Jonathan Alcorn/Bloomberg News; Noah Berger/Bloomberg NewsDavid M. Rubenstein, left, co-founder of the Carlyle Group, and Warren Hellman, chief of Hellman Friedman.
7:02 p.m. | Updated
The buyout firms Carlyle Group and Hellman Friedman struck one of the largest private equity deals of 2011, agreeing to buy the clinical research company Pharmaceutical Product Development for $3.9 billion.
The acquisition, which was announced Monday, will pay the company’s owners $33.25 a share, 30 percent above the stock’s closing price on Friday. The deal was a rare bright spot on a gloomy day on Wall Street. Shares of Pharmaceutical Product Development ended up 25.8 percent, at $32.28, on a day when the broader stock market tumbled.
Pharmaceutical Product Development, based in Wilmington, N.C., provides outsourced clinical research and laboratory services to drug companies. It is a hot business. The world’s largest pharmaceutical companies, as their profit margins come under pressure and the cost of getting drugs approved has increased, have gradually shifted some of their research and development activities to outside contractors. Private equity firms are also attracted to these companies for their relatively stable cash flow, allowing the firms to easily borrow money to finance their purchases.
Among Pharmaceutical Product Development’s chief competitors is Quintiles Transnational, a big manager of clinical trials based in nearby Research Triangle Park, N.C. Quintiles has been owned for nearly a decade by private equity firms. Bain Capital, TPG Capital and 3i Group now control the company alongside its founder, Dennis B. Gillings.
Last year, Thomas H. Lee bought InVentiv Health, a pharmaceutical support company, for $1.1 billion. In a recent deal, Avista Capital Partners led the $230 million acquisition of Kendle International, a clinical researcher, and combined it with INC Research, a company in the area that it already owned.
A number of the largest buyouts since the financial crisis have been in the health care industry. In the biggest private equity deal this year, a group of funds led by Apax Partners bought Kinetic Concepts, a provider of wound treatments, for $6.3 billion. In 2009, TPG and a Canadian pension fund acquired IMS Health, a provider of health care data, for $4 billion.
The Pharmaceutical Product Development buyout is welcome news for the private equity business, which has undergone a slowdown in activity as the stock market has swooned and bank shares have tumbled. Carlyle and Hellman needed to tap four banks — Credit Suisse, JPMorgan Chase, Goldman Sachs and UBS — to secure financing for the deal.
The clinical research business has been a boon to North Carolina’s Research Triangle, a cluster of academic and business institutions. The University of North Carolina at Chapel Hill has been a beneficiary of the industry’s success.
Pharmaceutical Product Development, founded 25 years ago by Fred Eshelman, employs 11,000. Mr. Eshelman graduated in 1972 from the pharmacy school of the University of North Carolina, a school that now bears his name after he donated $20 million to the university.
Right next door to the U.N.C. Eshelman School of Pharmacy is the U.N.C. Gillings School of Global Public Health, named after Mr. Gillings, the founder of Quintiles, who in 2008 donated $50 million to the school.
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