What Private Equity Firms Want in Clinical Research Site Acquisitions

The clinical research industry is undergoing a wave of private equity (PE) interest, fueled by its fragmentation, scalability, and growth potential. With over 80% of clinical research sites still privately owned, PE firms are targeting this sector for consolidation, creating opportunities for site owners to secure favorable valuations. However, understanding what PE firms prioritize can make the difference between a standard offer and one that maximizes value. We hope to have more of these discussions at SOS Save Our Sites conference in March!

The Current Landscape

Despite broader economic headwinds, the clinical research industry remains resilient. Regulatory pressures, particularly around diversity in trials, have made sites with access to diverse patient populations highly sought after. This aligns with the FDA’s guidance and sponsor expectations, creating a competitive acquisition environment.

At the same time, PE firms have returned to the market with pent-up capital, driving valuations higher for sites that demonstrate growth potential, scalability, and operational efficiency.

Platform vs. Add-On Acquisitions

PE firms typically pursue acquisitions as either platform investments or add-ons:

• Platform Investments: These involve acquiring a flagship site or site network, usually with $3M+ in annual revenue or $1M+ EBITDA. These sites serve as the foundation for further consolidation. Currently 10x EBITDA or greater.
• Add-On Acquisitions: These smaller, often mom-and-pop sites are acquired to complement an existing platform. While they may fetch lower multiples, their ability to integrate and expand the network makes them valuable. Currently 6x EBITDA.

Sites with strong geographic and therapeutic niches often command higher interest. For instance, sites near underserved areas or those poised to tap into underrepresented patient populations are particularly attractive.

Key Differentiators: Location, Diversity, and Scalability

Sites in underserved regions with minimal local competition can secure a premium valuation. Access to diverse patient populations—a key FDA and sponsor priority—further enhances desirability.

Moreover, sites demonstrating scalability, such as the ability to expand into additional therapeutic areas or new geographic markets, attract higher valuations. Sites that diversify beyond high-revenue but discounted categories like vaccine trials into areas such as cardiology, neurology, or dermatology are often viewed as more stable and strategic investments.

The Role of Intangible Assets

Beyond patient access and trial execution, sites offering intangible assets like media platforms, podcasts, or educational initiatives can stand out in a crowded market. These assets enhance visibility, attract sponsors, and build a site’s reputation, adding strategic value.

For example, a site leveraging a YouTube channel to educate and engage with patients or sponsors demonstrates innovation and leadership. Such initiatives may drive more competitive offers from PE firms.

Structuring the Deal

Private equity firms are increasingly flexible with deal structures. Common arrangements include upfront cash payments, equity rollovers into the parent company, and performance-based earnouts.

Earnouts, in particular, reward sites for future growth, allowing owners to benefit from their pipeline of studies and projected revenue increases. This structure ensures alignment between the seller and the buyer while providing a pathway to additional financial upside.

Insights from Industry Conversations

Recent discussions I have had with site owners and PE executives reveal shared challenges and opportunities:

• Business Development: Independent sites often struggle to secure studies, whereas PE-backed networks bring dedicated teams and extensive sponsor relationships to ease this burden.
• Regulatory Complexity: Increased regulatory demands, particularly around data privacy, make centralized compliance support a valuable offering from PE networks.
• Valuation Factors: Sites with strong margins and diversified revenue streams are consistently valued higher. However, non-financial aspects, such as the owner’s willingness to stay involved post-acquisition, also weigh heavily in negotiations.

Timing and Strategy

The market for clinical research site acquisitions is expected to remain active for the next five years, but timing matters. Owners who focus on scaling operations, optimizing financial metrics, and diversifying their offerings can significantly enhance their valuation.

For those not yet ready to sell, building a robust operational and financial foundation now can lead to significantly higher offers in the future.

A Strategic Roadmap for Site Owners

To thrive in this evolving landscape:

1. Expand Therapeutic Areas: Diversify beyond high-discount revenue streams like vaccine trials.
2. Leverage Intangible Assets: Invest in media, community outreach, or technology to enhance your site’s profile.
3. Optimize Operations: Build scalable processes to position yourself as a growth-ready acquisition target.
4. Understand Your Value: Engage in conversations with potential buyers to gauge market trends and prepare for strategic negotiations.

By aligning with industry priorities and preparing strategically, site owners can maximize their value—whether they aim to sell now or grow for the future. The opportunities in clinical research have never been greater, but seizing them requires foresight and planning.

Key Insights on Private Equity Firms’ Interest in Clinical Research Site Acquisitions

Fragmented Market and High Demand:

• Over 80% of clinical research sites remain privately owned, creating opportunities for consolidation.
• Demand for sites with diverse patient populations is driving acquisition interest.
• Multiples for clinical research sites are higher compared to other healthcare sectors, indicating strong investor interest.

Platform vs. Add-On Acquisitions:

• Private equity (PE) firms often start with a platform investment and then seek add-on acquisitions to scale operations.
• Sites with higher EBITDA and revenue ($1M+ EBITDA or $3M+ revenue) are seen as more attractive for platform consideration.

Geography and Diversity as Differentiators:

• Sites in underserved or geographically unique areas may command premiums if they offer access to diverse patient populations.
• Diversity aligns with FDA and sponsor priorities, enhancing site appeal.

Intangible Assets and Brand Value:

• Sites with additional assets like media platforms (e.g., podcasts, YouTube channels) can attract higher valuations due to their ability to influence the market and attract other sites.
• PE firms are willing to "overpay" for such intangibles when they add strategic value.

Revenue Mix and Study Types:

• Non-vaccine trials are more attractive due to perceived higher value; vaccine revenue is often discounted in valuations.
• Multi-therapeutic capabilities and access to diverse investigators (PIs) increase site attractiveness.

Preferred Deal Structures:

• PE firms are open to flexible deal structures, including equity rollovers and capital partnerships.
• Owners staying on to lead growth post-acquisition is preferred for continuity and scalability.

Scaling Potential:

• Sites with a clear growth trajectory, operational efficiency, and expansion plans (e.g., adding new PIs or locations) are seen as prime acquisition targets.
• PE firms value a strong foundation but focus heavily on the scalability of the business.

Investment Criteria and Multiples:

• Current valuation multiples for sites with $1M EBITDA range from 6x to 7x, increasing significantly as EBITDA and revenue grow.
• Sites reaching $3M EBITDA can command double-digit multiples.

Strategic Planning for Sellers:

• Site owners are advised to scale operations and improve financial metrics before seeking acquisition offers.
• Retaining operational leadership during and after the sale can maximize valuation and ensure successful integration.

Economic Outlook and Timing:

• With dry powder in PE funds and optimistic economic forecasts for 2025, the acquisition market is expected to stay active for the next five years.
• Owners should consider their growth potential and timeline to maximize value before entering the market.