Ratings firm Moody’s says Quintiles is a $4 billion company

dranii@newsobserver.comFebruary 21, 2013 

STAFF PHOTOGRAPHER

Nearly 10 years after taking Quintiles private, company officials filed plans in February 2013 to issue an IPO that could raise $600 million.

TRAVIS LONG — 2009 News & Observer file photo

Analysts at credit rating firm Moody’s have looked at the numbers and are estimating that Quintiles’ investment bankers are valuing the company at roughly $4 billion.

Last week Durham-based Quintiles, the world’s largest pharmaceutical services company, unveiled plans to raise $600 million from investors through an initial public offering of common stock.

But the company’s Securities and Exchange Commission filing doesn’t disclose how big an ownership stake the company intends to sell to raise that money, which would, in turn, indicate what Quintiles’ and its advisors think the entire company is worth.

Moody’s, however, noted in a report issued Thursday that it estimates that the $600 million in stock would amount to roughly 15 percent of the company.

Moody’s analyst Jessica Gladstone, who wrote the report, said her “back-of-the-envelope” calculations involved comparing Quintiles’ financials with that of competitors whose values have been determined by the marketplace, either because they are publicly traded or were recently acquired.

Quintiles said in its filing that it plans to use about $300 million of the money it hopes to raise in an IPO to pay off some of its $2.4 billion debt.

That “modest reduction” is unlikely to trigger an upgrade in the ratings of the company’s debt, Moody’s reported, but it would reduce annual interest payments by about $23 million.

Quintiles helps pharmaceutical and biotechnology companies test experimental drugs and also assists them with selling and marketing medicines once they win regulatory approval.

The company generated $3.7 billion in revenue last year, up 12.1 percent from 2011, and has more than 2,000 employees in the Triangle and 27,000 worldwide.

Founded in 1982, Quintiles was publicly traded from 1994 to 2003, when it went private in a leveraged buyout led by founder and then-CEO Dennis Gillings.

Today Gillings, who stepped aside as CEO last year but remains with the business as executive chairman, and four private equity firms own about 94 percent of the company. Those five shareholders would continue to own a majority of the company after an IPO.

How Quintiles chooses to manage its finances going forward will be a “significant driver” of the company’s future credit ratings, according to Moody’s.

The agency noted that Quintiles’ past ratings have been impacted by its “aggressive financial policies,” which included $1.5 billion in dividends issued to its private shareholders since 2009 that were funded with debt.

Although Quintiles stated in its SEC filing that it doesn’t anticipate paying regular cash dividends to holders of its common stock post-IPO, Moody’s noted that the company may decide to issue “special dividends” – dividends that aren’t recurring – that are financed with debt.

It’s not unusual for companies controlled by private equity firms that go public to borrow money to finance special dividends in order to “juice up” the returns of shareholders, said Peter Abdill, a managing director at Moody’s.

Many companies declare they won’t offer a regular dividend because it commits them to doling out cash every quarter, Abdill said, but the private equity firms “are still interested, from time to time, in taking money out of the company” with a special dividend.

From the bondholders’ perspective, that’s “one of the risks” of a company controlled by private equity firms, he added.

Ranii: 919-829-4877

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