Luminex Corporation (LMNX - Analyst Report) recently announced a definitive deal to buy US-based diagnostic testing company, GenturaDx. Per the agreement, Luminex will buy all the outstanding shares of the privately-owned company for $50 million in cash, subject to certain terms and conditions.
In addition to $50 million, Luminex may end up making contingent payments based on the achievement of certain milestones and also on the basis of product performance.
Financial Impact of the Acquisition
On a reported basis, the acquisition of GenturaDx is expected to be dilutive to Luminex’s 2012 earnings. The company expects to recognize a part of the costs in the second quarter itself, given the timing of the deal. The rest of the non-recurring costs will be accounted for in the subsequent quarters. In addition, apart from acquisition charges, the deal will add roughly $6 million to the company’s operating expenses in 2012.
Luminex’s share price dropped 18% following the announcement of the acquisition. We believe the drop in share price reflects disappointment regarding the dilutive nature of the deal and higher operating expenses.
Acquisition to Boost Instruments Portfolio
The acquisition of GenturaDx will expand Luminex’s instrument products portfolio, as Luminex plans to advance the late-stage development of GenturaDx’s integrated sample-to-answerreal-time polymerase chain reaction (“PCR”) system and combine it with its MultiCode-RTx assay to develop a highly efficient yet affordable system for molecular diagnostic testing. Luminex plans to launch a number of assays, which can be used along with GenturaDx’s innovative platform by 2014.
Luminex will record acquisition-related cash and non-cash expenses, the full extent of which will be determined once valuation is done under purchase accounting rules. Moreover, according to ASC 805 Business Combinations, professional fees shall be paid as incurred, as required by GAAP.
The GenturaDx deal is in line with Luminex’s strategy of pursuing acquisitions to drive growth. Last year, the company had acquired privately-held diagnostic testing company EraGen Biosciences, Inc. in June 2011. The acquisition provided the company a highly complementary portfolio of molecular diagnostic tests based on the MultiCode platform. Besides, it enabled the company to tap new markets leveraging EraGen’s innovative technologies. The acquisition continues to contribute meaningfully to the company’s assay revenues in 2012.
Luminex possesses an extensive product portfolio and a strong pipeline of novel assays, which are expected to support growth going ahead. The company’s strong international presence has helped it to further expand its product portfolio. Its customer base is also quite encouraging.
However, Luminex operates in the highly competitive life sciences industry. The company competes with Affymetrix and Sequenom , among others. Moreover, sluggish growth in its core markets is a challenge faced by Luminex. We are currently Neutral on the stock, which carries a Zacks #3 Rank (short-term Hold rating).