The global Contract Research Organization (CRO) market is continuing to see an increase in M&A transactions, a trend that has been gaining traction since 2014. In 2017, CRO M&A transactions totaled $13.0 billion in value, on the back of an exceptional high of $24.0 billion in 2016 (due to the merger of IMS Health and Quintiles to form IQVIA, the world’s largest CRO, a deal valued at $13.3 billion) reflecting the CRO industry’s growth surge (valued at $36.2 billion in 2017, projected to climb another $20.0 billion over next 5 years). This high volume of acquisitions comes as a response to major challenges the pharmaceutical industry is facing in the development process of drugs, including the increasing number of patents expiring, growing R&D costs, the threat of generics, the increasing rate of chronic diseases (i.e. cancer, Alzheimer’s, other infectious diseases in children), growing pressure on industry leaders to follow stringent timelines and a significant decrease in human clinical trial subjects.
CROs offer drug manufacturers heightened expertise as well as crucial cost and time management efficiencies. The services provided encompass all phases of the drug development lifecycle, ranging from compound selection, preclinical research, clinical (in-human) testing, and post-approval functions such as safety assessment, monitoring, commercialization, and consulting.
The prevailing motive behind the increased M&A activity is to broaden the services offered across all R&D phases, including preclinical, late-stage, post-approval/commercialization, patient recruitment and specialty capabilities, allowing companies to expand their addressable market. In an industry where 9 of the largest CROs comprise approximately 50% of the market, the trend towards an all-encompassing R&D offering favors larger, more global CROs that are better positioned to receive large contract awards than more specialized and niche CROs. Another important driver in M&A activity is to improve analytics capabilities, which allows acquisitive CROs to leverage data to improve the efficiency and quality of trials. As the industry evolves, investments in data analytics become differentiators among CROs. Other motivations behind CRO M&A transactions are geographical expansion (Asia, in particular, the fastest growing CRO market) and to gain more capabilities over pharmacovigilance. Lastly, the increased interest of PE firms on major CROs (e.g. Pamplona Capital’s $5.3 billion buyout of Parexel in 2017) indicates further consolidation in the CRO market as more “platform companies” are backed by investors seeking to establish leaders in the industry.
Written by our US team. Contact our global team to discuss industry trends, recent M&A transactions and valuations, as well as your company strategy.