A lab-testing company just inked a billion-dollar deal for a healthcare company you've never heard of (Q, ICLR, CRL, INCR, LH)

scientist china medicine biomedical biotech research laboratory vials test tube Aly Song / Reuters

Lab-testing giant LabCorp just picked up contract research organization Chiltern for $1.2 billion.

Chiltern, a CRO, works with drugmakers to take on some of the science that companies have to carry out to get drugs approved, like discovering potential drug targets and running clinical trials on behalf of pharmaceutical companies.

For example, say you need to run a clinical trial for a drug you're working on but don't want to invest in hiring all the folks to run the clinical trial. You could work with a CRO, which can set that up for you and recruit patients for a certain price.

As drug companies continue to look for ways to trim research-and-development costs, these companies have become more popular. That activity has made a lot of room for mergers and acquisitions, even at a time when drugmakers themselves are in a bit of a dealmaking lull. According to Bloomberg, M&A spending in the CRO industry was $24 billion in 2016. So far this year, spending on deals has totaled $14.2 billion, including the LabCorp acquisition.

LabCorp itself is no stranger to CROs. In 2015, it acquired Covance in a $6.2 billion deal. And in May, Chiltern picked up Japanese CRO Integrated Development Associates.

Many of these CROs are getting picked up by private equity, signaling that investors expect the companies to grow over the next decade. Pamplona Capital Management, Carlyle Group, and GTCR have all struck big deals in the space recently.

Stocks of the companies that are public are up by more than 25% over the past year, signaling Wall Street investors are betting on the companies too, potentially in anticipation of activity to come.

"We are at the beginning of this process," KPMG principal Paul Saias told Bloomberg.

Here are some of the other notable CRO deals from the past few years.

Pamplona Capital Management acquired Parexel International in a $5 billion deal to take the CRO private in June.
In June, Albany Molecular Research Inc. was acquired for $922 million and taken private by Carlyle Group and GTCR.
In May, two of the largest CROs — Inc Research Holdings and InVentiv Health — merged in a $4.6 billion deal.
In 2016, Charles River Laboratories went on an acquisition spree, snapping up other CROs.
In 2016, Quintiles Transnational merged with IMS Health in an $8.75 billion deal. The combined company provides clinical research and health-information technologies, which goes beyond what's traditionally considered a CRO.

Only two of the top 10 CROs haven't been part of the dealmaking frenzy. One is Pharmaceutical Product Development, whose majority is owned by Carlyle Group, which was also behind taking Albany Molecular private. The other is Icon, which might be more open to deals now, according to Jefferies analyst David Windley.

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