UPDATED: Carlyle Group leads CRO buyout blitz with $3.9B deal for PPD

This morning analysts at Morningstar turned in an upbeat assessment of the CRO business, which has been undergoing a shakeout as private equity groups move in to create expanded global operations to compete for some of the big development contracts being offered by Big Pharma companies. Underscoring the bullish trend, PPD announced this morning that The Carlyle Group and Hellman & Friedman had struck a deal to acquire the CRO for $3.9 billion in cash--a hefty 29.6% premium over its September 30 close--and take it private. The CRO's shares ($PPDI) immediately shot up 26% this morning.

The Carlyle Group has reportedly been in the hunt for PPD for some time. Bloomberg and Reuters both reported in August that the big private equity player had an exclusive place for itself at PPD's bargaining table as it negotiated a $4 billion deal. But analysts had noted that Carlyle was likely to get a second private equity outfit to join the deal, which proved to be the case.

"The sale of PPD to The Carlyle Group and Hellman & Friedman provides an attractive return for our shareholders, while also ensuring a secure foundation and commitment to investment, innovation and excellence for PPD clients and employees as the company builds on its 25-year history of success," said Fred Eshelman, founder and executive chairman of PPD.

This was the third largest leveraged buyout this year, according to The Wall Street Journal. The Journal also noted that four big banks - Credit Suisse, J.P. Morgan, Goldman Sachs and UBS - participated in the deal.

The private equity groups leading the buyout blitz among CROs are counting on a simple economic reality to deliver big returns in future years. Analysts expect that big players like PPD will be able to nail down about half of the business by 2015. And while the financial crisis triggered in 2008 shook up the marketplace, analysts at Morningstar have seen signs of a major turnaround.

"We think the contract research organization industry has turned a corner, as evidenced by a resurgence in new business activity and revenue growth over the past few quarters," reports Morningstar. "The second quarter marked the first period since the beginning of the drug-development slowdown that the industry saw widespread top-line growth."

Just days ago PPD announced that it had hired Raymond Hill, the former president of IMS Consulting, as its new CEO. The private equity groups are paying $33.25 a share, a number that won the unanimous backing of PPD's board. The deal won't close for some weeks, leaving a brief window open for a rival bid.

- here's the release
- see the analysis from Morningstar
- here's the report from The Wall Street Journal