Michael Martorelli01.26.07
Consolidation in Outsourcing
Our annual report chronicling the M&A activity in the outsourcing sector in 2006
By Michael A. Martorelli
Only a few months ago, we began our periodic Outsourcing Industry Monitor with this sentence: "Veteran observers of the pharmaceutical outsourcing industry will long remember the shifts in the industry's structure that occurred in 2006." Those shifts involved developments in four major categories:
• Cross-border acquisitions
• Private equity (PE) investments
• Cross-segment transactions
• including divestitures
• Private equity (PE) investments
• Cross-segment transactions
• including divestitures
There were some meaningful cross-border, cross-segment, and private equity transactions in 2005 as well, but there was a virtual explosion in those types of deals last year. Just as importantly, the pharmaceutical outsourcing companies that we talk to daily in our business of arranging mergers, acquisitions, divestitures and financings came to realize that transactions fitting into one of those categories were no longer outliers, but mainstream events. Particularly in the U.S., the owners of many small and mid-sized businesses frequently found themselves entertaining proposals detailing the advantages of partnering with a company in a different country, in a different business segment, or in the investment business and not the operating business. It's not an overstatement to suggest that the outsourcing industry has not seen as significant a period of structural changes since the mid-1990s when most of the largest CROs went public.
Overall Activity Remained Robust
Before examining some of the transactions that best exemplified these important structural changes, we want to describe briefly the overall nature of recent consolidation activity.
• At the time of this writing, the volume of worldwide M&A activity in 2006 was on pace to exceed not only the 2005 level of $2.9 trillion, but also the 2000 record level of $3.4 trillion. The tempo of consolidation was strong in almost all geographies and across almost all industries. Strong economic growth, healthy corporate profits, significant capital availability, and moderate interest rates across the globe helped fuel this activity.
• Mega-mergers accounted for a disproportionately large share of the volume in both the U.S. and Europe. In an increasingly global economy, more companies felt the need to achieve critical mass (often in multiple product/service categories) in order to generate incremental revenue from existing and prospective customers.
• Transactions involving private equity firms accounted for almost 20% of the total. The comparable figure in 2005 was closer to 12%. Institutional investors seeking the relatively high returns associated with private equity investing have poured money into these funds. In the first nine months of 2006, the private equity industry in the U.S. raised more than $109 billion of new money; in all of 2005 it raised $111 billion. These firms have become much more aggressive in their search for places to invest that capital.
• Some of the acquisition activity we saw last year occurred in place of Initial Public Offering (IPO) activity. The National Venture Capital Association (NVCA) tracks the financing activity of companies with at least one U.S. venture capital investor. That sample of companies is not all-inclusive; but examining the record of such firms can still be instructive. Through the first nine months of 2006, only 37 venture backed companies had gone public; the total "went public" figure was probably close to 45 for the full year. In the prior two years the number of IPOs among such firms was 56 and 93. Thus, in 2006 many venture-backed companies seemed to decide that accepting an acquisition offer, whether from a strategic buyer or a private equity group, was a better alternative than seeking an IPO.
• Transactions involving private equity firms accounted for almost 20% of the total. The comparable figure in 2005 was closer to 12%. Institutional investors seeking the relatively high returns associated with private equity investing have poured money into these funds. In the first nine months of 2006, the private equity industry in the U.S. raised more than $109 billion of new money; in all of 2005 it raised $111 billion. These firms have become much more aggressive in their search for places to invest that capital.
• Some of the acquisition activity we saw last year occurred in place of Initial Public Offering (IPO) activity. The National Venture Capital Association (NVCA) tracks the financing activity of companies with at least one U.S. venture capital investor. That sample of companies is not all-inclusive; but examining the record of such firms can still be instructive. Through the first nine months of 2006, only 37 venture backed companies had gone public; the total "went public" figure was probably close to 45 for the full year. In the prior two years the number of IPOs among such firms was 56 and 93. Thus, in 2006 many venture-backed companies seemed to decide that accepting an acquisition offer, whether from a strategic buyer or a private equity group, was a better alternative than seeking an IPO.
