More acquisitions in the future?
By Omar Ford
Perkinelmer Inc. has set its sights on beefing up its diagnostics offerings with a proposal to acquire Euroimmun Medical Laboratory Diagnostics AG, a private company, for $1.3 billion. If the deal goes through, then the Waltham, Mass.-based company could expand its reach into the autoimmune and allergy diagnostic markets.
Shares of Perkinelmer (NYSE:PKI) jumped about 6.5 percent during Monday trade, opening at 64.75 and closing at $67.73.
Acquiring Lübeck, Germany-based Euroimmun would also give Perkinelmer great inroads into the China market. Sales in China account for about 45 percent of the $310 million in revenue Euroimmun collected in 2016.
Euroimmun was founded in 1987 by Winfried Stöcker, to provide a range of medical laboratory reagents to assist in the diagnosis of autoimmune and infectious diseases and allergies. While it has had success in other countries, the firm has a small penetration rate in the U.S.
"The U.S. market has been a lower priority for Euroimmun historically, as it has focused on building strong businesses in Europe and in China," Robert Friel, chairman and CEO of Perkinelmer, said during a Monday call. "Given Perkinelmer's extensive presence in the U.S., we expect to accelerate their U.S. expansion through leveraging our reproductive health sales channel, particularly with the public health labs."
Friel noted that "we think that as they have a roughly $300 million business outside of the U.S., there is the potential to build a $300 million business inside the [U.S.]"
One of the major markets the Perkinelmer could really make an impact in through the acquisition is in the autoimmune market. Friel identified Siemens AG, Abbott Laboratories Inc. and Roche AG as some of the larger players in the space.
"When you look at the space, they are relatively small revenue players relative to the size of the market," Friel said. "The more focused competitors have a much more complete menu with broad capabilities."
Smaller competition in the autoimmune disease testing space includes Quest Diagnostics Inc., SQI Diagnostics Inc., Inova Diagnostics Inc., Crescendo Bioscience Inc., Biomerieux SA, Bio-Rad Laboratories Inc. and Hemagen Diagnostics Inc.
Perkinelmer said it expects to close the deal in 4Q17 and receive a near-immediate boost to its earnings per share. Management expects the takeover to add around 30 cents to non-GAAP earnings per share in 2018. Non-GAAP earnings per share for 2017 is forecast to come in between $2.80 and $2.90.
"From a financial perspective, the acquisition of Euroimmun is attractively accretive and is seemingly a good use of capital," said Doug Schenkel, an analyst with Cowen and Co. "That said, there is more work to do on the revenue synergy opportunity and the sustainable growth rate."
The acquisition comes on the heels of Perkinelmer acquiring Goa, India-based Tulip Diagnostics Private Ltd. for an undisclosed amount. Tulip's solutions include products for the prevention, screening and diagnosis of infectious diseases such as malaria, HIV and hepatitis.
During the Monday call Friel said not to count out additional acquisitions in the future.
"I think we still have a pretty strong balance sheet, and I think we'll continue to look," Friel said.
Schenkel said that he expected "additional tuck-in acquisitions over the next 12 months."
Making diagnostics a priority
Perkinelmer has been moving more toward reproductive health, emerging market diagnostics, and food safety and biopharma services. While the deal helps move Perkinelmer toward these sectors, the company's more pronounced step to make this transition came late last year when it agreed to sell its medical imaging franchise to Varex Imaging Corp., a publicly traded spin-off of Palo Alto, Calif.-based Varian Medical Inc. for $276 million. (See BioWorld MedTech, Dec. 23, 2016.)
The sale, which closed last month, was not enthusiastically received by all analysts, and in fact some had even more questions about Perkinelmer's direction.
"The sale leaves a sizable near-term earnings hole that is likely more dilutive than most anticipated, and we struggle to envision how further moves to jettison other unwanted portfolio assets creates incremental value," said Brandon Couillard, an analyst with Jefferies LLC. "Such pruning efforts could arguably make Perkinelmer a cleaner take-out target for a single strategic buyer at some point.
However, Perkinelmer has seen some success from its strategy. The firm has begun to rebound from a period of slow organic revenue growth that materially missed even metered expectations, Schenkel, said.
"This was a solid start to the year particularly as expectations were relatively low subsequent to a disappointing half of 2016," Schenkel said of the 1Q17 results.
Published June 20, 2017