Syneos: Acquired by Private Investment Firms; Adjusting Fair Value to Takeover Price of $43

Narrow-moat Syneos SYNH announced it will be acquired by a consortium of three private investment firms (Elliott Investment Management, Patient Square Capital, and Veritas Capital) for $43 per share in cash in a transaction valued at $7.1 billion, including outstanding debt. Accordingly, we have adjusted our fair value to the takeover price of $43. The purchase price represents a 24% premium to Syneos’ closing stock price on Feb. 13, which was the last trading day before media reports surfaced suggesting the contract research organization, or CRO, was searching for a buyer. However, it represents a discount to our stand-alone fair value estimate of $55 per share. The acquisition is expected to close in the second half of 2023, subject to the approval of Syneos shareholders and regulatory approvals. The merger has already been unanimously approved by Syneos’ board of directors.

We maintain Syneos’ narrow economic moat rating, which is based on intangible assets from its clinical trial segment and high customer switching costs. Syneos’ key intangible assets include multinational regulatory knowledge and expertise in complex clinical trials, including disease areas such as oncology and neurology. Syneos offers efficient and high-quality trials, which enforces switching costs for its biotech and pharma customers.

Syneos also released its first-quarter results, which included revenue over $1.3 billion, representing a 1.5% increase from the prior-year period. However, the company continues to face headwinds, including delays in backlog conversion, decreases in net new business awards, and a year-over-year decline of 16.7% in clinical solutions backlog. Syneos reported a book/bill ratio of 0.7 times for its clinical solutions segment during the quarter. While some macroeconomic disruptions are also affecting Syneos’ peers, our very high uncertainty rating reflects the Syneos-specific challenges affecting the business that management has been working to rightsize.