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Instrumentation: Mergers Will Shape the Industry in 2014

by Ann M. Thayer
January 13, 2014 | A version of this story appeared in Volume 92, Issue 2


In the past few years, low- to mid-single-digit growth has been the norm for leading analytical and life sciences instrumentation companies. Restricted R&D spending in the U.S., weak European economies, and moderating growth in emerging markets are challenges they’ve all seen.

In response, many firms have turned to deal-making to create their own growth. Merger and acquisition activity announced in the past few years will greatly alter the instrumentation company landscape in 2014. “In 2013, the recipe for outperformance in life science tools was to play M&A,” Goldman Sachs stock analyst Isaac Ro told clients in a late-2013 report.

Notably, Thermo Fisher Scientific is buying Life Technologies for $14 billion. When the merger closes early this year, the additional $4 billion per year in Life Technologies sales, 85% of which are of consumables and reagents, will likely make Thermo Fisher the industry sales leader.

The company will compete for the top slot with Danaher, which has also built its business through acquisitions, including the 2011 purchase of Beckman Coulter. Having gotten Beckman’s operations on track, Danaher appears to be on the acquisition trail again. At a mid-December 2013 analyst meeting, CEO H. Lawrence Culp Jr. pointed out that the company has $8 billion to spend.

Meanwhile, a substantial portion of growth in Agilent Technologies’ life sciences and diagnostics business came from the Dako diagnostics business it acquired in mid-2012. And Agilent continues to be excited about diagnostics and pharmaceuticals markets, as well as food and energy, CEO William P. Sullivan recently told analysts.

After growing through acquisition, Agilent is poised to get smaller again with a split in two planned for later this year. Keeping the Agilent name, one company will have the better-performing life sciences, diagnostics, and applied markets businesses. The other piece, to be called Keysight Technologies, will be made of Agilent’s electronic measurement business. It saw revenues decline in 2013, although it should see a boost from economic growth anticipated in the second half of 2014, Sullivan said.

Amid the big deals, companies also have been using more prosaic means to control costs and reshape operations. A common corporate tack has been to reduce manufacturing footprints while making bolt-on acquisitions.

As companies revamped last year, economic challenges forced them to keep lowering their estimates for sales and earnings growth. Looking ahead, Goldman Sachs’s Ro points to developments, such as a bipartisan budget deal, that might free up spending on instrumentation in the U.S. this year. He also suggests that Europe’s Horizon 2020 research and innovation program could help drive sales. However, in China, the largest of the emerging markets, growth is moderating overall and appears decidedly mixed across industrial, academic, environmental, and food markets.


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