Research
Clinipace Worldwide	Paragon Biomedical
ICON plc	BeijingWits Medical     Consulting PriceSpective
inVentiv Health	Kforce Clinical Research
Medpace	MediTech Strategic     Consultants
PAREXEL	Liquent
Quintiles	Expression Analysis
Synexus	Osteomed
Synteract*	Harrison Clinical Research
TFS	Dimensione Ricerca

* announced but not yet closed

Private Equity	Buyer Target
Arsenal Capital	Western IRB Copernicus Group
Freeport Financial	PRACS Inc.

By the way, I don’t want to get ahead of the curve, but it’s worth noting that the private equity owners of firms such as Chiltern, Quintiles, PRA International, Premier Research, and Worldwide Clinical Trials have had their funds invested in those firms for more than four years; they could seriously begin considering their liquidity options in 2013.

Let’s Not Ignore Some Other Noteworthy Transactions
In an industry as diversified as pharmaceutical outsourcing, there are many companies that just do not fit neatly into one of the major categories that analysts include when discussing their industry taxonomy. Many firms occupy segments — I hate to call them niches — occupied by only a handful of firms, or segments that legitimately spread across several related businesses. The following is only a sampling of the acquisition activity consummated across this diversified group of service providers.

Buyer	Target
Accenture	Octagon Research Solutions
eResearchTechnology	invivodata
IMS Health	DecisionView  PharmARC PharmaDeals Ltd. TTC
NSF Int’l.	Becker & Assoc.
Oracle Corp.	ClearTrial
Piramal Healthcare	Decision Resources Group

Again I don’t want to get ahead of the curve, but I expect to see more unusual combinations in 2013 among different types of healthcare companies as the full implications of ObamaCare begin to play out across the healthcare and clinical research communities.

Review and Preview
If one gauges the pace of acquisition activity in outsourcing only by looking at multi-billion dollar transactions, 2012 was a relatively quiet year. But for those of us who labor in the large vineyard full of companies with revenue and market valuations ranging up to a few hundred million dollars, it was another very active period. I suspect 2013 will see at least a few mega-transactions, including possibly a couple of IPOs as private equity firms seek liquidity for investments made several years ago. I also believe there will be many, many smaller transactions between companies and investment groups who continue to view pharma outsourcing as a well-positioned segment in the steadily evolving healthcare world. 

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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.martorelli@fairmountpartners.com or at Tel: (610) 260-6232; Fax (610) 260-6285.