Syneos Earnings: Headwinds Remain as Acquisition by Private Investment Firms Is on Track

Syneos SYNH released its second-quarter results, which included revenue of $1.36 billion, representing a 0.4% increase from the prior-year period. The company continues to face headwinds, including a year-over-year decline of 16.7% in clinical solutions backlog and a 31% decline in total net new business awards. While some macroeconomic disruptions are also affecting Syneos’ peers, our Very High Uncertainty Rating reflects the Syneos-specific challenges negatively impacting the business that management has been working to correct.

Syneos’ shareholders approved an agreement to take the company private through 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. The acquisition remains on track to close in the second half of 2023.

We maintain our fair value estimate of the takeover price of $43 per share, but this represents a discount to our stand-alone fair value estimate of $55 per share. Our forecast implies low-single-digit revenue growth on average during our 10-year forecast period, which is below our expected growth rates for Syneos’ peers.

We believe Syneos will focus on cutting costs and identifying inefficiencies, which will lead to operating margin improvement in the long term as the firm uses automation to scale more efficiently. We forecast a midcycle operating margin of about 12%, which is materially lower than its top-tier CRO peers but a sizable improvement from Syneos’ 8.5% operating margin in 2022.