Outsourcing Segments Continued To Consolidate
The pharmaceutical outsourcing industry has several characteristics that have continued to make it an attractive hunting ground for both strategic and financial buyers:
• It is highly-fragmented, with many competitors in every segment of the business. Moreover, except for several dozen publicly-owned giants, the participants are typically small enough to be acquired easily.
• Most outsourcing firms are owned by their entrepreneur/ founder(s). A great number of those men and women established their companies with the intent of eventually merging them into a larger business. At any point in time, there is a ready supply of potential sellers who are prepared to entertain unsolicited acquisition bids and/or proactively seek potential buyout offers.
• The pharmaceutical and biotechnology industries are facing meaningful business challenges. Virtually all industry observers consider outsourcing as an important partial solution to those problems. Thus, the demand for the services provided by contract service firms across the outsourcing spectrum is likely to continue to increase steadily over time.
• Most outsourcing firms are owned by their entrepreneur/ founder(s). A great number of those men and women established their companies with the intent of eventually merging them into a larger business. At any point in time, there is a ready supply of potential sellers who are prepared to entertain unsolicited acquisition bids and/or proactively seek potential buyout offers.
• The pharmaceutical and biotechnology industries are facing meaningful business challenges. Virtually all industry observers consider outsourcing as an important partial solution to those problems. Thus, the demand for the services provided by contract service firms across the outsourcing spectrum is likely to continue to increase steadily over time.
The industry certainly participated in the worldwide surge in consolidation activity in 2006. The companies we track concluded more than 120 mergers or acquisitions last year, about 70% more than in the 2005.
• 27% crossed an international border,
• 20% involved a private equity investor group,
• 15% involved participants in different segments of the industry,
• 11% involved a divestiture.
• 20% involved a private equity investor group,
• 15% involved participants in different segments of the industry,
• 11% involved a divestiture.
Many involved a combination of those factors.
Most Firms Expanded In Their Existing Businesses
Transactions involving a non-traditional industry participant generate the big headlines. Those representing a major diversification to another business or another country become the subject of "Why did they do it?" commentaries by analysts and columnists alike. However, judging from the above percentages, it's worth noting that the majority of consolidating transactions announced and/or completed in 2006 involved two parties in the same industry segment and headquartered in the same country.
• The largest combination involved the November purchase of Fisher Scientific by Thermo Electron. After an exchange of stock worth $10.6 billon, the renamed Thermo Fisher Scientific will be more broadly positioned across the laboratory instruments, equipment, consumables, and software and services businesses than any other firm. The rationale for this transaction seemed logical, given that the companies shared many customers across the global life sciences industry, but hardly any product lines. During the next three years, management anticipates approximately $50 million of revenue synergies and $150 million of cost savings.
• In August, Kendle International completed the acquisition of the Phase II-IV Clinical Services business of Charles River Laboratories. From Kendle's perspective, this was one of the most important developments in the company's history. Kendle had long been a mid-sized CRO focused on the clinical services business. In acquiring CRL's business, the company boosted its anticipated 2007 revenue base to about $410 million, about 90% of which should involve Phase II-IV services. The company now has the global presence to compete more effectively for large, complex trials conducted in many countries. It also has more expertise in a broader range of therapeutic areas. Just three categories (oncology, CNS, and endocrinology) had comprised about 38% of the company's pre-acquisition revenue mix.
• In July, Premier Research Group closed the largest of its seven acquisitions since 2002, completing the purchase of Scirex Corporation from Omnicom Group. This transaction fit into three different categories, but we viewed it most meaningfully as an expansion of PRG's existing clinical services business. It allowed the company to almost double its $59 million annual revenue run rate. And it greatly enhanced its position in the important U.S. market. Thus, PRG is continuing to develop as a mid-sized CRO with strong operations in the world's major drug development markets.
