In the second multibillion dollar acquisition this year involving a laboratory product and instrumentation company following the purchase of Millipore (see IBO 2/28/10), Thermo Fisher Scientific announced this month it will acquire Dionex for $2.1 billion in cash (see page 2), or approximately five times sales. This is Thermo’s largest acquisition since its 2006 purchase of Fisher Scientific (see IBO 5/15/06) and marks a major expansion for the company’s HPLC offerings. Thermo also gains a larger presence in the Asia-Pacific region and applied markets.

Dionex offers two major product lines: ion chromatography (IC) and HPLC. The company dominates the IC market with over $250 million in IC revenues last fiscal year. IC is a mature market that Dionex has rejuvenated through technology development and geographical expansion. However, the fastest-growing product line for Dionex has been HPLC, with fiscal 2010 sales increasing 16% to make up 30% of revenues. HPLC is one of the largest segments of the analytical instrument market, driven by technology development and LC/MS applications.

The acquisition makes Thermo, along with Agilent and Shimadzu, one of the only companies with an extensive LC and GC portfolio. “Together, we really have a very complimentary and very comprehensive chromatography portfolio,” said Greg Herrema, senior vice president and president of Analytical Instruments at Thermo. “Combining the strengths that Dionex has in ion and liquid chromatography systems and consumables with our position in gas chromatography systems, we think puts us a position where we’ve got a great offering for our customers.”

Within the HPLC market, Dionex participates in the $400 million–plus UHPLC market. The acquisition will vault Thermo into the top ranks of UHPLC providers, the fastest-growing segment of the HPLC market. As Thermo President and CEO Marc N. Casper commented on the company’s conference call, “We’re excited about this offering because it creates the strongest technology platform in industry and when combined with Thermo Fisher’s commercial presence gives us a significant advantage in the marketplace.”

Dionex introduced its first UHPLC system in 2008. Last fiscal year, Dionex introduced UHPLC capabilities on all of its HPLC systems (see IBO 6/30/10). The company currently offers four Ultimate3000 systems. Thermo also participates in the UHPLC market but to a lesser extent. Thermo’s UHPLC offerings include the Accela High Speed LC and the Accela 1250 Pump. “There is a small degree of overlap in the products,” said Mr. Herrema. “We have a high degree of specialization in areas like multiplexing or TurboFlow. So, largely speaking, we view the LC product lines as very complimentary to each other.”

Dionex’s HPLC product lines also include columns and software. Its Chromeleon chromatography data system (CDS) has helped the company to gain a foothold in the highly competitive HPLC marketplace. Thermo also offers a CDS system, Atlas, but it is an enterprise system. Chromeleon provides desktop and enterprise capabilities. “So the opportunity we believe that exists is really in strengthening the overall workstation chromatography data system capabilities where we don’t have that within our portfolio today,” Mr. Herrema told IBO. “Dionex has built a leading position—really the gold standard—in terms of the reputation that they have developed in the industry for both that workstation and enterprise CDS.” Dionex’s chromatography columns product line expands Thermo’s offerings for life science and environmental application and adds monolithic column products.

As one of the largest MS providers, Thermo will be able to benefit from Dionex’s HPLC portfolio in multiple ways. As Mr. Casper stated in the conference call, currently, all of Thermo’s MS systems are sold with front-end HPLCs, but only half of these front ends are Thermo HPLCs. Thus, Thermo can be expected to increase its percentage of LC/MS sales, as well as benefit from Dionex’s HPLC development expertise.

Thermo also hopes to increase its sales of MS products to Dionex’s customer base. As an example, Mr. Casper noted that Dionex’s customers that test for pesticides in food or pharmaceuticals in water would be interested in Thermo’s triple quadrupole MS technology. “We believe there are significant opportunities to drive better performance and productivity for our customers by integrating the capabilities we already have today in our mass spectrometry business with the comprehensive chromatography offering from Dionex,” said Mr. Herrema. The companies have a history of working together. Dionex currently offers Thermo’s MSQ Plus MS with its IC and HPLC systems.

Also, Dionex’s presence in applied markets will extend Thermo’s penetration of these markets, according to Mr. Herrema. “Dionex has a very strong position in applied markets. So when we think of applied markets and routine testing, it’s areas like environmental—where in particular they have a very strong position in water testing—but it’s also in other areas like food safety,” he noted. “So these are high-growth markets where we have a good presence with other elements of our product line, but believe that with the reach that they have, that, again, we will have the opportunity to bring more of our Thermo Scientific products from other parts of the company into those customers that we may not be calling on today.” According to Dionex’s Pittcon 2010 presentation, the Environmental and Life Science end-markets each account for 35% of company sales, and the Food and Beverage end-market represents 10%.

Perhaps most valuable to Thermo in the long term is Dionex’s Asia Pacific presence. Asia Pacific revenues accounted for more than a third of the company’s fiscal 2010 revenues. Sales in China in fiscal 2010 increased 11.0% to $52.9 million. “Dionex generates more than 35% of their revenues in the Asia Pacific region and other emerging, high-growth areas. They’ve developed a very strong reputation through building out a very extensive direct sales and service and application presence throughout that region,” said Mr. Herrema. Dionex has consistently cited growth in China, Korea and India as growth leaders.

The acquisition also ups Thermo’s analytical instrument revenues. Dionex generated fiscal 2010 revenues of close to $420 million (see IBO 8/31/10), primarily from the sale of instrument systems. In recent years, consolidation has taken hold in the analytical instrument industry, with heavyweights such as Applied Biosystems (see IBO 6/30/08), Varian (see IBO 7/31/09) and Millipore (see IBO 2/28/10) merging with former competitors. Consolidation has also taken hold in the number of bolt-on acquisitions. Thermo alone has announced 29 acquisitions in the last five years. The pace of acquisitions is unlikely to slow, as many companies have ample cash on hand and access to financing. As a result, companies such as Dionex, which had previously fielded acquisition offers, may find an offer too high to turn down.

Pie Chart: Dionex FY10 Revenues

US 30%

Europe (excl. Germany) 27%

Germany 9%

Japan 13%

China 11%

Other 10%