Total Value of Acquisitions Falls in 2008

It was another year when one major deal in the analytical instrument and laboratory products industry dwarfed the size of other deals. Invitrogen’s $6.7 billion acquisition of Applied Biosystems was this year’s mega-deal, bringing together the largest supplier of life science consumables with one of the largest supplier of instruments for life science research (see page 2, IBO 6/15/08). Driven by many of the same factors that made the Thermo Electron–Fisher Scientific deal attractive, including the combination of instruments with consumables and the ability to generate significant cost savings, the deal could set the stage for greater consolidation. However, the current economic environment may preclude any major moves.

Including Invitrogen–Applied Biosystems, the total value of mergers and acquisitions for major analytical instrument companies in the past year was significantly smaller than in 2007. In view of the current credit crisis, private equity firms were effectively absent from M&A activity, compared to 2007 when they accounted for two of the five largest pure-play transactions (see IBO 11/15/07). In addition, economic uncertainty and high valuations among private companies may have curtailed some acquisition activities. However, in other cases, deflated stock valuations and slowing financial results may have motivated companies to initiate strategic acquisitions.

IBO’s annual summary of mergers and acquisitions in the analytical instrument and laboratory product–related markets is comprised of deals announced between November 16, 2007 and November 15, 2008. The summary is based on publicly available information and is compiled from merger and acquisition news reported in IBO.

Invitrogen–Applied Biosystems was the largest pure-play acquisition of the year. However, the year’s largest acquisition involving a sizable laboratory instrument or product business was Dow’s purchase of Rohm and Haas, which was valued at approximately $18.8 billion (see IBO 7/15/08). Rohm and Haas’s Advanced Biosciences division offers process chromatography products, which add to Dow’s sizable position in this market and helps Dow fulfill its larger strategic intent of an increased focus on specialty chemical products.

The remaining top 5 deals of the year were all pure-play transactions. Affymetrix was behind two of the largest pure-play transactions this year (see IBO 12/31/07, page 2). The company spent a total of $173 million on acquisitions, as it sought to remake itself in response to falling sales and competitive pressures. Through the acquisitions, Affymetrix was able to diversify its product lines, as well as add technology for new product formats and future product development.

Other companies stepping up this year to invest heavily in laboratory products included GE and Bruker. GE Healthcare purchased the ailing Whatman (see IBO 2/15/08), which gave GE a wider range of sample preparation tools to complement the company’s reagent and analysis tools. Bruker’s purchase of BioSpin united the company’s three businesses in one public company (see IBO 12/15/07), helping to enhance Bruker’s financial profile and increase cross-marketing opportunities. Although complete purchase price information was not available, Thermo Fisher Scientific and Agilent were also major investors as each completed five or more acquisitions.

None of the top five deals in terms of premiums paid this year rivaled last year’s top five. This year’s top purchase, Invitrogen’s purchase of CellzDirect (see IBO 1/15/08), netted a 3 to 2 price-to-sales ratio. In contrast, last year’s top deal, Roche’s acquisition of BioVeris (see IBO 4/30/07), had a price-to-sales ratio of 24 to 9. The relative absence of private equity in deals, the economic downturn and a cautious approach to valuations appear to be the primary reasons. Last year’s top 5 premium-paid deals were also driven by the need of the acquiring companies to fill in key product lines. Outside of Varian’s purchase of Oxford Diffraction (see IBO 4/15/08) and Invitrogen’s acquisition, this year’s top 5 premium-paid deals appear to be more opportunistic. The Boards of both Applied Biosystems and Whatman were each pursuing strategic alternatives when the companies were purchased.

Agilent was among the companies that entered a new technology market through acquisitions. In building its new Materials Sciences Solutions business unit, Agilent purchased four companies, adding products for particle size analysis (see IBO 3/15/08, 7/15/08), fluorescence microscopy (see IBO 3/15/08) and nanoindentation (see IBO 6/30/08). The number of acquisitions indicated an additional focus for the company’s Bio-Analytical Measurement business on materials analysis and nanotechnology.

QIAGEN NV continued to broaden its horizons, stepping up its presence in the instrument market. The company added thermal cyclers (see IBO 7/15/08) and DNA sequencers (see IBO 10/15/08) to its product portfolio this year. The instruments are an extension of QIAGEN’s assay and sample preparation offerings and fit well with its customer base. Like Invitrogen this year and Roche Applied Sciences last year, QIAGEN has chosen to add analytical instrumentation to its consumables franchise. The addition not only allows the company to sell both types of products to its customers, but to develop workflows for specific applications and to better integrate instruments and consumables. In addition, this type of integration will assist each company in the molecular diagnostics marketplace.

GE Healthcare is another company that pursued new markets through acquisitions this year. As discussed above, the Whatman purchase added sample preparation products, as well as additional life science storage and analysis techniques to the company’s life science research business. GE Healthcare also invested in calorimetry (see IBO 9/30/08), expanding its range of instruments for pharmaceutical research. The two very different purchases suggest that GE remains committed to the life science research market and to growing the business.