• Aptuit, Inc. was again an active acquirer in 2006. In the third quarter it added the API manufacturing capabilities of EaglePicher Pharmaceutical Services and the solid state chemistry and crystallization expertise of SSCI, Inc. Management continues to focus on non-clinical development services that enable its clients to advance their chemical and biological product candidates more efficiently towards milestones and approval. This private equity backed firm appears to have sufficient capital to continue pursuing a growth-by-acquisition strategy while also making internal enhancements to its existing operating units.
• In July, Premier Research Group closed the largest of its seven acquisitions since 2002, completing the purchase of Scirex Corporation from Omnicom Group. This transaction fit into three different categories, but we viewed it most meaningfully as an expansion of PRG's existing clinical services business. It allowed the company to almost double its $59 million annual revenue run rate. And it greatly enhanced its position in the important U.S. market. Thus, PRG is continuing to develop as a mid-sized CRO with strong operations in the world's major drug development markets.
• Aptuit, Inc. was again an active acquirer in 2006. In the third quarter it added the API manufacturing capabilities of EaglePicher Pharmaceutical Services and the solid state chemistry and crystallization expertise of SSCI, Inc. Management continues to focus on non-clinical development services that enable its clients to advance their chemical and biological product candidates more efficiently towards milestones and approval. This private equity backed firm appears to have sufficient capital to continue pursuing a growth-by-acquisition strategy while also making internal enhancements to its existing operating units.
Other outsourcing firms that made what we considered important acquisitions in their base businesses in 2006 include ClinPhone, ICON plc, Intertek Group, and United BioSource Corporation. The reader shouldn't assume that this list disparages the acquisition activity of other firms such as Charles River Laboratories, Covance Inc., Galapagos NV, INC Research, Millipore Corporation, PAREXEL International, PerkinElmer Inc., QIAGEN N.V., and Synexus Clinical Research. Our point in mentioning all these firms is to re-emphasize the ongoing nature of the tactical expansion-by-acquisition strategy employed by many organizations. The fruits of those activities are too often drowned-out by headline-grabbing, unusual deals.
More Companies Sought a Global Presence
In analyzing the large number of cross-border transactions that were announced and/or closed in 2006, we find that the great majority of those acquisitions were modest ones. In many cases, the buyer did obtain a business foothold in an additional territory. In others, it expanded an already existing presence in a specific geography. Frequently, the relative size and revenue contribution of the acquired business or facility was quite small. While those deals may have been important in a tactical sense, it's hard to label them as company-transforming, strategic acquisitions. There were several transactions, however, that seemed to represent more significant attempts to position the buyer to attack new business opportunities across the globe.
• In November, Covalent Group completed the acquisition of Remedium Oy and changed its corporate name to Encorium Group. The acquisition was announced in March. Its initial terms were based on the financial results of the companies in 2005. In that year, Covalent generated clinical research service revenue of $10.4 million, the vast majority of which was generated in the U.S. Remedium Oy posted full year 2005 revenue of $9.6 million. Its clinical research service business base was largely in Scandinavia and Eastern Europe. By combining these two businesses, the managements of both companies believe Encorium will be able to compete more effectively for trials to be conducted on both sides of the Atlantic Ocean.
• SGS Group has an annual worldwide revenue base of nearly $3 billion. Thus, it may be hard to characterize two acquisitions with combined annual revenue of about $56 million as meaningful. Yet, we have heard management describe the purchases of both Aster.Cephac and Northview Biosciences as fulfilling important components of the company's growth plan. The former operates an 82-bed Phase I clinic and a bioanalytical laboratory in France. The latter provides GMP/GLP quality control testing services to U.S.-based clients through laboratories in Illinois and South Carolina. Adding these units has broadened the company's laboratory network in Europe and expanded its business base in the important U.S. market. The Life Sciences business segment has been one of SGS's smallest. It is one that management has targeted for additional acquisitions in 2007 and beyond.
