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Thermo Fisher Scientific, Inc. (TMO - Free Report) received postive news that FEI shareholders recently approved the previously announced mega $4.2 billion acquisition. According to management, "The transaction is expected to be completed by the end of 2016, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals." As part of the company’s strategy of expansion through acquisitions, this buyout will enable Thermo Fisher to access FEI’s industry-leading high-performance electron microscopy platform used for protein study, which in turn facilitates life-science research.
Following the deal’s closure, Thermo Fisher plans to integrate the FEI business within its Analytical Instruments segment. We view this FEI deal, following the completion of the $1.3 billion Affymetrix takeover in April, to be yet another milestone achievement for Thermo Fisher in terms of expanding its diverse global business.
Details of the Deal
FEI’s Cryo-EM technology is a groundbreaking microscopy solution that complements Thermo Fisher’s mass spectrometry systems used to identify and characterize proteins. With the growing adoption of electron microscopy in high-resolution analysis of protein structure, we expect the FEI buyout to aid Thermo Fisher in driving Analytical Instruments revenues, particularly in the biopharma market.
Moreover, FEI’s unique 3D nano-characterization and nano-prototyping imaging technologies are expected to enhance Thermo Fisher’s capabilities in the materials science space. On account of having ownership of these technologies, FEI enjoys a strong presence in the semiconductor market. Meanwhile, the acquisition will create new growth opportunities for Thermo Fisher's customers in the life sciences space.
Financial Gains
Over the past few quarters, growth in Thermo Fisher’s Analytical Instruments segment continues to remain sluggish with low single-digit growth. However, with the FEI inclusion, it’s expected that growth will accelerate in the near term.
In terms of the financial benefits from the FEI deal, management expects to witness immediate accretion to the company’s earnings. In particular, FEI’s industry-leading services business, spread across more than 20 countries, drives high-margin, recurring revenues. The Services segment represents approximately 25% of total FEI sales ($930 million in 2015). No doubt, the addition of this services business will benefit Thermo Fisher’s services capabilities as well.
Moreover, the FEI deal is expected to be accretive to Thermo Fisher’s adjusted EPS by 30 cents in the first full year after closing. Thermo Fisher also expects to realize total synergies of approximately $80 million by the end of three years following the deal’s close, with approximately $55 million of cost synergies and roughly $25 million of adjusted operating income benefits from revenue-related synergies.
Our View
We note that, as part of its strategy to effectively deploy capital, Thermo Fisher has undertaken several acquisitions in the recent past. Earlier this year, the company announced plans to deploy capital worth $17 billion during 2017–2019, of which 70% will be for mergers and acquisitions bringing business expansion.
So far, apart from boosting revenues, the numerous acquisitions made by Thermo Fisher have benefitted its operating margin, as well as resulted in tax synergies. We believe the FEI acquisition will be no exception.
Zacks Rank & Key Picks
The company currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are IDEXX Laboratories, Inc. (IDXX - Free Report) , Masimo Corporation (MASI - Free Report) and Natus Medical Inc. . All the three stocks sport a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued Thursday, September 1, 2016, should no longer be relied upon.)
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FEI Shareholders Approve Thermo Fisher Deal (Revised)
Thermo Fisher Scientific, Inc. (TMO - Free Report) received postive news that FEI shareholders recently approved the previously announced mega $4.2 billion acquisition. According to management, "The transaction is expected to be completed by the end of 2016, subject to the satisfaction of customary closing conditions, including applicable regulatory approvals." As part of the company’s strategy of expansion through acquisitions, this buyout will enable Thermo Fisher to access FEI’s industry-leading high-performance electron microscopy platform used for protein study, which in turn facilitates life-science research.
Following the deal’s closure, Thermo Fisher plans to integrate the FEI business within its Analytical Instruments segment. We view this FEI deal, following the completion of the $1.3 billion Affymetrix takeover in April, to be yet another milestone achievement for Thermo Fisher in terms of expanding its diverse global business.
Details of the Deal
FEI’s Cryo-EM technology is a groundbreaking microscopy solution that complements Thermo Fisher’s mass spectrometry systems used to identify and characterize proteins. With the growing adoption of electron microscopy in high-resolution analysis of protein structure, we expect the FEI buyout to aid Thermo Fisher in driving Analytical Instruments revenues, particularly in the biopharma market.
Moreover, FEI’s unique 3D nano-characterization and nano-prototyping imaging technologies are expected to enhance Thermo Fisher’s capabilities in the materials science space. On account of having ownership of these technologies, FEI enjoys a strong presence in the semiconductor market. Meanwhile, the acquisition will create new growth opportunities for Thermo Fisher's customers in the life sciences space.
Financial Gains
Over the past few quarters, growth in Thermo Fisher’s Analytical Instruments segment continues to remain sluggish with low single-digit growth. However, with the FEI inclusion, it’s expected that growth will accelerate in the near term.
In terms of the financial benefits from the FEI deal, management expects to witness immediate accretion to the company’s earnings. In particular, FEI’s industry-leading services business, spread across more than 20 countries, drives high-margin, recurring revenues. The Services segment represents approximately 25% of total FEI sales ($930 million in 2015). No doubt, the addition of this services business will benefit Thermo Fisher’s services capabilities as well.
Moreover, the FEI deal is expected to be accretive to Thermo Fisher’s adjusted EPS by 30 cents in the first full year after closing. Thermo Fisher also expects to realize total synergies of approximately $80 million by the end of three years following the deal’s close, with approximately $55 million of cost synergies and roughly $25 million of adjusted operating income benefits from revenue-related synergies.
Our View
We note that, as part of its strategy to effectively deploy capital, Thermo Fisher has undertaken several acquisitions in the recent past. Earlier this year, the company announced plans to deploy capital worth $17 billion during 2017–2019, of which 70% will be for mergers and acquisitions bringing business expansion.
So far, apart from boosting revenues, the numerous acquisitions made by Thermo Fisher have benefitted its operating margin, as well as resulted in tax synergies. We believe the FEI acquisition will be no exception.
Zacks Rank & Key Picks
The company currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are IDEXX Laboratories, Inc. (IDXX - Free Report) , Masimo Corporation (MASI - Free Report) and Natus Medical Inc. . All the three stocks sport a Zacks Rank #1 (Strong Buy).
(We are reissuing this article to correct a mistake. The original article, issued Thursday, September 1, 2016, should no longer be relied upon.)
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>>