Top Instrument Firms

After the analytical and laboratory instrumentation business saw a rebound in 2010 from the torpor of 2009, few companies expected to see the same vigor in 2011. Yet many firms exceeded expectations, with about half of the top 25 companies reporting double-digit rates of growth. Considering high growth rates unlikely three years in a row, industry executives are being cautious about 2012.

In 2011, the global instrumentation market grew about 7.1% to reach $42.4 billion in sales, according to the Los Angeles-based market research firm Strategic Directions International. For this year, SDI estimates growth at a more modest, and more typical, rate of 5.5%, bringing the industry’s total revenues up to $44.7 billion.

For many instrument companies, mergers and acquisitions were significant factors in expanding their businesses last year. As a result of deals, two new companies joined C&EN’s annual ranking. Germany’s Merck bought Millipore in the second half of 2010. With instrument sales of about $545 million in 2011, the merged business is now ranked number 18.

Meanwhile, Xylem, a spin-off of ITT Corp. focused on water-related equipment and technologies, had been buying up small instrument businesses over the past decade (C&EN, Dec. 12, 2011, page 20). Its September 2011 purchase of environmental water-monitoring firm YSI pushed revenues at its Xylem Analytics division to just over $300 million in 2011 and places it at number 21.

Two companies in last year’s ranking do not appear this year because of acquisitions. Gone is Beckman Coulter, which had ranked number 13, and Dionex, which had been 20th. With the buyers of the two companies among the top four firms, the industry leaders all shifted positions.

Danaher’s June 2011 purchase of Beckman Coulter for $6.8 billion doubled its instrument-related sales and propelled the company from fourth place in last year’s survey to first place this year. In C&EN’s ranking a year earlier, the company had ranked ninth in 2009 sales. Danaher’s underlying instrument sales in 2011, calculated as though it had owned Beckman the previous year, grew about 7%.

Danaher, an industrial technology and equipment supplier, has built its life sciences and diagnostics unit through purchases of the mass spectrometry firm AB Sciex, bioanalytical instrument maker Molecular Devices, and microscope producer Leica Microsystems. This year it also acquired AB Sciex and Leica distribution businesses that were owned by Labindia Instruments.

Revenues at AB Sciex grew at low double-digit rates in 2011, driven by the academic, applied, and research markets, Danaher Chief Executive Officer H. Lawrence Culp told analysts in January when announcing annual results. “We couldn’t be more pleased with the first full year at AB Sciex,” he said about what has been “a challenging integration.”

Now assimilating Beckman, Danaher has been addressing some operational and quality issues. But after owning the business for more than six months, Culp was “very pleased with the integration, as well as the performance of the business thus far.” The company also increased its total cost reduction target by 40% to $350 million and anticipates seeing $250 million in savings in 2012, two years ahead of schedule.

By purchasing Dionex in May 2011 for $2 billion, Thermo Fisher Scientific moved from third to second among suppliers this year. Its instrument sales, which account for about one-third of its total sales, jumped 68% over the previous year. Counting the contribution from Dionex as though it had owned the business the previous year, Thermo’s analytical instrument sales were up 6% to $3.9 billion.

“Our expansion in high-growth emerging markets led to strong double-digit performance in China, India, and Brazil,” CEO Marc N. Casper said when announcing earnings in February. In March 2011, Thermo announced plans for a new manufacturing facility in Suzhou, China, as part of its strategy to expand in the Asia-Pacific region. This month it opened a new demonstration lab and training center in Seoul, South Korea.

Thermo spent half of last year integrating the Dionex business and a few smaller acquisitions. Mizuho Securities USA stock analyst Peter Lawson told clients in a March report that “the benefits from Dionex will shine through this year.” Ultimately, he wrote, the acquisition will give Thermo a stronger position in chromatography than Waters Corp. and Agilent Technologies. Although this edge is starting to appear, it will take time for the “competitive dynamic to materialize,” Lawson added.

The shifts in ranking for Danaher and Thermo mean that Agilent and Life Technologies, number one and two, respectively, in last year’s survey, moved down to third and fourth this year. Still, Agilent’s instrument revenues for the 12 months ending on Oct. 31, 2011, climbed nearly 24% in what was the best period in the company’s history. At Life Technologies, sales were up about 3%.