• Until the July closing of the acquisition of Pharma Bio-Research (PBR), PRA International's business was almost entirely focused on Phase II-IV clinical research services. That transaction added several dimensions to the company. We're including it here because it will add more than $50 million of Europe-based revenue to the company's annualized level of about $300 million. Virtually all of that business is in the Phase I and bioanalytical areas, so it also diversifies PRA's business base. Moreover, PBR has strong relationships with large pharmaceutical companies, a market which PRA has been targeting for additional business. In another cross-border transaction, PRA acquired India-based Sterling Synergy Systems in May. That company has both clinical research and data management capabilities.
• Lonza Group used the acquisition route to add capabilities and achieve a broader global presence. In October that Swiss-based company announced the purchase of the Bioproducts and Biopharma divisions of Cambrex Corp. These will add manufacturing capacity, geographic breadth and new revenue lines to the company. Also in October, Lonza orchestrated the spin-off of 60% of its share of Polynt S.p.A. That firm develops, manufactures and markets polymers, chemical intermediates and additives. In November, Lonza agreed to buy Genentech's biopharmaceutical manufacturing facility in Spain. These transactions exemplify the strategic shift to life sciences that management mapped out two years ago.
• SGS Group has an annual worldwide revenue base of nearly $3 billion. Thus, it may be hard to characterize two acquisitions with combined annual revenue of about $56 million as meaningful. Yet, we have heard management describe the purchases of both Aster.Cephac and Northview Biosciences as fulfilling important components of the company's growth plan. The former operates an 82-bed Phase I clinic and a bioanalytical laboratory in France. The latter provides GMP/GLP quality control testing services to U.S.-based clients through laboratories in Illinois and South Carolina. Adding these units has broadened the company's laboratory network in Europe and expanded its business base in the important U.S. market. The Life Sciences business segment has been one of SGS's smallest. It is one that management has targeted for additional acquisitions in 2007 and beyond.
• Until the July closing of the acquisition of Pharma Bio-Research (PBR), PRA International's business was almost entirely focused on Phase II-IV clinical research services. That transaction added several dimensions to the company. We're including it here because it will add more than $50 million of Europe-based revenue to the company's annualized level of about $300 million. Virtually all of that business is in the Phase I and bioanalytical areas, so it also diversifies PRA's business base. Moreover, PBR has strong relationships with large pharmaceutical companies, a market which PRA has been targeting for additional business. In another cross-border transaction, PRA acquired India-based Sterling Synergy Systems in May. That company has both clinical research and data management capabilities.
• Lonza Group used the acquisition route to add capabilities and achieve a broader global presence. In October that Swiss-based company announced the purchase of the Bioproducts and Biopharma divisions of Cambrex Corp. These will add manufacturing capacity, geographic breadth and new revenue lines to the company. Also in October, Lonza orchestrated the spin-off of 60% of its share of Polynt S.p.A. That firm develops, manufactures and markets polymers, chemical intermediates and additives. In November, Lonza agreed to buy Genentech's biopharmaceutical manufacturing facility in Spain. These transactions exemplify the strategic shift to life sciences that management mapped out two years ago.
There is a long list of other outsourcing firms that also extended their geographic reach via the acquisition route last year. Among some of the other notable expansions were those in Europe and the United Kingdom closed by the India-based companies Bilcare, Dishman Chemical, and Nicholas Piramal.
Many Entrepreneurs Were Attracted to Private Equity Buyers
There are several reasons behind the increased activity and prominence of these financial buyers in the M&A arena.
• As noted earlier, most PE funds are flush with cash thanks to increased funding from their limited partner institutional investors.
• There has also been an abundant supply of relatively inexpensive debt capital available to these investment groups. PE investors tend to take maximum advantage of financial leverage to enhance their returns.
