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An early acquisition with Affymetrix
WALTHAM, Mass. & SANTA CLARA, Calif.—2016 looks to be a strong year for Thermo Fisher Scientific Inc. The company kicked off the year with the announcement of its plans to acquire Affymetrix Inc., a deal that is expected to close by the end of Q2 2016, subject to Affymetrix shareholder approval and customary closing conditions, including applicable regulatory approvals. This deal, which has a purchase price of approximately $1.3 billion, was unanimously approved by both companies’ boards of directors.
Thermo Fisher Scientific’s offer values Affymetrix at $14 per share, and is expected to be immediately accretive for Thermo Fisher’s adjusted earnings per share, adding 10 cents in the first full year of ownership, with the potential for roughly $70 million in total synergies by year three following the close of the transaction.
“The acquisition of Affymetrix will strengthen our leadership in biosciences and create new market opportunities for us in genetic analysis,” Marc N. Casper, president and CEO of Thermo Fisher Scientific, commented in a statement about the deal. “In biosciences, the company’s antibody portfolio will significantly expand our offering in the fast-growing flow cytometry market, and customers will have greater access to these products through our global scale and commercial reach. In genetic analysis, Affymetrix’s technologies are highly complementary and present new opportunities for us in targeted clinical and applied markets. For shareholders, we expect the transaction to create value by generating attractive financial returns, including immediate accretion to our adjusted EPS [earnings per share].”
Affymetrix brings with it approximately 1,100 employees worldwide, with its headquarters in Santa Clara, Calif., and operations in the United States, Europe and Asia. Following the close of the deal, Affymetrix will be integrated into Thermo Fisher’s Life Sciences Solutions Segment. Affymetrix’s offerings make it possible for scientists to perform parallel and multiplex analysis of biological systems at the cellular, protein and genetic level.
This deal could be a significant boost for Thermo Fisher’s product and service offerings. Affymetrix’s eBioscience offering for cellular analysis would expand the company’s antibody portfolio, and Affymetrix also brings with it genetic analysis capabilities for areas such as cytogenetics, genotyping and gene expression, with an innovative microarray platform that can support Thermo Fisher in markets such as reproductive health and agricultural biotechnology.
Frank Witney, president and CEO of Affymetrix, remarked, “Joining Thermo Fisher creates significant value for our customers, employees and shareholders. We will be able to build on our strong history of close collaboration with customers in our target markets by leveraging Thermo Fisher’s deep relationships, particularly in biopharma, as well as their global scale and leading presence in Asia-Pacific. We are excited about the opportunity to combine our portfolios and strengthen our position in high-growth markets such as single-cell biology, reproductive health and AgBio. Our employees will benefit by being part of an industry-leading company, which brings many opportunities for career growth and development. We look forward to working closely with the Thermo Fisher team to ensure a smooth transition and integration.”
Leerink reported that their initial impression of the transaction was “favorable,” adding that “While the deal appears expensive (~25x trailing 12-month EBITDA), the synergies are many, and we see [Thermo Fisher Scientific] readily achieving a high-single digit ROIC on the purchase within three years.” The analyst firm also noted that Affymetrix’s “microarray product offerings fill a gap in [Thermo Fisher Scientific’s] genetic analysis business,” and “its eBioscience portfolio of flow cytometry reagents” will be a boost to Thermo Fisher Scientific’s own flow cytometry instrument offering. Leerink did caution that the synergy goals seem “lofty and higher than comparable deals,” but said they are likely achievable given the “significant channel redundancy” of this deal.
While analysts’ opinions on the deal are generally favorable, investor opinion is mixed, Zacks noted, as Thermo Fisher’s shares barely budged since the deal was announced, though Affymetrix’s stocks jumped 50 percent on Jan. 8 as a result of the initial announcement.
Around the same time it announced the Affymetrix deal, Thermo Fisher also shared encouraging results for the fourth quarter and full year of 2015. Adjusted EPS for the quarter were $2.12, beating its results in the same quarter last year by 6.5 percent. Full-year adjusted EPS for 2015 was $7.39, a year-over-year improvement of 6.2 percent. Thermo Fisher recorded revenues for the quarter of $4.65 billion, with full-year net sales of $16.97 billion.
Zacks noted that the company had a “better-than-expected fourth-quarter 2015 outcome that squarely beat the Zacks Consensus Estimate,” adding that it was “upbeat” about the products Thermo Fisher launched last year “for the research, clinical and applied markets, highlighted by the QuantStudio 3 and 5 qPCR systems, Orbitrap Fusion Lumos Tribrid mass spectrometer and the Ion S5 and S5 XL next-generation sequencing instruments.” Zacks also nodded to Thermo Fisher’s efforts in acquiring Advanced Scientifics and Alfa Aesar for almost $700 million and the fact that it repurchased $500 million of its stock.