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Brisk Pace of Drug & Device Outsourcing Deals Continues for the First Half of 2013: Crosstree Capital Partners
9/4/2013 9:04:11 AM
(Tampa, FL) Crosstree Capital Partners has released its second quarter 2013 Drug and Device Outsourcing Industry Monitor (please see attched 80 page report).
Summary of the Report
The brisk pace of mergers and acquisitions, which surged at the end of 2012, continued through the first half of 2013 as both strategic and financial buyers remained active. The Development and Contract Manufacturing segments were the most active, while deal activity in Europe increased considerably.
Private placement activity fell for the second consecutive quarter as a result of a slowdown in European investments.
Revenue- and earnings-based valuations increased across nearly every segment in the industry, and the Crosstree Capital Partners Drug & Device Outsourcing Index climbed 4.6% in the second quarter, representing the third consecutive quarter that the Index has risen.
The Development Industry Segment Grows Four Times Faster than S&P Index Crosstree?s Development Index has climbed 42% since the end of 2Q12, compared to an 11.5% climb by the S&P500 over the same period. Companies in the Development Index had an average enterprise-value-to-revenue (EV/REV) multiple of 2.3x and an average EV/EBITDA multiple of 10.8x at the end of 2Q13, up 34.8% and 25%, respectively, over the last four quarters. One of the factors driving the higher valuations is increased demand for development companies by both public and private financial investors. When Quintiles went public for $36 per share, the stock climbed instantly and was up 18% as of the end of 2Q13. In the private market, investors contributed $169 million to private development companies during 2Q13, an amount greater than that of the past three quarters combined.
Private placement and M&A deal activity spiked during 4Q12 across all Drug and Device Outsourcing Industry (?DDO?) segments, as the result of a rush to get deals done before tax increases went into place this year. As a result, M&A deal volume expectedly dropped across all DDO segments during the first half of 2013, the exception being the development segment. M&A volume was virtually unchanged from the first to second quarter.
The big story of 2Q13 was KKR?s acquisition of PRA International, a transaction estimated by the New York Times to be worth $1.3 billion, which would have net Genstar a 64% return on its 2007 investment. Other notable 2Q13 transactions include TFS?s acquisition of Beardsworth Consulting Group in April, TFS?s third acquisition in as many quarters, and adTelerx Marketing's acquisition of two different companies during the quarter to grow its safety surveillance and data capture services. Other private equity platform acquisitions include those of SYNARC and Simbec Research.
M&A activity shows no signs of slowing down, and valuations continue to hold. We expect strategic buyers to continue to look at acquisition prospects for growth and PE firms to continue to seek platform companies.
About Crosstree Capital Partners
Crosstree Capital Partners is an investment banking boutique, specializing in advising middle market companies in the Drug & Device Outsourcing Industry. For more information about Crosstree Capital Partners, please visit: www.crosstreecapital.com
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