• Most PE firms have changed their approach to investing and become more appealing as potential buyers. This last factor needs some explaining:
• There has also been an abundant supply of relatively inexpensive debt capital available to these investment groups. PE investors tend to take maximum advantage of financial leverage to enhance their returns.
• Most PE firms have changed their approach to investing and become more appealing as potential buyers. This last factor needs some explaining:
In the 1980s, PE firms developed reputations as merely financial engineers. Their main activity involved buying a troubled company at a distressed price, improving profitability by squeezing expenses, then "flipping" the company to another group of investors — frequently via a public offering. Today's PE investors are more interested in helping their portfolio companies generate operational improvements, investing in growth and building long-term profitability. Often, they seek platform companies on which to build. They then expand the capabilities of that company by adding product/service lines, locations, managers, and customer bases. In so doing, they resemble traditional strategic buyers from industry. Thus, they are better able to compete for acquisitions than before. PE firms still realize their financial returns by selling portfolio companies. However, changes in the attractiveness of the public marketplace have caused more of those exits to occur through a sale to a larger strategic buyer than to other private or public investor groups.
During the past 18 months, many PE groups acquired outsourcing firms with well-known names, reputations and track records. Some of the most visible are listed below.
Buyer/Investor |
Seller |
AlpInvest Partners, et al. | VNU N.V. |
American Capital Strategies | Axygen Inc. |
Ampersand Ventures | RadPharm |
Borealis/Ontario Municipal Retirement | MDS Diagnostic Services |
Carlyle Group | Claris Life Sciences |
Celerity Partners | Synteract |
Czura Thornton | Chiltern International |
DW Healthcare Partners | Hill Top Research, Tandem Labs |
Genstar Capital | Harlan Sprague Dawley |
International Chemical Investors | Cambrex facilities |
KRG Capital Partners | PRACS Institute, Gateway Medical Research |
Platinum Equity | Cardinal’s Healthcare Marketing Services |
TPG-Axon Capital | NovaQuest / Quintiles |
Towerbrook Capital | Clariant Pharma Fine Chemicals |
Vector Capital | Tripos Discovery Informatics |
Vestar Capital Partners | MediMedia Management |
VNU was the only one that had been publicly-held.
Private investment groups were also critical suppliers of debt capital to two publicly-held firms that were taken private during the past year.
• In March, aaiPharma's Plan of Reorganization became effective. That plan transferred ownership of the company to the holders of its 11.5% senior subordinated notes, a group of investors which included JPMorgan. In October, those investors provided the company with another $30 million in equity capital.
• Quintiles Transnational had been taken private in September 2003. However, it floated two publicly-owned debt issues to accomplish that transaction and thus was required to continuing filing 10-Q and 10-K financial reports with the SEC. In June, the company used the proceeds from borrowings under new bank lines to retire those issues, thus removing itself from the regulatory auspices of the SEC and giving it at last true "private company" status.
• Quintiles Transnational had been taken private in September 2003. However, it floated two publicly-owned debt issues to accomplish that transaction and thus was required to continuing filing 10-Q and 10-K financial reports with the SEC. In June, the company used the proceeds from borrowings under new bank lines to retire those issues, thus removing itself from the regulatory auspices of the SEC and giving it at last true "private company" status.
Most transactions noted in the preceding table represented straightforward acquisitions of a private firm by an investor group. Those completed by AlpInvest, Borealis, International Chemical Investors, Platinum Equity, and Vector Capital involved divisions or subsidiaries of publicly-held companies. Two deals were particularly unusual:
• The American Capital investment in Axygen Inc. brought its ownership in that company to 79%. Axygen's management owns the reminder. This latest investment took the form of a senior term loan, senior and junior subordinated debt, and equity. American also provided a revolving credit facility.
• Borealis Infrastructure Management is an investment entity of the Ontario Municipal Employees Retirement System (OMERS), one of Canada's largest pension plans. It manages a global portfolio of infrastructure assets with an equity value of more than $4 billion. Management considers laboratory services a critical part of the Canadian healthcare system. Acquiring MDS Diagnostic Services is expected to benefit the OMERS plan members and help maintain the quality and stability of laboratory services for physicians and patients.