When announcing results, Life Technologies CEO Gregory T. Lucier said he was pleased with the company’s performance in fiscal 2011 “even as we faced a number of challenges, including macroeconomic headwinds and constrained spending by some of our customers.” He predicts a similar level of growth in 2012, driven by the company’s Ion Torrent gene-sequencing business and expansion in genomics markets and in regions outside the U.S., Europe, and Japan.

Geography is a factor for Agilent as well—$1.7 billion, or about 25%, of its 2011 sales were in emerging markets. “A major story in 2011, and as we move forward into 2012, is the importance of the emerging markets to the overall growth of the analytical instrumentation market,” says Michael R. McMullen, president of Agilent’s chemical analysis group.

To ensure that the growing markets in Brazil, Russia, India, and China (BRIC) are covered, Agilent has assigned a company president to each. McMullen oversees Brazil and China, and Nick Roelofs, president of Agilent’s life sciences group, handles India. Meanwhile, Russia, which has more of a footprint in electronics than in chemical analysis or the life sciences, falls under Guy Séné, president of Agilent’s electronic measurements group.

According to McMullen, “We are very bullish on the long-term growth prospects in China.” Despite the Chinese government’s revisions to its economic growth estimates, research funding is expected to remain strong. Food safety and environmental concerns are also driving the demand for instrumentation.

Agilent has had a presence in China for decades, with manufacturing, R&D, and technology centers in Beijing, Shanghai, and Chengdu. In 2011, the company had about $1 billion in sales in the country, or nearly 15% of its total.

Similarly, Brazil offers opportunities in life sciences segments such as pharmaceuticals and agriculture. And in chemical analysis, the country is a major energy producer and developer of next-generation fuels, McMullen points out. Just last month, Agilent and São Paulo Research Foundation announced they will jointly fund projects related to bioenergy and plant metabolomics.

Roelofs says India offers the second-­biggest market opportunity after China. The government and private parties are starting to make the investments in environmental analysis, food safety, and academic research that have been promised for years. India may potentially become the fastest growing of the BRIC markets, he adds.

“India has been seeing a tremendous amount of growth in pharmaceuticals both for internal consumption and export,” Roelofs points out. In March 2011, Agilent expanded its Life Sciences & Chemical Analysis Center of Excellence in Bangalore and opened an adjacent life sciences application development lab. This expansion makes the Bangalore site the company’s largest research facility.

Agilent approaches new markets by putting experienced people into a region to create an early presence and develop the local business team. It intends to follow this path when it moves beyond the BRIC nations to the next 10 emerging countries, six of which are in Southeast Asia, says Roelofs. Turkey, Mexico, Nigeria, and Poland are also on its list.

Roelofs is moving to Singapore, where he will oversee Agilent’s expansion into Vietnam, Indonesia, Thailand, and Cambodia. The company has had manufacturing facilities in the region for many years, first in Malaysia and more recently in Singapore. In December 2011, it established a genomics research collaboration with Monash University, in Malaysia, creating the Monash-Agilent Authorized Microarray Service Center.

Earlier in 2011, Agilent set up its first environmental science collaboration in Southeast Asia with the National University of Singapore Environmental Research Institute. It is equipping a new lab that will conduct studies on water, air, soil, food, and biological specimens.

Company watchers like Agilent’s strategy. “We believe the majority of growth in the life sciences market will come from emerging markets and that this move will enable Agilent to better penetrate this region,” Goldman Sachs stock analyst Isaac Ro told clients in a recent report. “As more biopharma R&D transitions to the East, vendor contracts must be reestablished, offering Agilent an opportunity to displace western incumbents.”

Emerging markets are also an important part of PerkinElmer’s growth strategy, says Dusty Tenney, president of analytical sciences and laboratory services at the firm. He expects as much as 50% of the growth in his division this year to come from these regions. In addition to Brazil, he notes, Argentina and Chile offer growth opportunities in the areas of food and mining. Mining and energy are important in Russia and Central Europe.

In China, PerkinElmer intends to invest in facilities and people. Business there has grown faster than 20% annually over the past five years, Tenney says. “China has come along very fast in a very, very short period of time and has established itself on the world market.” Here, and in the other BRIC nations, the company has a physical presence through people, facilities, and demonstration labs.

With China an already-established market for PerkinElmer, Tenney characterizes other countries—such as Turkey, South Africa, Colombia, Israel, and other nations in the Middle East—as more truly emerging. “They are the ones that ultimately are going to pop up on the radar screen in the next three to five years,” he says. In these areas, the company will likely build relationships first through partners and dealers as it explores putting its own resources in place.

