Issue Date: April 25, 2011
Top Instrument Firms
Welcome relief came in 2010 to the analytical and life sciences instrumentation industry. Broad market recovery coupled with strong growth in emerging regions helped boost sales. In this more stable economic environment, customers were again willing to spend money on new and replacement instruments.
In 2009, instrument makers struggled, and most watched sales fall. C&EN’s new survey of the top 25 firms reveals the rebound that 2010 brought. At $24.5 billion, combined 2010 instrument sales for the top 25 companies were up a healthy 14% compared with 2009. About half of the group saw double-digit gains, and all but two firms posted higher sales.
The $40 billion global instrumentation market grew 7% in 2010, a sharp contrast to its 3% decline in 2009, according to Strategic Directions International, a Los Angeles-based research firm. Sectors such as life sciences and food testing grew at a faster than average rate, while industrial markets grew more slowly. The academic and government funding environment was stable, and some pharma sectors recovered.
“There was an increased interest in applied markets, such as clinical research and environmental and food safety,” says Kevin Chance, president of Thermo Fisher Scientific’s scientific instruments division. “Growth last year could be largely attributed to government stimulus funding, most notably in Japan and the U.S. This had a major effect, particularly in the academic end-use markets.”
Europe lagged somewhat in growth, according to instrument makers. “Growth was more apparent in emerging markets such as China, India, and Brazil,” Chance continues. “The recent events in Japan will impact some areas of the market, but it is still too early to tell.”
In 2010, the general trend was one of increased spending, industry participants say. “In light of the economic issues that we had in 2009, there was a lot of activity that was pent up,” says Dusty Tenney, president of analytical sciences and laboratory services at PerkinElmer. Because purchases had been on hold or deferred, “2010 was somewhat of an anomaly because of the soft comparison to 2009,” he adds.
Owing to the rebound in 2010, life sciences tools firms will find it hard to post robust gains in 2011, Morgan Stanley stock analyst Marshall Urist suggested in a report to clients earlier this year. “Revenue is still generally flat to below pre-recession 2008 revenue levels for most tools companies, favoring sustainable growth in 2011,” he wrote.
Urist anticipates that stimulus funding will have a minor effect on business this year. He considers the overall stimulus impact to have been lower than expected and, for the majority of companies, “not a material contributor to top-line growth.” Of more concern in coming months is flat research spending by governments worldwide.
The industry’s sales growth this year will be in the mid-single digits, executives from many of the top 10 firms tell C&EN. New product introductions and expanding markets will contribute organically to company growth, they say, complementing the boost to revenues that many will see from acquisitions.
Consolidation was a hallmark of 2010 and is still under way. “There were actually two levels of consolidation,” Tenney points out. One was within the instrumentation industry, where several major firms acquired businesses. Consolidation also took place among customers, most notably some major pharmaceutical and chemical firms.
Acquisitions shifted C&EN’s ranking of instrument providers, starting at the top. With its $1.5 billion purchase of Varian, which ranked 13th in last year’s survey, Agilent Technologies moved up from third place to first. Life Technologies, formed in late 2008 from the merger of Applied Biosystems and Invitrogen, slipped to second. Thermo, meanwhile, moved from second to third, just a hair’s breadth above quickly rising Danaher.
With only a 0.3% difference in instrument sales, the top two companies are also neck and neck. Life Technologies’ revenues, which include a significant amount of consumables, grew 7%, while Agilent reported a 30% increase in chemical and life sciences equipment sales for its fiscal year, which ended on Oct. 31. Even without the Varian purchase, Agilent’s instrument sales would have grown at two to three times the industry average.
Agilent’s outsized growth rate comes from having been an early entrant in applications such as food testing and in emerging markets, explains Chris Toney, vice president of Agilent’s chemical analysis group.
In 2010, the company expanded its Life Sciences & Chemical Analysis Center of Excellence in Bangalore, India. It has been gradually shifting some manufacturing to the Asia-Pacific region, taking advantage of its wide footprint there. “We want to make sure that we are where we can get the most optimized supply chain possible, and that is not always just China,” Toney points out.
For example, Agilent is moving production of its liquid chromatography/mass spectrometry (LC/MS) product lines from the U.S. East Coast to Singapore. And the manufacturing of consoles for nuclear magnetic resonance spectrometers will move from a Varian site in California to an Agilent facility in Penang, Malaysia.
As Agilent’s largest-ever acquisition, the Varian purchase strengthened its chemical and bioanalytical groups. “We will continue to look at acquisitions that fit well with our strategy as a way of rounding out the portfolio,” Toney says. “Our growth strategy is to expand the portfolio and make sure we are going after the fastest-growing application and geographic segments.”
