CLINICAL OPERATIONS AND OUTSOURCING T
he number of mergers and acquisitions (M&A) among contract research organisations (CROs) saw an uptick in 2021 despite the COVID-19 pandemic. Last year saw 50 completed M&A deals, a rise of 21 on the 29 completed in 2020. The record number of CRO M&A deals last
year was due to service providers looking to expand their capabilities, and it may be easier to go through an M&A process than build the same offering internally, says David Crean, PhD, senior adviser at investment banking and valuation company Objective. There’s been a notable increase in M&A activity in Europe in the past year or so in the clinical research space, Results Healthcare managing director Kunal Kadiwar adds. This was some reservation from parties waiting for clarity on the future direction of the pandemic, he explains. Further, it is hard to do due diligence virtually when there are key in-person elements to the process, Kadiwar notes. Face-to-face meetings are key for relationship building as there is comfort in knowing that what’s presented on paper is the same in person, he explains.
Why do CROs go through an M&A? Crean notes that a primary driver for CRO M&A is that these companies want to increase their scale. A prime example is preclinical CRO Charles River Labs, which has acquired multiple preclinical laboratories in the past several years, he says, adding that scale is also the rationale for clinical trial CROs like ICON and IQVIA. Pharma company clients are attracted to scale because it reduces business risk for the CRO, Crean points out. Scale offers stability for service providers, adds Doug Drysdale, CEO of pharma company Cybin. Scaling up means increased capabilities and additional tools, such as decentralisation, as well as widening geographic presence. The challenge with working with a CRO that is too small, says orphan drug company Minoryx CEO Marc Martinell, is that it may Crean adds that if the CRO does not scale
up, there is the business risk of not innovating to attract new clients. CROs need to offer
“A primary driver for CRO M&A is that these companies want to increase their scale. A prime example is preclinical CRO Charles River Labs, which has acquired multiple preclinical laboratories in the past several years”
something different and stay on the pulse of the larger clinical trials sector, he says. The idea is to eventually become a one-stop-shop solution, says Kadiwar. This offers better bargaining power for CROs and convenience for clinical trial sponsors. Kadiwar adds that M&A can expand a
CRO’s offering regarding new therapeutic expertise and capabilities. Also, he notes, it allows service providers to make cost and operational savings, which can potentially be shared with sponsors. When CROs are operating at critical mass, they are able to justify high investment in technologies that
CROs intriguing for private equity investors asset class, which also drives CRO M&A, Crean notes. Financers provide a CRO with capital to M&A is put on the table for further expansion. CROs are prime cash-flow models, which makes them very attractive for private equity investors as an asset class, he explains. In general, Kadiwar says businesses with earnings before interest, taxes, depreciation and amortisation (EBITDA) of £5m are contenders for potential acquisitions.
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