THL’s InVentiv Roll-Up Hits Rough Patch

  • High leverage clouds dramatic roll-up
  • Taken private in 2010 for $1.1 billion
  • Outlook negative: Moody’s

inVentiv provides marketing, public relations and clinical services to pharmaceutical, biotechnology and medical device companies. Thomas H. Lee originally tried to buy the business in 2008 but couldn’t come to terms with the company on price. But in 2010 the firm successfully took it private in a $1.1 billion deal, putting up about $396 million of equity. The take-private leveraged the company at about 5.25x the company’s estimated EBITDA, according to a Buyouts profile of the investment earlier this year.

Since Thomas H. Lee’s acquisition, the company has expanded dramatically. It had completed eight acquisitions in the U.S. and Europe by January; since then, the company and its subsidiaries appear to have completed three more acquisitions. Its strategy included possible for expansions into China, Japan, India and South America, as Thomas H. Lee and company management sought to enhance its global presence, Todd Abbrecht, a managing director with the firm, told Buyouts in the profile.

But apparently the company’s profits haven’t scaled in accordance with its growth. On Nov. 26, Moody’s Investors Service downgraded its family credit rating deeper into junk status to ’Caa1’ from ’B3’. In Moody’s nomenclature, B-rated obligations are considered speculative and subject to high credit risk, while Caa obligations are of poor standing and subject to very high credit risk.

The action came due to Moody’s “concerns about inVentiv’s very high leverage, which continues to increase due to declining year-over-year EBITDA and increased borrowings under the revolver.” The company has a $130 million senior secured revolver due 2015 that Moody’s downgraded to ‘B2’ from ‘B1’.

Moody’s estimated that inVentiv’s debt on a trailing 12-month basis is 8x its EBITDA, and even higher, at 10x EBITDA, when excluding pro-forma adjustments for acquisitions, discontinued operations and future cost-savings and synergies. Its outlook on the company is negative, as it expects weak liquidity over the next year, “characterized by negative free cash flow, minimal cushion under the company’s covenants and substantial usage of the company’s revolving credit facility.”

The agency also downgraded inVentiv’s probability of default rating to ‘Caa1’ from ‘B3,’ and its $1.07 billion senior secured term loan due 2016 to ‘B2’ from ‘B1’.

inVentiv’s size, however, may be one of its saving graces. Moody’s noted that positive factors in the company’s corner include its “significant size, scale and diversity of service offerings.” Moody’s also said that Thomas H. Lee injected more equity into the company earlier this year, which the agency said it found to be encouraging.

Abbrecht, of Thomas H. Lee, did not immediately respond to requests for comment.