Already in 2011, the company has added Fourier transform infrared instruments for lab and field use to its spectroscopy business by buying A2 Technologies. In the life sciences arena, it acquired electrophoresis product firm Lab901 and Biocius Life Sciences, a developer of high-throughput MS technology for drug screening.
Meanwhile, Life Technologies completed the sale of its half of AB Sciex, an MS business, to Danaher in 2010 and also acquired Ion Torrent. Within three months of the acquisition, Life Technologies launched Ion Torrent’s first semiconductor-based sequencing system, called the Ion Personal Genome Machine. It is already offering a faster version of the semiconductor chip that is the replaceable core of the Ion PGM.
“What we really liked about the Ion Torrent technology is that it marries biology and chemistry with years of development and billions in investment in the semiconductor industry,” explains Life Technologies President Mark P. Stevenson. “We see continued demand in both basic research and in molecular medicine and diagnostics for simpler and lower-cost sequencing.”
The market for affordable DNA sequencers—the Ion PGM costs about $50,000—is growing about 35% per year, Stevenson says. “The price of sequencing a genome is approaching $1,000, and by next year I expect we will break that mark. That then opens up a wide range of applications in molecular medicine, human health and safety, and forensic DNA analysis.”
Operating as an entrepreneurial entity within Life Technologies, Ion Torrent added to its new parent’s instrument business. Most of Life Technologies’ instrument-related business is consumables, which sell well even during down times and contributed to the company’s strong growth in 2009.
“We like business models where we have consumables associated with the instruments,” Stevenson says. Although the MS business was a successful joint venture for many years, it didn’t fit with this model. “It made sense to divest it to Danaher, which has put the two halves of the joint venture together and added high-performance liquid chromatography, which was the right thing to do,” he explains.
Acquisitions have enabled Danaher to move up quickly through the instrumentation ranks. In addition to buying both halves of AB Sciex, last year it acquired MDS Analytical Technologies, which had been number 22 in C&EN’s ranking, and Eksigent Technologies’ chromatography business. Number nine in 2009, Danaher jumped to fourth place in 2010 with $2.3 billion in lab instrument sales. It also bought the electronics equipment firm Keithley Instruments and Genetix, a maker of tools for cell analysis.
Despite more than doubling its instrumentation sales in just one year, Danaher isn’t finished. In February, the company announced that it would buy number 13 Beckman Coulter for $6.8 billion. Beckman sells in vitro diagnostics, lab automation systems, and consumables. Adding that company’s nearly $700 million in equipment sales will move Danaher up further in next year’s ranking.
Danaher has a chance to reach the top spot, although the competition is getting tight. Among those putting on the pressure, Thermo announced plans in late 2010 to purchase Dionex for $2.1 billion. The addition will make Thermo a big player in the chromatography area, where it will compete with Shimadzu and Waters at numbers five and six, respectively. It will also expand Thermo’s reach in the Asia-Pacific region and in environmental and food-testing markets.
Ranked 20th, with 2010 sales of $447 million, Dionex will increase Thermo’s instrument sales by about 20%. At the same time, however, Thermo is selling its Athena Diagnostics and Lancaster Laboratories businesses. In 2010, the contract lab services businesses had about $225 million in combined sales.
PerkinElmer and Bruker also made acquisitions during 2010 and are at it again this year. Bruker took advantage of an antitrust requirement that Agilent sell some overlapping businesses to pick up three Varian product lines. The company has long focused on academic markets and high-end research instruments used in the life sciences; the acquisition increased Bruker’s exposure to applied and industrial markets.
Bruker then bought Veeco’s atomic force microscopy (AFM) and optical industrial metrology instruments business. The addition further increased the company’s exposure to industrial customers and to Asia-Pacific markets. After declining during the recession, sales and profits at the Veeco businesses have rebounded, and they are forecast to post $130 million in sales this year, or about one-third more than in 2009.
“Organic growth is an absolutely key element that is not going to be replaced by growing through acquisitions,” says Thorsten Thiel, Bruker’s director of marketing communications. “Bruker keeps a very focused strategy on acquiring only technologies and products that really fit our existing portfolio.” For example, it acquired the IR gas technology firm Sigma ElectroOptics to expand its detection business and is buying Michrom Bioresources to gain LC instruments to interface with its mass spectrometers.
Bruker’s diversification strategy seems to be paying off. With its foray into new markets, the company’s total sales rose 18% to $1.3 billion last year, and its instrument sales moved it into seventh position, just ahead of PerkinElmer. Even without the acquisitions, sales would have been up about 12%. Bruker predicts that it will reach total sales of about $1.6 billion in 2011, and the firm is targeting sales of more than $2 billion by 2014.
