Michael A. Martorelli06.01.10
Just three issues ago, I devoted a column to the problem of finding the most appropriate mix of services for an outsourcing company. Now I profile three recently announced transactions that demonstrate different views on that subject.
In early January, the chief executive officer of Thermo Fisher Scientific (TMO) approached his counterpart at Millipore Corporation (MIL) with an offer to purchase the company for $92.00 per share in cash. Wall Street appeared pleased with the prospect of TMO's paying $5.1 billion in cash for Millipore. That acquisition would add MIL's $1.6 billion in revenue from discovery and development support services and products to TMO's $10.1 billion in revenue from instruments, consumables and services sold to a similar base of life science customers. As required by state law and good corporate governance, MIL solicited other offers. In late February, it received a revised offer of $6.0 billion from TMO and an offer of $7.2 billion ($107.00 per share) from the diversified drug and chemical company Merck KGaA. Merck's management viewed the acquisition as additive and complementary to its existing business. In particular, Merck's management saw the attraction of adding MIL's $926 million Bioprocess Division and $730 million Bioscience Division to its own $1.6 billion Performance and Life Science Chemicals Division. Sensing new opportunities for worldwide growth, MIL's board accepted the Merck offer; pending shareholder approval, closing was scheduled for June.
In mid-April Oracle Corporation (ORCL) agreed to purchase Phase Forward (PFWD) for $17.00 per share in cash. ORCL is the world's largest enterprise software company and the leading software vendor to the life sciences industry. In mid-2008, it formed the Health Sciences Global Business Unit (HSGBU) as a vehicle for enhancing its ability to serve the needs of this broad customer base. The acquisition could be more meaningful than it appears on the surface. It will add PFWD's $213 million in revenue to the HSGBU base that was estimated at $219 million in 2008 by Health Industry Insights. ORCL is paying approximately $685 million, approximately 19x trailing 12 months EBITDA, for PFWD. Wall Street did not seem unduly concerned about this valuation; ORCL has paid premium prices for many acquisitions during the past several years. The transaction is scheduled to close in mid-year.
In late April, Charles River Laboratories (CRL) agreed to purchase WuXi PharmaTech (WX) for cash and stock worth $21.25 per share, or $1.6 billion. The companies appear to have complementary portfolios with limited overlap. CRL provides animal models for research and a variety of in vivo discovery services involving pharmacology, safety, toxicology, etc. WX provides a range of chemistry services used in discovery and preclinical development; it operates discovery, chemistry, toxicology and manufacturing facilities in China. CRL is a much larger company, with an annual revenue level of $1.2 billion compared to WX's $270 million, and non-GAAP operating income of $225 million compared to WX's $55 million. Wall Street appeared pleased with the potential combination, but not with the transaction price of approximately 17x trailing 12 months EBITDA. CRL's stock fell 15% the day the acquisition was announced, and has since drifted down another 4%. Closing is scheduled for the fourth quarter. [For more on the CRL/WX tie-up, see this issue's Preclinical Outsourcing column.-Ed.]
Each transaction seems to have a strong rationale on the part of both the buyer and the seller. Only time will tell which combined management teams will prove the most satisfied or the most disappointed with these marriages. It's worth noting that they all characterize a new level of robust acquisition activity in several segments of business.
Michael A. Martorelli is a Director at the investment banking firm Fairmount Partners. For additional commentary on the topics covered in this column, please contact him at michael.martorelli@fairmountpartners.com, or at Tel: (610) 260-6232; Fax (610) 260-6285.
- Merck KGaA is taking another step in implementing a diversification strategy quite different than that of most other large drug companies.
- Oracle Corporation is again enhancing its presence in a particular vertical market by acquiring a leading competitor.
- Charles River Laboratories is again extending its reach into new arenas within the broad preclinical outsourcing industry.
In early January, the chief executive officer of Thermo Fisher Scientific (TMO) approached his counterpart at Millipore Corporation (MIL) with an offer to purchase the company for $92.00 per share in cash. Wall Street appeared pleased with the prospect of TMO's paying $5.1 billion in cash for Millipore. That acquisition would add MIL's $1.6 billion in revenue from discovery and development support services and products to TMO's $10.1 billion in revenue from instruments, consumables and services sold to a similar base of life science customers. As required by state law and good corporate governance, MIL solicited other offers. In late February, it received a revised offer of $6.0 billion from TMO and an offer of $7.2 billion ($107.00 per share) from the diversified drug and chemical company Merck KGaA. Merck's management viewed the acquisition as additive and complementary to its existing business. In particular, Merck's management saw the attraction of adding MIL's $926 million Bioprocess Division and $730 million Bioscience Division to its own $1.6 billion Performance and Life Science Chemicals Division. Sensing new opportunities for worldwide growth, MIL's board accepted the Merck offer; pending shareholder approval, closing was scheduled for June.
In mid-April Oracle Corporation (ORCL) agreed to purchase Phase Forward (PFWD) for $17.00 per share in cash. ORCL is the world's largest enterprise software company and the leading software vendor to the life sciences industry. In mid-2008, it formed the Health Sciences Global Business Unit (HSGBU) as a vehicle for enhancing its ability to serve the needs of this broad customer base. The acquisition could be more meaningful than it appears on the surface. It will add PFWD's $213 million in revenue to the HSGBU base that was estimated at $219 million in 2008 by Health Industry Insights. ORCL is paying approximately $685 million, approximately 19x trailing 12 months EBITDA, for PFWD. Wall Street did not seem unduly concerned about this valuation; ORCL has paid premium prices for many acquisitions during the past several years. The transaction is scheduled to close in mid-year.
In late April, Charles River Laboratories (CRL) agreed to purchase WuXi PharmaTech (WX) for cash and stock worth $21.25 per share, or $1.6 billion. The companies appear to have complementary portfolios with limited overlap. CRL provides animal models for research and a variety of in vivo discovery services involving pharmacology, safety, toxicology, etc. WX provides a range of chemistry services used in discovery and preclinical development; it operates discovery, chemistry, toxicology and manufacturing facilities in China. CRL is a much larger company, with an annual revenue level of $1.2 billion compared to WX's $270 million, and non-GAAP operating income of $225 million compared to WX's $55 million. Wall Street appeared pleased with the potential combination, but not with the transaction price of approximately 17x trailing 12 months EBITDA. CRL's stock fell 15% the day the acquisition was announced, and has since drifted down another 4%. Closing is scheduled for the fourth quarter. [For more on the CRL/WX tie-up, see this issue's Preclinical Outsourcing column.-Ed.]
Each transaction seems to have a strong rationale on the part of both the buyer and the seller. Only time will tell which combined management teams will prove the most satisfied or the most disappointed with these marriages. It's worth noting that they all characterize a new level of robust acquisition activity in several segments of business.
Michael A. Martorelli is a Director at the investment banking firm Fairmount Partners. For additional commentary on the topics covered in this column, please contact him at michael.martorelli@fairmountpartners.com, or at Tel: (610) 260-6232; Fax (610) 260-6285.