Provided by Mergermarket
By Claire Rychlewski in Chicago
Medidata Solutions [NASDAQ:MDSO] is focused on executing its acquisition strategy through tuck-in deals despite operating in an industry that has seen strong takeover interest in recent years, said CEO Tarek Sherif.
Last month, the New York-based healthcare software services provider completed its seventh acquisition when it announced the purchase of SHYFT Analytics.
Valued at USD 195m, SHYFT represents the company’s largest M&A transaction to date. Medidata owned a 6% stake in SHYFT pre-acquisition.
The company expects to pursue tuck-in deals over the next year, with an eye toward another large transaction like SHYFT in 18 months, said Sherif.
“This is our first foray into larger deal activity,” he said, adding, “there will be more in the future.”
The SHYFT acquisition was the product of one-off negotiations, according to Sherif. The company did not utilize outside advisors for the transaction.
Medidata is keeping an active pipeline of potential M&A targets while integrating SHYFT, said Sherif. He emphasized that the company could pursue smaller scale purchases over the next year. Often focusing on talent acquisition, Medidata typically aims to buy companies with approximately 20-30 employees, Sherif said.
Medidata is eyeing targets in Asia-Pacific and Europe, according to the executive, highlighting Germany, Switzerland and France as possible countries of interest. Medidata seeks companies with analytics and data science capabilities focused on the commercial side of pharmaceuticals, a space in which SHYFT also operated, Sherif said.
“We have not historically worked with the commercial side of pharma,” Sherif said. “That’s a trillion dollar market we can address. It brings another level of analytics sophistication to our business, and gives us access to the real world evidence data that regulators are starting to ask for.”
Sherif acknowledged the healthcare analytics space has seen a fair amount of private equity activity in recent years, with sponsors rolling up public and private players.
In June 2017, Pamplona Capital acquired PAREXEL International Corporation [NASDAQ:PRXL], a biopharmaceutical services provider with a data analytics platform, for USD 5bn.
In the private sector, EQT Partners acquired drug development technology and services provider Certara from Arsenal Capital for USD 850m. With the private equity backing, Certara purchased Germany-based provider of data visualization software BaseCase Management in February and UK-based health consultancy and analytics firm Analytica Laser in April.
Sherif, however, said Medidata does not subscribe to the roll-up strategy. “We want acquisitions that open new markets or bring technical experience into the business. Doing rollups is not appealing, and it’s hard to get all the tech right when you do that.”
Asked if Medidata could be a target for a private equity firm, Sherif downplayed the likelihood. He noted, however, that, “some strategic could decide this is an area they want to go after—and if they want the number one player, it’s us.”
Needham & Company analyst Scott Berg said Medidata’s high margin structure makes the company attractive to financial sponsors, noting that a private equity investment could drive Medidata’s EBITDA margins to around 30% to 35$ from 25%.
Medidata’s size, though, would limit the pool of sponsors capable of pursuing a deal, said Berg, who pointed to Silver Lake Partners and Thoma Bravo, which have both targeted tech investments, and Vista Equity Partners, which has a healthcare IT portfolio, as classic candidates to show buyout interest in the business.
As of 31 March, Medidata had long-term debt of about USD 93m and cash slightly about USD 226m. It has a USD 5bn market capitalization.
Medidata invests about 26% of its revenue back into R&D, according to Sherif. For 2017, the company incurred USD 138.6m in R&D expenses, representing 25.4% of its USD 545.5m in revenue for the year.
Over the last seven to eight years, the company has been busy innovating new applications, which have been well-received by the market, and contributed to Medidata’s growth, said Berg.
“They’ve done a really nice job with a couple of modules in particular, with a higher revenue growth rate today than you would have thought five to six years ago—so we’re seeing evidence of those positive sales right now,” Berg said.
The company’s stock has climbed steadily over the last two years, seeing an approximate 50% increase since early 2016.
After its acquisition of SHYFT, Medidata updated its full-year 2018 guidance, estimating USD 624m to USD 648m in revenue for the year. The company trades around 53x EV/EBITDA.
Medidata develops and markets software-as-a-service (SaaS) solutions for clinical trials. The company serves pharmaceutical, biotech, medical device and diagnostic companies, academic institutions and contract research organizations. SHYFT is used by pharmaceutical, biotech and medical device companies to manage data from drug development to commercialization.
Corporate advisors for Medidata include accounting firm Deloitte and law firm Cooley.