• Borealis Infrastructure Management is an investment entity of the Ontario Municipal Employees Retirement System (OMERS), one of Canada's largest pension plans. It manages a global portfolio of infrastructure assets with an equity value of more than $4 billion. Management considers laboratory services a critical part of the Canadian healthcare system. Acquiring MDS Diagnostic Services is expected to benefit the OMERS plan members and help maintain the quality and stability of laboratory services for physicians and patients.
Finally, we would be remiss if we left this topic without mentioning some activity by private equity firms that did not involve the takeover of a company, but only a minority investment in either an initial or follow-up round of financing. Among the more well-known outsourcing firms that obtained growth capital in this way in 2006 were BioStorage Technologies, CambridgeSoft, invivodata, Octagon Research Solutions, and Xceleron Limited.
Some Firms Sought Growth In Greener Pastures
As usual, a meaningful portion of the consolidating transactions that occurred last year involved the diversification of a company into a new business. Some firms sought synergistic acquisitions and chose to expand to a segment that was close to an existing business. Others sought expansion opportunities in new areas, typically sectors that would offer more rapid revenue growth or greater profitability than their core business. In addition to the transactions noted earlier in this article, the following seemed to be representative of the diversification-by-acquisition agenda.
• Cross Country Healthcare experienced only modest revenue growth in the 2002-2005 period, as it suffered from weak business conditions in its core business, the temporary healthcare staffing market. "Acquiring complementary businesses" was one of four elements identified by management in 2006 as important components of a new growth strategy. In August, the company acquired Metropolitan Research Associates, a CRO with a leading position in safety monitoring and a foothold in the clinical staffing business. Adding $17 million in annualized revenue to its existing $640 million revenue base may not make Cross Country the most dynamic growth company in America overnight. However, management believes that entering the safety monitoring business and expanding to another segment of the staffing market will pay dividends in the not-too-distant future.
• During the past two years, inVentiv Health has expanded dramatically from its contract sales base. Thus, it was not surprising to close followers of the firm when it made five more acquisitions in 2006. Among the most interesting were transactions that gave it capabilities in patient compliance services (Adheris Inc.), clinical trial management services (Synergos), and web conference services (The Maxwell Group and its MedConference brand). As a result of its successful acquisition program, analysts expect the company's historic contract sales segment to generate less the 45% of its revenue and operating income in 2007.
• During the past two years, inVentiv Health has expanded dramatically from its contract sales base. Thus, it was not surprising to close followers of the firm when it made five more acquisitions in 2006. Among the most interesting were transactions that gave it capabilities in patient compliance services (Adheris Inc.), clinical trial management services (Synergos), and web conference services (The Maxwell Group and its MedConference brand). As a result of its successful acquisition program, analysts expect the company's historic contract sales segment to generate less the 45% of its revenue and operating income in 2007.
In other instances of rather unusual diversification:
• Cerner Corporation enhanced its ability to help clients measure the safety of existing and developmental products with the June acquisition of Galt Associates.
• General Electric expanded its protein sciences business with the July acquisition of Biacore International.
• United BioSource moved away from its evidence-based medicine heritage with the November acquisition of the biostatistics and data management firm BioCor LLC.
• Battelle extended its historic product development and health services research capabilities with the October 2005 acquisition of the full services CRO CareStat Inc.
• General Electric expanded its protein sciences business with the July acquisition of Biacore International.
• United BioSource moved away from its evidence-based medicine heritage with the November acquisition of the biostatistics and data management firm BioCor LLC.
• Battelle extended its historic product development and health services research capabilities with the October 2005 acquisition of the full services CRO CareStat Inc.
