Capping weeks of rumor about a major deal in the laboratory supply world, Thermo Fisher Scientific announced that it will buy life sciences industry supplier Life Technologies for $13.6 billion and assume about $2.2 billion in debt from the company.
The acquisition will cement Thermo Fisher’s role as one of the largest suppliers of scientific instruments and consumables to academic and industrial laboratories around the globe. After the deal, the headline of one stock analyst’s report read: “800-Pound Gorilla Becomes King Kong.”
Life Technologies will add about $3.8 billion in annual sales to the $12.5 billion that Thermo Fisher posted last year. The deal will also significantly boost the role that lab consumables play at Thermo Fisher: 85% of Life Technologies’ sales last year were consumables and services; the other 15% were instruments.
Life Technologies has been pursued by a clutch of science supply companies and private equity firms since announcing in January that it had hired two investment firms to help with a strategic review. Agilent Technologies, Danaher, and Sigma-Aldrich are said to have been among the rival bidders.
Thermo Fisher won the contest by offering to pay $76.00 per share in cash for Life Technologies, or 38% more than Life Technologies’ closing price on Jan. 17, the day before it announced the strategic review.
Despite the high premium, Thermo Fisher CEO Marc N. Casper said he expects the deal to add immediately to his company’s earnings. His prediction is based in part on the $250 million in annual cost savings and $75 million in higher revenues that Thermo Fisher anticipates within three years after the deal closes.
The revenue increase prediction is conservative, Casper told stock analysts on a conference call after the deal was announced. For example, some Life Technologies products are now sold through the Fisher Scientific catalog in Europe, and he suggested that more cross-selling will take place in the future.
Casper also pointed to his firm’s 2011 acquisition of the chromatography instrument maker Dionex, a deal that has already boosted revenues more than the company promised, he said.
The Dionex purchase brought chromatography instruments and technology to complement Thermo Fisher’s spectroscopy and mass spectrometry capabilities. Life Technologies will now add capillary electrophoresis, real-time polymerase chain reaction analysis, and so-called next-generation gene-sequencing equipment to the mix. Alan J. Malus, president of Thermo Fisher’s analytical technologies business, told C&EN that he sees opportunities to expose key Thermo Fisher customers to Life Technologies products and to sell more Thermo Fisher products through Life Technologies’ well-regarded website.
Analysts are particularly interested in the potential of Life Technologies’ next-generation gene-sequencing equipment business, called Ion Torrent. Gene sequencing is expected to find increasing use in medical research and disease diagnostics, but Ion Torrent has been overshadowed by the leader in the business, Illumina. Casper acknowledged that Ion Torrent is number two, but he said it has recently made market share gains.
Daniel L. Leonard, who follows Thermo Fisher for investment firm Leerink Swann, boosted his target for Thermo Fisher’s stock price after the acquisition announcement. He told clients that, given the lengthy strategic review process that’s already occurred, he doesn’t expect a higher offer to emerge.
Nor does Leerink Swann expect significant antitrust concerns from the deal, because Life Technologies’ business is largely complementary to Thermo Fisher’s portfolio. However, he does expect that some smaller pieces of the combined company—Thermo Fisher’s Finnzymes molecular biology analysis and HyClone cell culture products businesses, for example—might have to be sold to satisfy regulators.
Even with divestitures, Thermo Fisher will be a lab supply powerhouse. “This is a story about two industry leaders joining forces to create an even stronger industry leader,” Casper said.