Thermo Fisher Scientific (TMO) is on an acquisition spree. Soon after completing the acquisition of Dionex Corporation for $2.1 billion earlier this week, the company announced its decision to acquire Phadia for €2.47 billion (approximately $3.5 billion) in cash from European private equity firm Cinven. Phadia, based in Uppsala, Sweden is a leading player in allergy and autoimmunity diagnostics.
The deal, to be completed in the fourth quarter of 2011, is expected to be accretive to the company’s EPS by 26-30 cents in 2012. Moreover, the transaction is expected to result in a $35 million of cost and revenue synergies in 2014, with $10 million in 2012.
Phadia, founded in 1967, operates through two leading brands – ImmunoCAP for allergy tests and EliA for autoimmunity tests. The company recorded €367 million (approximately $525 million) of revenues in 2010 that represents a 3-year compounded annual growth rate of 10% at constant exchange rates.
Subsequent to the completion of the deal, Phadia will be part of Thermo Fisher’s Specialty Diagnostics business under its Analytical Technologies Segment.
Based on the deal, Thermo Fisher expects to strengthen its Specialty Diagnostics business globally, which is one of its key growth platforms. Apart from being able to tap the huge opportunity in the under-penetrated market of the US, its strong presence in emerging markets should bring in further growth.
Thermo Fisher’s growth came through both organic and inorganic route. Significant acquisitions made by the company in the recent past include Fermentas, Finnyzymes, Ahura Scientific, among others.
The company exited the first quarter of fiscal 2011 with $2.8 billion in cash and cash equivalents compared to $917.1 million at the end of December 2010. The increase in cash balance was primarily due to the funds raised to finance the Dionex acquisition and free cash flow, partially offset by share buybacks.
The company also sold two laboratory-testing services businesses – Athena Diagnostics to Quest Diagnostics (DGX) and Lancaster Laboratories to Belgium based Eurofins Scientific, resulting in total proceeds of $940 million.
Recommendation
Banking on PPI and PPI-Lean projects and cost control, Thermo Fisher’s operating margins has shown an improving trend. Viewing the huge potential in the emerging markets, the company has been focusing on these regions and also recorded robust growth during the quarter.
The company’s strong cash position enables it to make suitable acquisitions, or repurchase shares, thereby improving the bottom line further. However, any kind of economic turbulence could negatively impact the company’s sales based on financial constraints and customers deferring their buying decisions.
We maintain our Neutral recommendation on the stock, which also corresponds to the Zacks #3 Rank (hold) in the short-term.
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