Other Companies Retraced Their Steps in Selected Businesses
Business combinations that may have made sense yesterday may not make sense today or tomorrow. Further, an existing business may be profitable, but still take disproportionate amounts of management time, capital and other scarce corporate resources. Thus, divestitures are a fact of corporate life. In our last year's Contract Pharma review (January/February 2006), we discussed a few divestitures, each of which was part of a significant corporate restructuring program. In 2006, we saw more than a dozen sales of businesses by outsourcing firms. While a few were part of a broad program, many were tactical sales, aimed at helping re-orient a firm's growth activities or exiting a business that was not considered critical to the company's future.
We've already discussed the sale of particularly meaningful operating units by Cambrex Corp., Charles River Laboratories, EaglePicher, and MDS Inc. A more complete listing would also include divestitures by Lion Bioscience, McKesson Corporation, Radiant Research, PharmaNet Group, and West Pharmaceutical Services. There is one other firm that deserves mention, partly for the divestiture it competed and partly for the one it announced.
• In November, Cardinal Health sold its Healthcare Marketing Services (HMS) unit to the private equity firm Platinum Equity. HMS provides sales and marketing communications services and materials to the pharmaceutical industry, and has annual revenue of close to $200 million. In December, Cardinal announced plans to divest its Pharmaceutical Technologies and Services (PTS) segment. That provider of contract manufacturing services to the pharmaceutical industry has an annual revenue flow of approximately $1.8 billon. Apparently, management has concluded that neither HMS nor PTS is an important part of the core Cardinal business (drug wholesaling), which generates annual revenue in excess of $80 billion.
What to Expect in 2007
One of our strongest memories from Economics 101 was the professor's insistence we evaluate the ceteris paribus assumption critically in our analyses. As is the case in many predictive sciences, economic tenets usually assume that "all other things remain the same" as they describe anticipated economic outcomes. Our professor believed students needed to understand not only the underpinning of the theories, but also the real-world complications that would affect their application.
We do indeed expect another robust year for M&A activity, ceteris paribus.
• There have been some high-profile problems encountered by firms making company-transforming acquisitions. However, we believe that the large and mid-sized participants in most areas of outsourcing will continue to seek additional breadth in their scope of services and/or their geographic reach.
• Not all PE firms have repeatedly proven their ability to increase meaningfully the value they can add to a portfolio company's worth as they complete a round trip by selling the investment. Nevertheless, we believe the potential of those financial returns will encourage many more entrepreneurs to cast their lot with these financial buyers.
• Corporate executives are loath to admit a mistake, for all kinds of reasons both tangible and intangible. In light of some successful re-positioning divestitures, however, we believe more management teams (and their Boards) will be willing to part with any business unit that is no longer a key component of a firm's growth plans.
• Not all PE firms have repeatedly proven their ability to increase meaningfully the value they can add to a portfolio company's worth as they complete a round trip by selling the investment. Nevertheless, we believe the potential of those financial returns will encourage many more entrepreneurs to cast their lot with these financial buyers.
• Corporate executives are loath to admit a mistake, for all kinds of reasons both tangible and intangible. In light of some successful re-positioning divestitures, however, we believe more management teams (and their Boards) will be willing to part with any business unit that is no longer a key component of a firm's growth plans.
Now for the ceteri that must remain paribus in order for our expectations to be realized.
• The overall economic environment must remain healthy.
• The pharmaceutical and biotechnology industries must continue to
1) increase their sales and earnings bases,
2) devote large amounts of dollars to R&D activities, and
3) use more external resources to supplement the activities of their internal staffs.
• The Administration and Congress must not take any actions that meaningfully reduce the incentives for develop new pharmaceutical therapies.
• The pharmaceutical and biotechnology industries must continue to
1) increase their sales and earnings bases,
2) devote large amounts of dollars to R&D activities, and
3) use more external resources to supplement the activities of their internal staffs.
• The Administration and Congress must not take any actions that meaningfully reduce the incentives for develop new pharmaceutical therapies.
Here's hoping the past will indeed be a prologue of the future.