Avista Capital Partners’ ties to the nonclinical contract-research-services market extend well beyond Envigo International Holdings Inc, which this week was purchased by the healthcare SPAC founded by the firm’s execs.
Besides an affiliation with Envigo — which Avista Healthcare Public Acquisition Corp is buying in a deal expected to assign the company an initial enterprise value of about $924 million — the New York PE firm quietly bought another player in the space months ago.
While the transaction wasn’t announced in a news release and isn’t listed on the firm’s website, an Avista representative confirmed its investment in MPI Research in 2016. MPI’s previous backer is TA Associates.
The lack of publicity in a sector that involves testing drugs in rats and other mammals is typical, industry sources said. These companies — as well as their owners and employers — have been targeted by animal-rights groups like PETA, one of those sources said.
But regulators require new drugs to be tested on animals before tests are done in humans, and biotechs are flush with capital they need to put to work. So the underlying drivers in the space remain strong.
Envigo, for its part, performs cell- and animal-based testing for not only new medicines but also industrial chemicals and crop-protection products.
While the Avista execs are set to own just 6 percent of Envigo’s shares outstanding, the PE firm founded by ex-employees of DLJ Merchant Banking Partners — Thompson Dean and David Burgstahler — is now linked to the third and fourth largest preclinical CROs.
Dean and Burgstahler, CEO and president of Avista, respectively, owned a combined 15.5 percent of Avista Healthcare after the blank-check company raised $300 million in its October 2016 IPO. The firm’s affiliated ownership totaled 20 percent after the IPO, accounting for the stakes owned by other operating execs.
Whether Envigo has any intention of ultimately buying MPI down the road is uncertain but certainly possible, sources said. Envigo would probably have to compete with other buyers, one source speculated, while another source noted the company isn’t exactly cash-rich at the moment.
The combined company will have $20 million of available cash after paying down close to $200 million of Envigo debt and paying Envigo shareholders $100 million, among other things.
Still, the PE execs’ deep roots in this niche segment of the broader pharma-services universe are notable. Avista’s co-managing partners are also more than familiar with Charles River Laboratories — the largest player in the space followed by LabCorp unit Covance — through their days leading various healthcare transactions at DLJ Merchant.
DLJ Merchant in September 1999 bought Charles River from Bausch & Lomb alongside management for $400 million cash and a $43 million promissory note. Charles River was subsequently taken public in June 2000.
The deal was considered a huge success for DLJ, one of the sources noted. Forbes reported in 2002 that DLJ, then part of Credit Suisse First Boston Private Equity, had sold its stake in Charles River for $380 million, or more than quadruple what it paid three years earlier.
The non-clinical CRO arena narrowed to five players of scale when Envigo was formed in 2015 through Huntingdon Life Sciences’ acquisition of Harlan Laboratories. In 2016, Charles River spent about $585 million on WIL Research, consolidating the market to four.
In more recent pharma-services activity for Avista, the firm in November 2014 executed the $150 million IPO of clinical CRO giant INC Research.
In other healthcare segments, Avista-backed medical-products company ConvaTec raised $1.8 billion in October 2016, representing the year’s largest IPO listing on the London Stock Exchange.
New healthcare investments this year include its June purchase of National Spine & Pain Centers from Sentinel Capital.
Avista Capital is approaching the end of a multifund sale of limited-partner interests that will inject capital into its pending fourth pool, Buyouts reported in July. The sponsor’s third fund closed at $1.4 billion in July 2013.
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