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Will Cepheid's (CPHD) Buyout by Danaher be a Strategic Fit?
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Share price of Cepheid shot up significantly following Danaher Corp’s (DHR - Free Report) historical announcement to take over this prominent molecular diagnostics player at a total enterprise value of $4 billion including debt. Following the news on Sep 6, Cepheid’s shares witnessed a 52.6% jump to close at $52.53 the same day.
We note that Danaher has historically resorted to the acquisition route to harness its strength and diversify offerings. Its latest investment is aimed at tapping the plethora of opportunities alongside establishing a strong foothold in the field of molecular diagnostics, where Cepheid is a renowned player.
The offer price of $53 per share marks a 54% premium over Cepheid’s share price at market close on Friday, Sep 2. This is worth about $4 billion, including debt. Danaher expects to finance the transaction with cash and new debt. The deal is subject to customary closing conditions, and shareholder and regulatory approval. Cepheid's board of directors has unanimously approved the transaction, which is scheduled to close by the end of 2016.
Post the closure of this deal, Danaher aims to incorporate the businesses of Cepheid within its Diagnostics business.
Is the Deal a Strategic Fit for CPHD?
Based in Sunnyvale, CA, Cepheid is a big name in the field of fully integrated systems for clinical and non-clinical market tests. These systems enable rapid, sophisticated molecular testing for organisms and genetic diseases by automating complex manual laboratory procedures. Over the recent past, the company has made solid progress in terms of its test menu expansion as well as potential pipeline development.
Cepheid currently offers a menu of 23 Xpert tests outside the U.S. and 20 in the domestic market, representing the broadest menu currently available on a single platform (as per data from the last reported quarter). The numbers are expected to reach 41 and 37, respectively, by 2017−18. The company has a broad and expanding menu of tests that run on its GeneXpert systems across infectious disease, healthcare associated infections (HAI), women’s health, genetics and oncology.
While the market size in Europe is estimated at $120 million, the U.S. market also remains largely underpenetrated. We believe that the tests are a significant growth catalyst for Cepheid. Successful commercialization of these tests should expand the addressable market to more than $8 billion by 2020 from the current level of $4 billion.
However, the growing expenses related to pipeline development are making the margin scenario worse for the company given the persistently declining trend over the recent past. Additionally, its highly leveraged balance sheet continues to pose a concern.
The deal is a perfect strategic fit for Cepheid as we believe incorporation within Danaher’s $5 billion Diagnostics business will help the former enjoy better exposure in terms of reaching out to a wider customer base together with Danaher’s patient base compared to being a standalone business. Also, Cepheid will be able to cope better with its dented margins and financial issues.
Zacks Rank
Cepheid presently carries a Zacks Rank #2 (Buy). A couple of other well-ranked stocks from the same space are CryoLife Inc. and Masimo Corporation (MASI - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
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Will Cepheid's (CPHD) Buyout by Danaher be a Strategic Fit?
Share price of Cepheid shot up significantly following Danaher Corp’s (DHR - Free Report) historical announcement to take over this prominent molecular diagnostics player at a total enterprise value of $4 billion including debt. Following the news on Sep 6, Cepheid’s shares witnessed a 52.6% jump to close at $52.53 the same day.
We note that Danaher has historically resorted to the acquisition route to harness its strength and diversify offerings. Its latest investment is aimed at tapping the plethora of opportunities alongside establishing a strong foothold in the field of molecular diagnostics, where Cepheid is a renowned player.
Price
Price | Quote
Deal Details
The offer price of $53 per share marks a 54% premium over Cepheid’s share price at market close on Friday, Sep 2. This is worth about $4 billion, including debt. Danaher expects to finance the transaction with cash and new debt. The deal is subject to customary closing conditions, and shareholder and regulatory approval. Cepheid's board of directors has unanimously approved the transaction, which is scheduled to close by the end of 2016.
Post the closure of this deal, Danaher aims to incorporate the businesses of Cepheid within its Diagnostics business.
Is the Deal a Strategic Fit for CPHD?
Based in Sunnyvale, CA, Cepheid is a big name in the field of fully integrated systems for clinical and non-clinical market tests. These systems enable rapid, sophisticated molecular testing for organisms and genetic diseases by automating complex manual laboratory procedures. Over the recent past, the company has made solid progress in terms of its test menu expansion as well as potential pipeline development.
Cepheid currently offers a menu of 23 Xpert tests outside the U.S. and 20 in the domestic market, representing the broadest menu currently available on a single platform (as per data from the last reported quarter). The numbers are expected to reach 41 and 37, respectively, by 2017−18. The company has a broad and expanding menu of tests that run on its GeneXpert systems across infectious disease, healthcare associated infections (HAI), women’s health, genetics and oncology.
While the market size in Europe is estimated at $120 million, the U.S. market also remains largely underpenetrated. We believe that the tests are a significant growth catalyst for Cepheid. Successful commercialization of these tests should expand the addressable market to more than $8 billion by 2020 from the current level of $4 billion.
However, the growing expenses related to pipeline development are making the margin scenario worse for the company given the persistently declining trend over the recent past. Additionally, its highly leveraged balance sheet continues to pose a concern.
The deal is a perfect strategic fit for Cepheid as we believe incorporation within Danaher’s $5 billion Diagnostics business will help the former enjoy better exposure in terms of reaching out to a wider customer base together with Danaher’s patient base compared to being a standalone business. Also, Cepheid will be able to cope better with its dented margins and financial issues.
Zacks Rank
Cepheid presently carries a Zacks Rank #2 (Buy). A couple of other well-ranked stocks from the same space are CryoLife Inc. and Masimo Corporation (MASI - Free Report) , both sporting a Zacks Rank #1 (Strong Buy).You can see the complete list of today’s Zacks #1 Rank stocks here.
Confidential from Zacks
Beyond this Analyst Blog, would you like to see Zacks' best recommendations that are not available to the public? Our Executive VP, Steve Reitmeister, knows when key trades are about to be triggered and which of our experts has the hottest hand. Click to see them now>>