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PE-backed Quintiles to go public again

by Jonathan Marino  |  Published February 19, 2013 at 3:35 PM
Five years after TPG Capital and Bain Capital LLC led a reported $3 billion recapitalization of Quintiles Transnational Holdings Inc., the company and its private equity backers hope to cash in on the booming market for outsourced pharma research by taking the drug development services giant public once again.

Quintiles, based in Durham, N.C., filed an S-1 on Feb. 15 with the Securities and Exchange Commission. Quintiles hasn't outlined either the amount of shares it will offer or the expected price range, but it aims to raise up to $600 million through the offering.

Quintiles will use the cash to repay a portion of its existing long-term debt and for general corporate purposes. That debt includes amounts outstanding on a $300 million term loan that Quintiles obtained in February 2012 and an unspecified piece of additional term loan debt. In addition to the $300 million term loan, Quintiles also has a $300 million first-lien revolver, a $175 million term loan B-1 and a $1.975 billion term loan B-2.

Quintiles had $567.73 million in cash and cash equivalents and about $2.44 billion in debt as of Dec. 31. It owed the full $300 million on the February term loan, $174.56 million on the term loan B-1 and $1.97 billion on the term loan B-2 as of that date, filings show.

Quintiles was founded in 1982 by Dennis Gillings, a London-born professor at the University of North Carolina who serves as the company's executive chairman. Since that time, it has grown into the largest provider of contract research, international consulting and marketing services in the world. The company, which sells its services to pharmaceutical, biotechnology and healthcare companies, has a presence in about 100 countries and more than 27,000 employees.

Quintiles' Product Development unit runs clinical trials for pharmaceutical, medical device and diagnostics companies looking to outsource their drug development activities. That operation ranks as the world's largest contract research organization, or CRO, with $3.69 billion in revenue in 2012.

Quintiles' other business segment, Integrated Healthcare Services, provides contract pharmaceutical sales forces and payer and provider services. Product Development accounted for 74% of its revenue, with Integrated Healthcare Services accounting for the remaining 26%, according to regulatory filings.

Quintiles posted a total of $177.55 million in net income and $499.59 million in Ebitda on $4.87 billion in total revenue in 2012.

Quintiles has changed hands several times as it has expanded, with private equity showing a keen interest in the CRO. Quintiles went public in 1994, but nine years later, in 2003, One Equity Partners, the private equity arm of JPMorgan Chase & Co., led a buyout that took Quintiles private, investing $222.3 million in equity. TPG and Temasek Holdings Ltd. invested smaller amounts, and Gillings remained an investor. The deal valued Quintiles at $1.29 billion.

One Equity edged out Warburg Pincus to acquire Quintiles in a contentious auction process, paying a 19% premium over its stock price at the time and valuing Quintiles at 5.6 times Ebitda.

Five years later, in 2008, Bain and TPG co-led a recapitalization of Quintiles and ended up with equal stakes in the company. Gillings, 3i Group plc and Temasek also invested, as did certain other unspecified shareholders and members of management.

Quintiles' revenue has grown considerably over the past few years. Between 2008 and 2012, its non-GAAP adjusted services revenue grew at a 7.3% compound annual growth rate, while its Ebitda grew at a 13.9% CAGR.

Those results paid off handsomely for TPG and Bain. Between 2009 and 2012, Quintiles paid its shareholders roughly $1.5 billion in dividends, the most recent being one of $241.7 million paid out in October. The company's service revenue has boomed year over year, moving from $3.06 billion in 2010, to $3.29 billion in 2011 before hitting $3.69 billion in 2012.

Quintiles predicts continued growth. It estimates that the CAGR of the market for outsourced drug development services will grow between 5% and 8% through 2015 due to increased outsourcing of R&D costs by drugmakers and increased research spending overall as large pharmaceutical companies seek to replenish pipelines that are thinning out due to patent expirations.

Quintiles' largest shareholders are Gillings (23.7%), TPG and Bain (22.9% each), 3i Group (15.1%) and Temasek (9.7%).

Morgan Stanley, Barclays and JPMorgan are joint lead book-running managers for the offering. Citigroup; Goldman, Sachs & Co.; Wells Fargo Securities; Bank of America Merrill Lynch and Deutsche Bank Securities are book-running managers. Robert W. Baird & Co., William Blair & Co. LLC and Jefferies & Co. are lead co-managers, with Piper Jaffray & Co. and UBS Investment Bank as co-managers.

Tags: 3i Group plc | Bain Capital LLC | Barclays | contract research organization | CRO | Dennis Gillings | JPMorgan Chase & Co. | Morgan Stanley | One Equity Partners | Quintiles Transnational Holdings Inc. | Temasek Holdings Ltd. | TPG Capital | Warburg Pincus

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Jonathan Marino

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