PerkinElmer has also been active, buying out Danaher’s interest in an inductively coupled plasma MS joint venture and acquiring VisEn Medical, which makes molecular imaging systems and reagents used in preclinical drug research. Moreover, it is buying two software firms and Chemagen Biopolymer-Technologie, a maker of systems for automated nucleic acid isolation.
At the same time, PerkinElmer has sold its illumination and detection solutions business to further focus on human and environmental health. The divested business was expected to generate revenues of about $300 million in 2010. The company has forecast organic revenue growth in the mid-single-digit range for 2011.
“The majority of growth will manifest itself out of the emerging regions of the world,” Tenney says about the industry overall. In addition to experiencing greater financial capabilities, higher levels of investment, and population growth, “these regions are becoming much more buoyant in terms of adopting regulations that ultimately drive that level of demand,” Tenney adds.
PerkinElmer’s strategy for growth includes internal product development, regional expansion, and broader software and services offerings, Tenney explains. “Acquisitions can play a part in enabling us to move faster and are a way to fulfill the strategy in a shorter time frame.”
In 2010, the top five companies accounted for nearly 48% of revenues among the 25 firms in C&EN’s survey, up from about 45% in 2009. Still, the median company size leaves significant room for continued consolidation, Morgan Stanley’s Urist has told clients. In addition, he believes that “concentrated end markets and a shared customer base make for a ripe M&A environment.”
Agilent’s Toney agrees that the competitive landscape is changing in analytical instrumentation. “What will emerge are a smaller number of much stronger players in what has been a highly fragmented market,” he says. “In my view, it may be tougher for some of the smaller, second-tier competitors to have the global presence that is going to be necessary to compete.”
Stevenson sees a similar trend. “The midsized players get squeezed out as you get to a critical mass and scale,” he says. Life Technologies, for example, has thousands of field sales, service, and customer support employees that give it a broad geographic presence. It also can invest heavily in R&D and in its technology infrastructure.
Even as the big companies get bigger, Stevenson sees opportunities for small, innovative companies and start-ups. These companies have a chance to thrive and succeed, he believes, by developing new technologies and by being acquired by the larger firms. The challenge for large firms is to keep this innovation alive, he suggests.
Consolidation can affect customers as well. “There is always the question, ‘Are there too many competitors and too many choices?’ ” PerkinElmer’s Tenney says about what drives consolidation. Acquisitions will trim the number of suppliers, he acknowledges, but customers benefit if companies can then offer broader ranges of solutions.
“By the same respect, what can happen as companies keep getting bigger and bigger is that ultimately their ability to become more intimate with customers actually goes down, and understanding their needs and translating those into strategy becomes a slower process,” Tenney points out. Although PerkinElmer may invest to round out its instrument portfolio, he considers the company “uniquely positioned because of our size and the speed at which we can operate.”
Bruker’s Thiel says he hasn’t seen consolidation create disadvantages for customers. “Consolidation has not yet reached a critical level of not any longer having choices in more or less all fields of technologies and applications,” he says. Instead, “the companies probably can become more efficient and leverage certain aspects in their operating business.”
Beneath the top tier being created by consolidation are a number of companies with instrument sales under $1 billion. Among them are several Japanese firms, many of which struggled in 2010. Although Shimadzu had a strong year and Nikon reported higher sales, others fared less well.
Sales were flat at Horiba and actually declined at Olympus and Hitachi High-Technologies. According to Hitachi, 2010 was a year of strenuous effort to find its way out of the financial crisis, during which it went into the red for the first time in its 10-year history.
JEOL had a good year in 2010, increasing sales by 14%. Recently, however, the company decided to spin off its magnetic resonance instrumentation business into a joint venture, to be called JEOL Resonance, with the Innovation Network Corporation of Japan. JEOL’s remaining scientific instrument division will consist of electron microscopes and other surface analysis equipment.
Another instrumentation business appears to be in the making. ITT Analytics, owned by the industrial conglomerate ITT Corp., is a provider of field, portable, lab, and online analytical instrumentation. It was formed in 2010 after ITT acquired Nova Analytics and later added O.I. Corp. ITT says it sees “very compelling growth characteristics in the analytical instrumentation market” and views its new businesses as a “new growth platform for the corporation.”
Bullishness by smaller players likely means more shifts among the top 25 firms this year. With three of the traditional acquirers—Thermo, Agilent, and Life Technologies—having made large acquisitions in the past two years, “the prospects for nontraditional players will be important to driving M&A in 2011,” Urist predicts.
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