Bruker Builds Critical Mass

Another company is set to join the ranks of publicly held analytical instrument companies with annual revenues of more than $1 billion. On December 3, Bruker BioSciences announced a $914 million agreement to acquire Bruker BioSpin (see page 2). Combined, the companies recorded pro forma revenues of $850.5 million in 2006, adjusted operating profit of $112.8 million, $58.3 million in net income and operating cash flow of $82.8 million. The acquisition will make Bruker BioSciences one of largest and most broad-based analytical instrument companies, providing X-ray spectroscopy, molecular spectroscopy, MS and magnetic resonance technologies.

Founded in 1960 by Guenther R. Laukien, Bruker BioSpin is the oldest of the Bruker companies and has 1,850 employees. Its product lines include systems for NMR, research magnetic resonance imaging (MRI) and electron paramagnetic resonance (EPR), as well as superconducting magnets and wires. Applications for these technologies span academic and industrial markets. For the first nine months of 2007, Bruker BioSpin revenues increased 12.2% to $351.9 million (see page 12). Excluding currency effects, revenues increased 5.2%. Product sales accounted for 91% of revenues and service for 9%. In 2006, Bruker BioSpin revenues increased 0.4% to $447.0 million, exceeding Bruker BioSciences’ sales of $435.8 million. During a conference call discussing the transaction, Bruker BioSciences CEO and President Frank Laukien attributed the slower revenue growth to a lag in sales of high-field NMR systems. Bruker BioSpin’s 2006 adjusted operating income increased 12.7% to $76.7 million, and R&D spending fell 2.7% to $53.7 million to make up 12.0% of revenues.

In presenting the acquisition to investors, Bruker BioSciences CEO Frank Laukien highlighted the number of operational and financial synergies between the companies, including those in the areas of marketing, support, distribution, and brand leverage. Bruker BioSciences will also benefit from cross selling and system integration opportunities, particularly for NMR and MALDI-TOF MS for small molecule research, as well as X-ray and NMR spectroscopy for protein structural determination.

Dr. Laukien also described planned strategic initiatives for clinical research, molecular diagnostics research and molecular imaging. Clinical diagnostics appears to be of particular interest. “We are looking forward to developing throughout the year 2008 a combined strategic initiative in clinical research systems and molecular diagnostics research, combining primarily mass spectrometry and NMR, but also some infrared optical clinical research systems,” he stated. The focus will result in the formation of a new molecular diagnostics division.

The acquisition also makes Bruker BioSciences more vertically integrated. Bruker BioSpin’s OEM businesses include the manufacturer of magnets and components for Bruker Daltonics’ MS systems. In addition, Bruker BioSpin provides magnets to makers of medical imaging systems. Bruker BioSpin’s superconducting wire business, which consists of superconductor wire manufacturers European Advanced Superconductor GmbH and European High Technology Superconductor GmbH, will be reported as a separate division. Bruker BioSciences also plans open up this business to outside investors, but to retain a “significant” stake. On the conference call, Dr. Laukien discussed the opportunities for high temperature superconductors, which include energy storage and power grind stabilization. Bruker BioSpin’s superconducting wire sales totaled $20.9 million in the first nine months of 2007. In 2006, superconducting wire sales fell 34.5% to $29.3 million.

The combination of the companies should give Bruker BioSciences a higher profile on Wall Street and improve the company’s balance sheet, as the company continues to work toward improving gross profit margins and net income. In 2008, Bruker BioSciences financial goals include revenue growth of 8% or more (2006 sales grew 17%); gross margins of more than 46% (2006’s figure was 45.6%); operating income margins of more than 12%, excluding transaction expenses (2006’s figure was 7.0%); and net income margin of over 9%, excluding transaction expenses (2006’s figure was 4.2%).

In three to four years, the company’s goals include revenue growth of more than 10% and improvements of between 50 and 100 basis points annually in gross margin to a range of 48%–49%. To boost gross margins, Bruker BioSciences plans to increase the sale of higher margin new products, solutions-based products and aftermarket products.

The larger size of Bruker BioSciences should also command increased attention from investors. The company’s stock price rose 55% in 2006 (see IBO 12/31/06), the year the company acquired Bruker Optics (see IBO 4/30/06) and has risen 24% this year as of November 30 (see IBO 11/30/07). The company’s proxy statement described certain investors as advocating the acquisition of Bruker BioSpin.

The acquisition is very much all in the family. Bruker BioSpin is owned by the Laukien family, who also currently holds 52% of Bruker BioSciences stock. Frank Laukein is co-CEO of Bruker BioSpin with Dirk Laukien, his brother, who is also president of Bruker Optics. Dirk Laukien and Tony Keller, chairman of Bruker BioSpin, will join Bruker BioSciences’ Board. In addition, Joerg Laukien, a third brother, is president of Bruker BioSpin MRI. Following the merger of Bruker BioSciences and Bruker BioSpin, the Laukien family will control 69% of Bruker BioSciences stock.

As a result of the family connection, the companies are already closely connected. Bruker BioSpin supplies products and technology to Bruker BioSciences, the companies distribute each others’ products and codevelop products. In 2006, Bruker BioSciences recorded approximately $10.8 million in sales to Bruker BioSpin and around $19.4 million in purchases from Bruker BioSpin. In this way, the transition to one company should progress smoothly and easily provide for operational and cost synergies.

Some of the instrument industry’s largest firms, such as Agilent Technologies, MDS Sciex and Thermo Fisher Scientific have significantly grown revenues and diversified product lines in recent years. The Bruker BioSciences and Bruker BioSpin combination continues this trend..

< | >