In addition to geographic breadth, product offerings are critical to instrument makers. During 2011, PerkinElmer, which ranks number eight in C&EN’s survey, acquired Caliper Life Sciences and made acquisitions in the informatics space. “We have added some broader capabilities to the portfolio,” Tenney says. The company’s emphasis is on human and environmental health, with a focus on pharma, food, and research markets.

Contrary to what one might expect, pressures on the pharmaceutical industry can create opportunities for suppliers, Tenney suggests. Combinations of instruments, informatics, and services can increase productivity and reduce costs. “We recognized this about five years ago as the market consolidated and have created a number of solutions that ultimately help and support those specific objectives inside companies,” he says.

Mizuho’s Lawson sees the Caliper acquisition as a driver for profit and growth, along with PerkinElmer’s position in Asia. However, like most major instrument makers, the firm has a quarter or more of its sales in Europe, which has been economically depressed.

“Like Bruker, PerkinElmer seems to be nimble enough to find pockets of growth in both Central and Eastern Europe,” Lawson says. With only 5% of its sales from U.S. academic institutions, PerkinElmer is more insulated than its peers from government budget cuts, he adds. Along with emerging markets, Lawson predicts, industrial and applied markets will continue to drive growth at PerkinElmer.

Bruker also has been increasing its presence in industrial markets. It diversified away from high-end academic research markets through its 2010 acquisition of some Varian businesses, which have become its chemical and applied markets division, and the purchase of microscopy assets from Veeco, which have become the materials-analysis-focused nano surfaces division. Once largely a European supplier, Bruker now has R&D and manufacturing on both sides of the Atlantic.

“We’ve been growing more rapidly in industrial, in pharmaceutical and biotech, as well as in applied markets and clinical markets,” CEO Frank H. Laukien told analysts at a March meeting. “We have better geographic diversification than even three or four years ago, and it has served us well.” Although Bruker’s instrument sales grew 27% in 2011, or about 9% discounting the acquisitions, it remains at number seven in C&EN’s ranking.

Among the top 10 firms, Bruker and Waters are the only two essentially pure-play instrument makers. Slightly bigger than Bruker, Waters ranked sixth with $1.85 billion in 2011 sales, a 13% increase over 2010. But unlike most of its competitors, Waters is known for a strategy focused primarily on technology and product development, rather than acquisitions.

“We believe that the best way to achieve our ongoing growth targets year in and year out is to focus on and drive intrinsic growth,” says Rohit Khanna, vice president of worldwide marketing at Waters. “Our acquisitions are strategically critical to where we are taking the business or what we see as the next generation of product innovation.”

Growing via acquisitions requires that managers find bigger and bigger deals to effect any significant change and distracts them from focusing on internal growth. “It is very difficult to do both well,” Khanna says. “It takes a lot of time and energy on management’s part to manage acquisitions and at the same time drive innovation in many different areas of technology.”

Recent instrumentation company acquisitions will undoubtedly cause major changes in the dynamics of the marketplace, he adds. “But it is still early for them to have put all the pieces together to really change anything substantive in the market. I think that is something in front of us.”

Khanna expects to see more activity in the future around data handling. “Over the next couple of years, the informatics arena, which has been very fragmented, is ripe for some level of consolidation, and you’ll probably see more aggressive activity,” he says.

Although it may not be as acquisitive, Waters, like other instrument firms, is relying on emerging markets to help it grow. But again, Waters’ approach may differ from other companies’.

“We’re not focused on setting up manufacturing so they will buy from us,” Khanna says. The company invests instead in strong applications support organizations. “What Waters always has been successful with is bringing our technical expertise into a market area, and we do that very rapidly and aggressively in these geographies,” he adds.

Although sales in emerging countries are growing quickly for instrument manufacturers, for many they are still a small percentage of overall sales. And in the big U.S., European, and Japanese markets, economic uncertainty may lead to further hesitancy among customers when it comes to making purchases. Instrumentation executives say the slowing momentum that occurred in the later quarters of 2011 is expected to continue into this year.

“The feeling we are getting from our customer base as we go into 2012 has a similar ring to the second half of 2011,” Khanna says. “They do need instruments, they are very careful in their acquisitions, and they are investing more aggressively in newer technologies around which they can really quantify a business impact.”