LabCorp Spends $1.2 Billion to Acquire UK’s Chiltern

LabCorp will pair Chiltern with Covance, another contract research organization it acquired in 2015

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IT IS THE NEXT STEP to continue diversifying its business away from clinical laboratory testing. On July 31, Laboratory Corporation of America announced that it would acquire Chiltern, a specialty contract research organization in London and Wilmington, N.C.

LabCorp valued the all-cash transaction at about $1.2 billion and said it would fund the deal with a combination of bank financing and bonds. The acquisition will close in the fourth quarter pending regulatory approvals.

It’s significant that the acquisition allows LabCorp to make Chiltern part of its Covance division and thus strengthen its ability to combine diagnostics and drug development. Like Chiltern, Covance is a contract research organization that LabCorp acquired in February 2015. Covance has 16,100 employees worldwide (including 9,100 in the Americas), while Chiltern is much smaller with 4,500 employees worldwide (including 2,000 in the Americas).

The two companies fit together well, analysts said, because Covance serves some of the top biopharma companies and Chiltern works mostly with mid-market and emerging companies. In the past five years, it has produced 1,800 studies for companies in 87 countries, LabCorp said.

This year, Chiltern will have revenue of about $550 million and adjusted EBITDA of approximately $95 million, LabCorp predicted.

At a price of $1.2 billion, the sale suggests LabCorp paid 2.2 times Chiltern’s projected revenue and 12.6 times 2017 EBITDA of $95 million, Amanda Murphy wrote in her analysis of the deal for William Blair.

A Complement to Covance

Over the past year, LabCorp has said it was pursuing opportunities to expand its contract research offerings. But, Murphy added, LabCorp had passed up the chance to acquire other CRO companies, such as Parexel and inVentive.

“The acquisition of Chiltern seems to have been worth the wait as it checks all of the company’s strategic and financial criteria, and valuation appears to be reasonable,” Murphy wrote. In addition, she said, adding Chiltern complements the Covance operation, particularly because Chiltern’s strength is in oncology research. Covance has extensive experience in late phase oncology and Chiltern has experience in early clinical development, LabCorp said.

One analyst said LabCorp’s acquisition of Chiltern indicates that the company is seeking “to become a $10+ billion clinical laboratory and drug development business.” The Covance division is already a $3 billion operation, the analyst said.

With Chiltern, LabCorp acquires more than 130 MDs and 1,700 employees with advanced degrees, the company said.


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