Bloomberg News

Carlyle, Hellman & Friedman to Acquire PPD for $3.9 Billion

October 03, 2011

(Adds valuation in 12th paragraph.)

Oct. 3 (Bloomberg) -- Carlyle Group and Hellman & Friedman LLC agreed to buy Pharmaceutical Product Development Inc. in a transaction valued at $3.9 billion that shows how it’s gotten harder to finance leveraged buyouts.

The private-equity firms will pay $33.25 a share for the Wilmington, North Carolina-based pharmaceutical-research company, 30 percent more than the Sept. 30 closing price, PPD said today in a statement. Under the agreement, which has been approved by PPD’s board, the company can seek rival offers for 30 days, known as a go-shop provision.

The per-share price falls short of the $34 to $35 sought by PPD, according to a person with direct knowledge of the negotiations, who asked not to be named because the talks were private. Carlyle needed to raise equity from Hellman & Friedman because banks otherwise wouldn’t have provided financing, said two people familiar with the deal. PPD said the buyout had committed debt funding from Credit Suisse Group AG, JPMorgan Chase & Co., Goldman Sachs Group Inc. and UBS AG.

“I’m relieved that they got a deal done and were able to come to a conclusion on price,” David Windley, an analyst at Jefferies Group Inc. in Nashville, Tennessee, said in a telephone interview. “That the price was at the lower end of the forecast range is driven by challenges in financing market.”

Exclusive Negotiations

Carlyle, based in Washington, had been in exclusive talks with PPD since at least August, five people with knowledge of the matter said at the time. It had topped bids from companies including Blackstone Group LP and KKR & Co., with most offers at that time between $33 a share and $38 a share, according to the people.

Since August, equity markets have fallen and LBO financing costs have increased. Elizabeth Kuronen, a spokeswoman for PPD, didn’t respond to questions about the deal’s purchase price.

The value of global LBOs in the third quarter fell 33 percent to $23.2 billion from the second quarter, according to data compiled by Bloomberg, amid signs that banks were hesitant to finance deals because of uncertainty surrounding Europe’s sovereign-debt crisis and a slowdown in U.S. economic growth.

Buyout firms typically use loans secured on the targets they acquire to finance more than half of the purchase price and cash from their own funds for the rest. The firms seek to improve performance at the companies they acquire or expand them before selling them within about five years.

PPD rose $6.62, or 26 percent, to $32.28 at 4 p.m. in Nasdaq Stock Market trading. The stock had fallen 5.5 percent this year through Sept. 30, compared with the decline of 14 percent by the S&P 400 Midcap Index.

Founder’s Stake

The acquisition matches the value of Carlyle’s $3.9 billion buyout of telecommunications-equipment maker CommScope Inc. in October 2010. Both are the biggest deals announced by the firm since 2006. Carlyle, which has announced deals valued at $24.1 billion in the last 12 months, is selling old investments and entering new ones as it plans to go public.

Founded by Fred Eshelman, PPD provides research and development services for drugmakers, biotechnology companies, medical-device manufacturers and government organizations, according to its website. The company has offices in 44 countries and employs more than 11,000 people. Eshelman owned 6.5 percent of PPD’s common stock, making him the largest shareholder after Wellington Management LP, a Boston-based money manager, according to Bloomberg data.

Earnings Multiple

The buyout values PPD at 11.7 times earnings before interest, taxes, depreciation and amortization, Bloomberg data show. That compares with 9.6 times Ebita for Charles River Laboratories Inc. of Wilmington, Massachusetts, which helps customers speed up the discovery and development of pharmaceuticals.

PPD reported earnings of $127.7 million in 2010 on revenue of $1.47 billion.

PPD last month named Raymond Hill as chief executive officer, effective Sept. 16. Hill previously had been at IMS Health Inc., a provider of medical data, and served as president of IMS Consulting Group.

Morgan Stanley was PPD’s financial adviser, while Lazard Ltd. provided a fairness opinion to PPD’s board. Wyrick Robbins Yates & Ponton LLP and Skadden, Arps, Slate, Meagher & Flom LLP acted as legal advisers to the company. Credit Suisse advised Carlyle and San Francisco-based Hellman & Friedman, while Latham & Watkins LLP, Simpson Thacher & Bartlett LLP and Covington & Burling LLP provided legal counsel to the buyers.

--With assistance from Bruce Rule in New York and Chris Staiti in Boston. Editors: Larry Edelman, Steven Crabill

To contact the reporters on this story: Beth Jinks in New York at bjinks1@bloomberg.net; Cristina Alesci in New York at calesci2@bloomberg.net

To contact the editor responsible for this story: Christian Baumgaertel at cbaumgaertel@bloomberg.net


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