The biggest health care buyout deal of 2020 has been initiated with Thermo Fisher Scientific TMO entering in an $11.5-billion purchase agreement to buy molecular diagnostics and sample preparation technologies major QIAGEN N.V. QGEN. Subsequent to the announcement, shares of Thermo Fisher gained 1.77% to $310.36, while QIAGEN rallied 14.76% to reach $41.45 at yesterday’s closing.
While the deal will enable Thermo Fisher to expand its Specialty Diagnostics portfolio and improve its R&D skill, the Massachusetts-based serving science leader said the consolidation will deliver significant cash value to its shareholders as well.
The deal, subject to certain customary closing conditions, is expected to close in the first half of 2021.
Financial Terms of the Deal
Going by terms of the deal that have been unanimously approved by the boards of both companies, QIAGEN’s shareholders will get €39 per share. Thermo Fisher noted that this offer price represents 23% premium to QIAGEN’s Mar 2’s closing price, the last trading price before the announcement. The total transaction value of $11.5 billion, based on the current exchange rate, also includes $1.4 billion of net debt.
How Strategic is the Deal
Thermo Fisher believes, post integration, QIAGEN’s robust molecular diagnostics presence with focus on infectious disease testing will complement the company’s existing specialty diagnostics capabilities, including allergy, autoimmunity, transplant diagnostics and clinical oncology testing. The consolidated business is anticipated to provide advanced higher-specificity and more comprehensive tests in a faster way at reduced cost.
Further, Thermo Fisher claims that QIAGEN’s assay and bioinformatics technologies will complement the genetic analysis and biosciences capabilities of the former. This expanded line will significantly boost Thermo Fisher’s research capabilities in life science.
Banking on Thermo Fisher’s extensive commercial reach and solid presence in high-growth and emerging markets, the consolidated business will likely get stronger customer acceptance.
Overall, Thermo Fisher expects this deal to be immediately accretive to the company’s adjusted EPS after closure. Total integration synergy is projected at $200 million ($150 million of cost synergies and $50 million of adjusted operating income benefit from revenue synergies) by the third year post the deal’s closeure, consisting of $150 million of cost synergies and $50 million of adjusted operating income benefit from revenue synergies.
Thermo Fisher — A Giant Inorganic Investor
Thermo Fisher has an impressive inorganic growth profile. In this regard we note that the QIAGEN-deal is one of the largest in the history of Thermo Fisher’s inorganic expansion. Back in 2014, the company acquired life-sciences solutions mammoth — Life Technologies — for $13.6 billion.
Further, the other significant acquisitions of recent times include Affymetrix, Brammer Bio, HighChem and many more. Apart from boosting revenue accretion, these deals have historically benefited the company’s operating margin while also resulting in tax synergies.
Shares of Thermo Fisher have depreciated 1.8% in the past three months compared with the industry’s 6% decline.
Zacks Rank & Stocks Worth a Look
Thermo Fisher currently carries a Zacks Rank #3 (Hold).
Two better-ranked stocks from the broader medical space include ResMed Inc. RMD and Hill-Rom Holdings, Inc. HRC.
ResMed has a projected long-term earnings growth rate of 12%. It currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Hill-Rom’s long-term earnings growth rate is estimated at 11.1%. It holds a Zacks Rank of 2, at present.
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