The long-swirling rumors have at last coalesced into fact: Thermo Fisher Scientific (NYSE:TMO) is to acquire the gene sequencing company Life Technologies. The deal will clock in at $13.6bn, making it comfortably the most expensive this year so far, and almost certainly 2013’s largest overall.
The buyout had been so widely expected – despite competing bids from Sigma-Aldrich and a private consortium – that definitive news of the agreement came almost as an anticlimax. The price, however, did come as a bit of a shock: analysts had been expecting bids in the range of $11bn. Thermo Fisher has spent top dollar to get a foothold in the genetic analysis sector. With genomic sequencing getting faster and cheaper all the time, it might have picked its moment wisely.
Thermo Fisher’s $76-per-share bid, a 12% premium over Life’s closing price of $68 on Friday, beat an offer from Sigma-Aldrich and a $65 bid from a consortium including Blackstone, Carlyle, KKR and Temasek Holdings. Life’s board of directors met on Saturday to review the three offers; both Life’s and Thermo Fisher’s boards have now approved the transaction.
Of the $13.6bn price tag, the company expects the split to be cash and debt of $9.5 to $10bn and equity of up to $4bn. The transaction will close by early 2014, Thermo Fisher said. The company expects the transaction immediately – and significantly – to add to its adjusted EPS, despite having agreed to assume Life’s debt, which was around $2.2bn at the end of last year. Thermo Fisher also expects to maintain an investment-grade rating after the transaction has closed.
The price, at 3.6x Life Technologies’ 2012 sales of $3.8bn, is relatively generous by recent medtech deal standards (William Demant moves into fast-growing cochlear implant sector, April 3, 2013). Considering that the purchase could increase Thermo Fisher's annual revenue to more than $16bn, it is perhaps money well spent.
Thermo Fisher says that its new incarnation will be the unrivaled leader in serving research, specialty diagnostics and applied markets, and will enable faster turnaround for customers working in proteomics, genomics and cell biology.
Life’s products include reagents and consumables as well as instruments and systems, but the aspect that has attracted rival bidders is its recent investment in next-generation genetic-sequencing technology. Adding this to its own analytical and diagnostics operations could help Thermo Fisher produce molecular diagnostics or aid in personalized medicine.
The other large player in gene sequencing and analysis, Roche, has been left in the dust. The situation may nudge the Basel group towards making yet another attempt to grab Illumina to try to shore up its position. But given that the last try ended in humiliation for Roche and a share price tumble for Illumina, it could be forgiven for being reluctant (Illumina splurges $450m on Verinata after Roche walks out, January 8, 2013).
It has been suggested in recent years that genomic research has failed to live up to its promise. It will be interesting to see whether Thermo Fisher can make a success of its investment.