Would AmerisourceBergen buy CRO Parexel? (Update from WSJ: EQT & Goldman to acquire Parexel for $8.5 billion including debt.)

Tom Paine

UPDATE: WSJ: EQT & Goldman have reached an agreement to acquire Parexel for $8.5 billion including debt.

According to media reports, (newly relocated) Conshohocken-based AmerisourceBergen (NYSE: ABC) is named as a contender to buy Newton MA-based contract research organization (CRO) Parexel. which was put up for sale by its PE owner.

You might think – no problem. AmerisourceBergen is 8th on the Fortune 500, with revenue of almost $200 billion a year. It can buy anyone it wants to.

But hold on. Its margins, as a wholesaler, are razor-thin. In its most recent fiscal year, revenue was $196.3 billion, while cost of revenue was $190.7 billion. And its market value is less than $24 billon at present.

Parexel, which is currently privately owned by PE firm Pamplona, is said to be seeking $9 billion, including debt assumption. That’s a good chunk of change for AmerisourceBergen – more than a third of its market value.

Parexel is reported to have 10 interested parties, including a consortium of PE firms that is putting together a bid.

In April, Parexel announced that Peyton Howell, previously an AmerisourceBergen Executive Vice President, had left to joined Parexel as Chief Commercial and Strategy Officer, a rather big job one would think. I wonder if that move added to speculation that something was up between the two firms.

Whether owning a CRO is essential for a drug wholesaler is not clear. Some observers are skeptical.

In April, Veeva Systems and Parexel announced an agreement to collaborate on clinical trials. Parexel would standardize on Veeva’s clinical trial technology.

Which raises the question whether California-based Veeva, which built most of its clinical trial business in Radnor, and Parexel would make good permanent partners.

Veeva, worth over $40 billion, could afford to buy Parexel and its an interesting idea, and there’s no question that the clinical trial market is booming. But it would go against the grain of Veeva’s successful strategy, which is for Veeva to do everything that is digital and for partners to do the rest.

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