Quintiles, IMS Health unveil surprise megamerger

Wall Street bull

The world’s largest CRO, Quintiles, and healthcare consultancy IMS Health have unveiled a major megamerger deal which could create a company worth nearly $18 billion.

The shock announcement, made public early this morning, will see NC-based Quintiles ($Q) merge with Danbury-headquartered IMS Health in an all-stock, $9 billion merger-of-equals transaction (although IMS shareholders will own a collectively higher amount of stock).

The newly created company will be named “Quintiles IMS Holdings” and builds on the broad offering Quintiles has been building up over the past 5 years, which has seen it run CRO, product marketing and sales, as well as consultancy services to the life sciences industry.

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Based on the closing of IMS Health and Quintiles common stock prices yesterday, the market cap of the joined companies is more than $17.6 billion, with the enterprise value more than $23 billion, according to their statement.

The 2015 pro forma reported revenue for Quintiles IMS was $7.2 billion; adjusted EBITDA was $1.7 billion and adjusted unlevered free cash flow was $1.3 billion. Quintiles also posted its Q1 figures this morning, showing service revenues hitting $1.11 billion--up 8.4% at constant exchange rates. Adjusted income from operations was $181.9 million in the first quarter of 2016, representing growth of 22.5% compared to the same period last year.

Under the terms of the merger agreement, IMS Health shareholders will receive a fixed exchange ratio of 0.384 shares of Quintiles common stock for each share of IMS Health common stock.

Upon completion of the merger, IMS Health shareholders will own around 51.4% of the shares of the combined company on a fully diluted basis--while Quintiles shareholders will own a little less at just under half (48.6%) of the combined company.

The deal will, in essence, merge the real-world clinical applications of Quintiles’ business with IMS Health’s data gathering and analysis, as well as its access to patient, prescription and other key healthcare data, giving the new company a pool of information for drugmakers. It will also likely encroach deeply into the offerings of Quintiles' main big CRO, North Carolina rivals, which have also been looking to expand into consultancy, digital and analytics in recent years. 

In a statement, the newly merged company said the deal would “Create a distinctive global real-world evidence solutions platform by combining a leading portfolio of anonymous patient records, technology-enabled data collection and observational research experts to address critical healthcare issues of cost, value and patient outcomes.”

Quintiles CEO Tom Pike said: “This combination addresses life-science companies’ most pressing needs: to transform the clinical development of innovative medicines, demonstrate the value of these medicines in the real world, and drive commercial success. We are bringing together two best-in-class leaders. I’m confident that together we will make our clients even more successful.”

The two groups said the combination would allow them to accelerate revenue growth “adding an anticipated 100-200 basis points to the combined annual growth rate by the end of year three.”

Ari Bousbib, chairman and CEO of IMS Health, added: “Together our solutions will enable differentiation in the CRO market, advance real-world evidence capabilities, and deliver comprehensive commercial solutions for our clients. This powerful combination brings together leading technology and analytics with deep scientific expertise delivered on a global scale by our 50,000 immensely talented professionals in more than 100 markets. Our combined business will accelerate growth, yield greater operating efficiencies and provide more flexibility for future expansion.”

But investors may be wary of the deal because “neither side is receiving a merger-related premium from the combination” and “integration risks are higher in a merger-of-equals,” John Kreger, an analyst at William Blair, said in a research note.

However, shares in both companies dropped sharply on Tuesday after the deal was announced, indicating that some shareholders were not satisfied with the combination. The share price of IMS Health was down 7.5% on the news in morning trading, while Quintiles was down more than 8%. 

The two companies will remain in their respective HQs, while Pike will become vice chairman of the new company. The company’s board of directors will be comprised of 6 directors appointed by the Quintiles board of directors and 6 directors appointed by the IMS Health board of directors. The lead director will be Dennis Gillings.

- check out the release

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