Thermo Fisher Scientific, Inc. TMO never ceases to amaze us with its aggressive acquisition strategy. This scientific instrument maker, formed through the historical $12.8 billion merger of Thermo Electron Corporation and Fisher Scientific International in 2007, has once again consolidated its position in history with the colossal $13.6 billion takeover of Life Technologies Corporation, completed last year.
Following the Life Technologies buyout, Thermo Fisher has undertaken several meaningful acquisitions as part of its strategy to effectively deploy capital. The latest in the league is the company’s decision to buy Affymetrix Inc. AFFX for a value worth $1.3 billion.
The impending acquisition, which is expected to boost Thermo Fisher’s biosciences and genetic analysis portfolio, is however, yet to make a significant impact on investors’ sentiment. This is evident from the share price of the company that has remained unchanged ever since the news was revealed late last week. On the other hand, the news of the acquisition deal seems to have swept Affymetrix’s investors by their feet, as can be seen from the stock’s 50% rally in after-hours trading on Friday, Jan 8.
Thermo Fisher is rather upbeat about this strategic inclusion. Affymetrix, which works on multiplex and simultaneous analysis of biological systems at the cell, protein, and gene level, facilitating the transition of research tools into clinical and applied markets, is expected to boost Thermo Fisher’s offering in the fast-growing flow cytometry market through an advanced antibody portfolio. Moreover, in genetic analysis, Affymetrix’ technologies should perfectly complement Thermo Fisher’s products in targeted clinical and applied markets.
Among other significant integration synergies that Thermo Fisher expects to achieve through this impending buyout is easy access to the biopharma industry through Affymetrix’s advanced customer value proposition, e-commerce capabilities and extensive customer channels. Additionally, Thermo Fisher will be able to enjoy extended geographic reach in Asia-Pacific, particularly China.
Furthermore, Thermo Fisher expects this acquisition, which is expected to be completed by the end of the second quarter of 2016, to generate attractive financial returns, including an accretion of 10 cents to its adjusted EPS in the first full year of acquisition. Total synergy value is poised at $70 million by the third year post the completion of the deal, which comprises cost synergy of $55 million and adjusted operating income benefit of $15 million from revenue-related synergies.
However, the acquisition is currently subject to the approval of Affymetrix’s shareholders and certain customary closing conditions.
Traditionally, Thermo Fisher has the reputation of targeting expansion through inorganic means. The company has successfully extended its presence in high-growth markets and generated cost and revenue synergies thereby creating shareholder value. The company’s strong and consistent cash flow position not only enables it to meet its capital expenditure needs but also look at suitable acquisitions to boost its prospects.
Other significant acquisitions at Thermo Fisher include U.K.-based research chemical manufacturer, Alfa Aesar (to expand its existing portfolio of chemicals, solvents and reagents that support laboratory applications including research, drug discovery and development, and production); Advanced Scientifics (ASI) (to expand with complementary single-use systems and bioprocess equipment); One Lambda (to strengthen its foothold in in vitro diagnostics and add new capabilities to the company’s transplant-testing workflow market) and Doe & Ingalls (a channel for specialty production chemicals and provider of customized supply-chain services to life sciences and microelectronics industries).
Apart from boosting revenue accretion, these deals have benefited Thermo Fisher’s operating margin, also resulting in tax synergies. We believe the Affymetrix deal, once completed, will be no exception.
Zacks Rank
Thermo Fisher currently has a Zacks Rank #4 (Sell) while Affymetrix bears a Zacks Rank #3 (Hold). Better-ranked medical instrument stocks at the moment include Alphatec Holdings, Inc. ATEC and ABIOMED, Inc. ABMD. Both the stocks carry a Zacks Rank #2 (Buy).
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