INC Research buys larger rival, boosts Triangle’s status

Pharmaceutical services company INC Research has agreed to acquire a larger rival, Boston-based inVentiv Health, in a deal valued at $4.6 billion. The all-stock deal creates an industry behemoth that aims to leverage the advantages of greater scale to boost market share.

Billed as a merger, the deal with privately owned inVentiv creates a company with more than 22,000 employees in 60 countries and bolsters the Triangle’s status as the epicenter for the global CRO, or contract research organization, industry. CROs help pharmaceutical and biotechnology companies conduct clinical trials of experimental drugs and analyze the results.

Investors gave the deal a big thumbs up. INC shares closed Wednesday at $52.80, up $9.15, or 21 percent.

INC said the deal would boost earnings per share by the mid- to high single digits next year and by more than 20 percent in 2019.

“Scale is always a play,” INC CEO Alistair Macdonald said in an interview. “It’s always something that our customers are looking for. ... This creates a very strong global platform.”

In addition, he said, inVentiv offers a wide range of commercial services that INC lacks. They include providing sales forces to promote drugs as well as marketing and advertising.

InVentiv CEO Michael Bell said that combining “represents a way for us to cover some strategic holes that we’ve had,” especially working with small and mid-sized companies “where historically we are very, very under-penetrated.”

In 2016 the two companies combined generated $3.2 billion in net revenue, with INC contributing $1.03 billion of that total. InVentiv has about 15,000 employees, including 400 in North Carolina and about 300 in Research Triangle Park, and INC has nearly 6,900 employees, including about 1,500 statewide and more than 1,000 in Raleigh.

INC recently broke ground on a new corporate headquarters in Morrisville, where it has said it expects to add 550 jobs over the next five years. The combined company will be based in the Triangle.

The combined company will rank among the top three CROs based on revenue. QuintilesIMS, which has dual headquarters in Durham and Connecticut, is No. 1.

The combined INC-inVentiv also will be the No. 2 provider of overall services to the biopharmaceutical industry and will rank first in commercial services to the industry, according to INC.

“It’s a flip of a coin on a daily basis whether we would be No. 2 or No. 3” among CROs, Macdonald said. “So we just say top three.”

The company it is neck-and-neck with for the No. 2 spot is PPD, which is based in Wilmington and has a major presence in the Triangle.

INC is the No. 7 CRO and inVentiv is ranked sixth.

Macdonald will continue to lead the combined company as CEO after the deal closes, which is expected to happen in the second half of this year.

INC’s chief financial officer, Greg Rush, will retain his position as well. Michael Bell, the CEO of inVentiv, will become the executive chairman.

The combined company will have a 10-person board of directors, with five directors designated by INC and five designated by inVentiv.

The combined company expects to achieve $100 million in annual savings within three years. Rush said achieving those savings will inevitably lead to some job cuts, although the company isn’t specifying how many.

“Obviously, when you combine companies, there are going to be positions that” overlap, Rush said. “You don’t need two CEOs.”

Rush said there are “zero plans” to close down any sites but there will be some consolidation. For example, inVentiv employees may end up moving to the new RTP headquarters.

The deal calls for INC to issue 50 million shares of stock to inVentiv’s owners, which include private equity firms Advent International and Thomas H. Lee Partners, plus the assumption of $4.2 billion in debt. INC shareholders will own 53 percent of the combined company, with inVentive shareholders owning the remaining 47 percent.

“We think the deal is positive, but with certain risks,” Wells Fargo Securities analyst Tim Evans wrote in a research note. “On the positive side, INC has a history of successful deal execution and the combined company will be in a much-improved competitive position ...”

“The risks,” he added, “are that large deals in the space have a history of being culturally messy, with potential revenue dis-synergies.”

This story was originally published May 10, 2017 at 12:25 PM with the headline "INC Research buys larger rival, boosts Triangle’s status."