KENDLE INTERNATIONAL – CASE ANALYSISTeam “La Vita Loca” Jaya Bhatia, Kaushik Ghosh, Kyle Marshal, Sridhar Sarnobat, Vidhi Agrawal

What should Kendle do?

IPO before acquisitions PROS Fair market valuation $42.6M a 15% premium added into it* Best time to capitalize on rising short interest in the CRO sector Injection of cash will improve cash position - $46.8M + available cash Less leveraged as compared to other options With a 12.67% Cost of Equity projected 5 year ROE of Kendle will be 123% CONS Recent poor performance of CRO industry stock – PPD experiencing over a 50% drop in share price Can lose U-Gene acquisition opportunity Lose opportunity of Celebrex success on IPO valuation Scenario 1

IPO before acquisitions Kendle’s Market Value* Using the DCF approach the market value of Kendle was about $42.6M. Using the comparables approach the market value was in the $38.5M The value multiples were also close to the industry average Value/Sales Multiple: 1.53 Value/EBITDA Multiple: Value/EBIT Multiple: This explains Kendle’s 15% premium over its current underlying economic value

Raise debt for both acquisitions PROS U-Gene acquisition can be completed quickly Kendle will have to go through integration process only once High synergy value of $194M can lead to higher IPO valuation CONS Weak cash position $101K - $164K Unreimbursed investigator, project costs and AR increase by 30% Advanced billings as a percent of revenue will increase by 20% Potential short-term solvency concerns & the ongoing significant risk of client dependence A high amount of debt would drive down the market valuation of Kendle at the IPO stage Scenario 2

Acquisition – IPO - Acquisition Favorable first acquisition is U-Gene because it provides greater free cash flows as compared to GMI PROS U-Gene acquisition can be completed quickly Can set integration efficiency standard for future GMI acquisition CONS Resources will be overburdened handling multiple large scale financial activities Drop in CRO industry stock values can reduce Kendle’s IPO value Failure of Celebrex product will lower Kendle’s IPO valuation Nations Bank will have the right to purchase up to 10% equity Scenario 2

Recommendation 1.IPO 2.acquisitions 1.Acquisitions 2.IPO 1.U-Gene acquisition 2.IPO second 3.GMI acquisition

Recommendation 1.IPO 2.acquisitions 1.Acquisitions 2.IPO 1.U-Gene acquisition 2.IPO second 3.GMI acquisition Caveat: U-Gene is an important acquisition. We would recommend at least acquiring U-Gene if timing is a concern before the IPO