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LabCorp (LH) Closes Envigo Swap Deal, Expands in CRO Space

Zacks Equity Research

Laboratory Corporation of America Holdings or LabCorp LH recently announced that it has completed its much talked-about swap transaction with Envigo, a provider of nonclinical contract research services and research models. The deal, initiated in April 2019, is expected to strengthen and enhance the way the respective businesses of both companies support research in the biopharmaceutical and life sciences industries.

The Deal at a Glance

Going by the terms of the deal, the Covance Drug Development segment of LabCorp has completed the acquisition of Envigo’s nonclinical contract research services business. This will help expand Covance’s global nonclinical drug development capabilities with additional locations and resources.

Meanwhile, under this swap transaction, Envigo’s Research Models and Services business has also closed the buyout of the Covance Research Products business. The two companies will continue to collaborate through a multi-year, renewable supply agreement.

LabCorp is highly positive about this transaction, which is in line with the company’s strategy to provide the biopharma industry with comprehensive drug development services.

Financial Implication of the Deal

Per LabCorp, the transactions resulted in a net implied cash consideration of $485 million, paid by LabCorp. The transactions are expected to meet LabCorp’s financial criteria of earnings and cash accretion in year one and exceed the cost of capital by year three.

LabCorp on Acquisition Spree

LabCorp continues to add complementary capabilities through targeted acquisitions. Apart from this innovative business swap transaction with Envigo, the company enriched its value by acquiring MNG Diagnostics, a player in next-generation sequencing and complex testing for neurology.

Other important acquisitions of recent times include Sciformix Corporation, a scientific process outsourcing company. This apart, the $1.2-billion takeover of Chiltern International Group Limited, a specialty CRO (contract research organization), is significant. Chiltern has formed part of LabCorp’s Covance Drug Development segment. This has added highly complementary capabilities to the company’s offering including scale expansion in Asia-Pacific, broader reach into the fast-growing emerging and mid-tier biopharma customer segment as well as expertise in oncology drug development.

Industry Prospects and Players

The global CRO industry is currently booming with prospects. Per a report by Outsourcing-Pharma, this industry is forecast to grow 12% on a year-over-year basis through 2021 to reach a value of $44.4 billion. Accordingly, industry players like LabCorp, Quest Diagnostics DGX, ICON Public Limited Company ICLR, Cancer Genetics Inc. CGIX and others are putting in major efforts to widen their presence within this space.

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