Thermo Fisher’s £12.6bn Acquisition of PPD
Deal Overview
Announcement date: 15/04/2021
Industry: Pharma and Biotech
Deal Value: £12.6 Bn
Deal consideration: Paying £12.6bn in cash but also taking on PPD’s £2.6bn of debt creating a total of £15.2bn deal
Thermo Fishers’s advisors: Barclays Capital, Inc. and Morgan Stanley & Co. LLC
PPD’s advisors: J.P. Morgan Securities LLC
Company Details: Thermo Fisher Scientific Inc.
Source: Thermo Fisher Scientific
Founded: 1956
HQ: Waltham, Massachusetts, US
Market Cap: £143.9bn
EV: £153.4bn
LTM EBITDA: £8.99bn
EV/LTM EBITDA: 17.1
Thermo Fisher Scientific is an American provisioner of scientific instrumentation, reagents (a substance or compound added to a system to cause a chemical reaction), software, services to healthcare and industry including in biotechnology and pharmaceutical sectors. They generate more than £21.8 Bn in annual revenue and employ over 80,000 people worldwide. They offer services and products to assist laboratory work and, throughout the pandemic, Thermo Fisher became a top producer of Covid-19 test kits and laboratory equipment generating an additional £4.8 billion in 2020 and an expected £5.2 billion in 2021. This boom in the pharma and biotech industry is only helping to drive the growth of the company who have previously pulled off 56 successful acquisitions (post the $9 bn 2006 Thermo Electron and Fisher Scientific merger) to grow the company and diversify their products and service lines.
Company Details: PPD
Source: PPD
Founded: 1985
HQ: Wilmington, North Carolina, United States
Market Cap: £11.8bn
EV: £14.4bn
LTM EBITDA: £620.1m
EV/LTM EBITDA: 23.3
PPD is a contract research organisation (CRO), a company that offers outsourcing clinical drug development and trail services which helps companies reduce both time and cost of drug testing. They employ more than 26,000 in over 50 different companies boasting impressive reach and contacts within the industry. Also, because of the pandemic, CROs have become more valuable than ever. PPD in particular has been heavily involved in running vaccine trials for COVID-19, including Moderna and tests for the National Institutes of Health’s biotech mRNA vaccine. The company recently went public in February 2020 in order to raise £1.4 Bn of capital after being valued at £6.5 Bn to increase cash flow and pay off debt.
Strategic Rationale
Thermo Fisher Scientific is acquiring PPD for £12.7 Bn which includes taking on PPD’s £2.5 Bn of Debt. This price is 24% above that of the stock NASDAQ:PPD price at the time of the deal.
Increase complementary services:
Thermo Fisher is looking to acquire PPD with the aim to diversify its service line, becoming part of the Laboratory Products and Services Segment. “Already providing key equipment and services to laboratory’s, diversifying into currently growing and profitable field of clinical research services will add another line of interest to potential customers. From a strategic perspective, this fits in with Thermo Fisher’s ‘One Stop Shop’ strategy for Biopharma customers,’ noted Evercore ISI analyst, Vijay Kumar. The pandemic has increased interest for the clinical research services industry which is valued at £36 Bn globally and continued growth is forecasted. Across all sizes, pharma companies are anticipating increased spending on Phase 2 and Phase 3 trials in the next four years according to a report issued by research firm Industry Standard Research in 2020 which supports this predicted industry growth. Thermo Fisher anticipated the growth in the market pre-pandemic, buying the clinical trial service business Pytheon in 2017 and further branching into the manufacturing side in 2019 when they acquired gene therapy producer Brammer Bio. Thermo Fisher Scientific are now in a strong position, both structurally within the company and financially, to integrate the services offered by PPD in a smooth transition.
Increased customer networks:
PPD has facilitated over 400 drug approvals within the last five years, working with all pharma companies in the Top 50 List plus over 300 more biotech firms, providing valuable contacts to Thermo Fisher that will be of use when introducing a new service line. The uncertainty caused by Covid-19 has left clients looking to deal with fewer and more trusted partners according to Thermo Fisher’s presentation notes. The high standard of performance upheld by both PPD and Thermo Fisher throughout the pandemic makes their combination of customer bases more powerful than ever.
Global Spread:
With over 26,000 employees in over 50 countries, PPD is currently ranked the 6th largest CRO in the industry. Conducting clinical trials in over 100 countries, PPD has a worldwide spread which creates access for the American Thermo Fisher to globalise and spread their already well reputable name, where there employ 5,0000 in China which contributes over 10% of the company’s revenue, to grow even larger.
Aligned corporate culture
Simmons, the chairman and CEO of PPD, claims that Thermo Fisher is a company with a similar culture and values that will “provide a great foundation for our colleagues to continue to deliver for our customers and to develop their own skills and careers”. This alinement of values highlights the potential for a smooth integration into Thermo Fishers who are hoping to keep all of the 26,000 employees from PPD. In addition, executives from PPD will also be joining Thermo Fisher. Casper, the company leader of Thermo Fisher says “If you look at our history, our senior executive team has come from the businesses we acquired … all of the different major components of the company, that’s where the senior executives are coming from.” This increases the likelihood of a smooth transition and will help to maintain the trust of the loyal customer base.
Added financial benefits
The acquisition of PPD will also provide an added financial benefit, with analysts predicting the deal will increase Thermo Fishers’ EPS by £1.01 in the first 12 months after the deal closes. Cost synergies of approximately £90.6m are expected to follow over the next 3 years, with £36.2m from revenue-related synergies and £54.4m of this will come from cost cutting. Although beneficial, the synergies “represent very modest administrative savings, kind of very modest public company cost savings, they’re not huge synergy targets,” according to George Hill, a Deutsche Bank analyst, so this is not the prime reason of the acquisition.
Risks:
The risks associated with this acquisition are minimal due to success and interest in the CRO industry at the moment. The acquisition is also supported by the track record of Thermo Fisher who have acquired 56 companies since 2006 boasting the future success of this transition.
A potential risk may however be a result of this current CRO interest. Thermo Fishers acquisition of PPD was already the second CRO acquisition of 2021, following the acquisition of PRA health Sciences by Icon for £8.7 Bn. With many pharma and biotech companies keen to join in, competition poses the biggest threat, although it must be noted not many companies are in a position to offer £12.3 Bn for similar level acquisitions. With the few companies that are rapidly diversifying into the field, they run the added risk of failure due to the rushed motivations behind the move. Thermo Fisher, who were attempting to diversity prior to the pandemic, had previously put the mechanisms in place for a successful transition and are simply lucky with regards to timing. This helps reduce the largest risk of competition, being in a natural position for the acquisition and increasing likelihood of success.
When will the deal close?
The deal will close at the end of 2021 subject to the receipt of regulatory approval
By Charlotte Ives
https://www.pharmaceutical-technology.com/news/thermo-fisher-agreement-acquire-ppd/
https://www.biopharminternational.com/view/thermo-fisher-to-acquire-ppd-for-17-4-billion
https://uk.finance.yahoo.com/quote/PPD/key-statistics?p=PPD&.tsrc=fin-srch
https://uk.finance.yahoo.com/quote/TMO/key-statistics?p=TMO&.tsrc=fin-srch
