On the heels of the March completion of Chinese giant BGI-Shenzhen’s $117.6 million acquisition of sequencing service provider Complete Genomics (Mountain View, Calif.), Thermo Fisher Scientific (Waltham, Mass.) announced in mid-April it entered into a definitive agreement to buy Life Technologies (Carlsbad, Calif.), the maker of the Ion Torrent next-generation sequencing (NGS) instruments, for $13.6 billion in cash ($76 per share) plus the assumption of approximately $2.2 billion of debt. Taken together the acquisitions represent a strengthening of dominant positions in the emerging clinical sequencing space by two companies counting on adoption of NGS to drive long-term growth. Onlookers can’t help but wonder what these acquisitions mean for the remaining major U.S. players in the sequencing space—Illumina (San Diego) and Pacific Biosciences (Melo Park, Calif.)—as well as whether Roche (Switzerland) or other large diagnostics players will take notice and seek entry into the market. “The strategic rationale for the acquisition is clear,” says Charlie Miller, an analyst at Morningstar who follows Thermo Fisher. “Thermo can expand its already robust product portfolio and will be able to use its massive customer channels to drive revenue and cost synergies. As a better operator, we expect that Thermo will be able to reinvigorate […]
On the heels of the March completion of Chinese giant BGI-Shenzhen’s $117.6 million acquisition of sequencing service provider Complete Genomics (Mountain View, Calif.), Thermo Fisher Scientific (Waltham, Mass.) announced in mid-April it entered into a definitive agreement to buy Life Technologies (Carlsbad, Calif.), the maker of the Ion Torrent next-generation sequencing (NGS) instruments, for $13.6 billion in cash ($76 per share) plus the assumption of approximately $2.2 billion of debt. Taken together the acquisitions represent a strengthening of dominant positions in the emerging clinical sequencing space by two companies counting on adoption of NGS to drive long-term growth.
Onlookers can’t help but wonder what these acquisitions mean for the remaining major U.S. players in the sequencing space—Illumina (San Diego) and Pacific Biosciences (Melo Park, Calif.)—as well as whether Roche (Switzerland) or other large diagnostics players will take notice and seek entry into the market.
“The strategic rationale for the acquisition is clear,” says Charlie Miller, an analyst at Morningstar who follows Thermo Fisher. “Thermo can expand its already robust product portfolio and will be able to use its massive customer channels to drive revenue and cost synergies. As a better operator, we expect that Thermo will be able to reinvigorate Life’s core consumables business. Further, Thermo will finally be able to fill its major product gap in NGS through Life’s Ion Torrent business.”
Thermo Fisher reportedly beat out a consortium of private equity firms, including the Blackstone Group and Kohlberg Kravis Roberts, and the biotechnology company Sigma-Aldrich, according to reports. Thermo Fisher believes the revenue Life Technologies brings ($3.8 billion in 2012) will add between 90 cents and $1 per share profit in the first full year. Analysts say that despite the expected $250 million in cost synergies, the acquisition price was higher than anticipated (14 times earnings before interest and taxes), possibly making returns on capital more challenging.
“From the competitive position perspective, Thermo Fisher is clearly a stronger company now, and we see qualitative merits for a wide moat going forward. However, returns on invested capital will take yet another hit because of the rich price paid,” wrote Miller in a research note.
The premium that Thermo Fisher paid for Life Technologies (a 25 percent jump over Life Technologies’ stock price on Jan. 18 when the company announced it had hired two investment banks to explore its strategic options) leads some to speculate that Illumina was justified in demanding a higher buyout price than Roche was willing to pay in its failed takeover bid last year.
“I think there will continue to be a desire, in the near term, for the bigger companies to fill that product gap by acquiring an instrumentation player,” Miller tells DTTR. “That said, I certainly believe smaller companies with just a sequencing test or two—particularly within oncology, prenatal testing, and inherited diseases—are valuable acquisition targets as NGS technology begins to move into the clinical and diagnostic arena.”
