The level of mergers and acquisitions amongst contract research organisations (CROs) shows no signs of abating and interest from investors remains high, according to Dow Schofield Watts Transaction Services.

The team have provided financial due diligence on a number of recent deals in the sector, including Foresight Group’s investments in Epistem and Mologic, Concept Life Sciences’ acquisition of Aquilla Biomedical and Quotient Clinical’s acquisition of Co-Formulate.

Ed Brentnall, Partner at Dow Schofield Watts Transaction Services says: “Our experience shows that the sector continues to be a key target for private equity investment and for corporate consolidation. Whilst the US remains dominant and new territories such as Asia-Pacific have entered the sector, Europe and specifically the UK remains a key market for CRO providers, particularly given the tax benefits available in relation to R&D spend.”

Ed’s colleague Cat Lang adds: “Given the high level of deals activity, now is a good time for CROs seeking to raise funds or find a buyer. However, through our experience in the sector, we have observed several common themes which companies should consider ahead of any deal.”

She recommends directors look in particular at five aspects of the operation:

  1. The order book

Buyers or potential investors will want reassurance that you have a healthy order book and sales pipeline. How do you document any future opportunities and how confident are you that those opportunities will come to fruition? Can you demonstrate how well the business has been able to convert pipeline opportunities in the past? How quickly do opportunities in the order book convert to revenues and cash?

  1. Maximising revenue

How effective are you at utilising your client-facing staff? What are your charge-out bases and can you demonstrate your historical staff utilisation rates and explain the trends therein?

  1. Work in progress

Do you account for WIP in an appropriate and consistent manner and how do you manage deferred or accrued income accounting?

  1. Working capital

How do you manage your cashflow? What does your working capital profile look like and is there anything which you could amend prior to a sale process which would improve levels of advance billing?

  1. Investment in growth

What are your plans to develop the business and to what extent have you invested in capital expenditure for future growth?

Cat Lang adds: “For CROs seeking investment or a potential buyer, addressing these common issues will help ensure the deal process runs smoothly and that they achieve maximum value.”


contract research organisations