Varian’s two acquisitions in the past year increased the company’s presence in key markets by adding completely new product lines. The company’s purchase of X-ray diffraction technology (XRD) (see IBO 4/15/08) helps it compete more effectively in the pharmaceutical market, as well as the NMR market. The addition of a light-scattering detector product line (see IBO 5/15/08) enhances Varian’s offerings for HPLC and fits well with the polymer and pharmaceutical focus of its Polymer Laboratories subsidiary.

Similarly, Bruker’s addition of new techniques to its product portfolio brings new opportunities in existing end-markets. The company purchased a supplier of combustion analysis systems (see IBO 1/15/08), adding to its product lines for metal analysis. Bruker also branched out into the microscopy market, purchasing an atomic force microscopy company (see IBO 8/31/08) in order to further expand its product offerings for materials research—a market in which Bruker’s X-ray diffraction and molecular spectroscopy systems are also utilized—and semiconductors. Both purchases also expand Bruker’s exposure to industrial end-markets.

Bolt-on or tuck-in acquisitions that enhance existing product lines continued to be the norm for the industry as a whole. Thermo Fisher Scientific exemplified this strategy, recording seven pure-play acquisitions this year that added to its product portfolios in a variety of businesses. Thermo’s largest purchase was La-Pha-Pack, a manufacturer of chromatography consumables, for approximately $46 million (see IBO 12/31/07). The other six acquisitions amounted to roughly $150 million, and were split among a wide range of technologies and end-markets. Other companies adding to existing product lines included PerkinElmer in lab service (see IBO 3/31/08) and Halma in fiber optic OEM products (see IBO 9/15/08).

Among the most popular technology areas for acquisitions was, not surprisingly, DNA sequencing. Illumina (see IBO 7/31/08) and Invitrogen (see IBO 10/31/08) each invested in so-called third-generation sequencing technologies, while another company, Pacific Biosciences, which is developing single-molecule sequencing technology, added to its intellectual property (see IBO 7/15/08). Investing in current sequencing technologies were, of course, Invitrogen and QIAGEN.

Materials characterization techniques also drew plenty on interest over the past year. With the increasing use of thermal analysis techniques for drug development, Waters purchased a maker of thermogravimetric and sorption analysis systems (see IBO 7/31/08), while GE Healthcare invested in calorimetry.

Cellular research also remained a busy sector for acquisitions. However, outside of Invitrogen’s purchase in the field, most of the activity this year was focused on instruments. These acquisitions included additions to the flow cytometry product lines of Beckman Coulter (see IBO 11/30/07) and Becton, Dickinson (see IBO 5/15/08). MDS’s added to its products for cellular analysis (see IBO 6/30/08), while Lonza AG purchased transfection technology (see IBO 5/31/08) to compliment its products for cellular research.

As in recent years, HPLC products were also acquisition targets. In addition to Varian and Thermo Fisher Scientific, Malvern Instruments (see IBO 4/30/08) and Merck KGaA (see IBO 3/15/08) also made investments to add to their HPLC product lines.

Geographical reach was also an important factor of a number of acquisitions by instrument companies this year. Most notably, Thermo Fisher Scientific continued to extend its reach in emerging markets with the purchase of an Indian instrument supplier (see IBO 6/15/08). Likewise, MTS Systems’ acquisition of a Chinese supplier of physical testing systems (see IBO 5/31/08) provided the company with greater access to the Chinese market. In Europe, VWR (see IBO 4/15/08, 8/15/08, 10/15/08) and Enzo Biochem (see IBO 5/15/08) made purchases in order to further increase their regional presence. Other companies, including Oxford Instruments (see IBO 5/31/08) and STARLIMS (see IBO 9/15/08), acquired their foreign distributors, establishing direct operations in a particular country and gaining expertise for that region.

The coming year could bring more mergers and acquisition opportunities as a greater number of companies put themselves up for sale in order to escape a tough business environment or limited financing, and buyers emerge to capitalize on these opportunities. However, potential buyers might also become more cautious, as they deal with the effects of the economic crisis and an uncertain financial outlook.

Top 5 Largest Pure-Play Instrument and Laboratory Product–Related Acquisitions in 2008

Purchaser Acquired Purchase Price ($M) Acquired Co.’s Annual Sales ($M)

Invitrogen Applied Biosystems $6,700.0 $2,361.0

Bruker Bruker BioSpin $914.0 $447.0

GE (Healthcare)Whatman $713.0 $235.0

Affymetrix USB $75.0 N/A

Affymetrix Panomics $73.0 N/A

Top 5 Premiums Paid in 2008 for Pure-Play Companies with Sales Over $10 Million

Purchaser Acquired Purchase Price ($M) Acquired Co.’s Annual Sales ($M) Price to Sales Ratio

Invitrogen CellzDirect $57.3 $18.0 3.2

GE (Healthcare)Whatman $713.0 $235.0 3.0

IDEX Semrock $60.0 $21.0 2.9

Invitrogen Applied Biosystems$6,700.0 $2,361.0 2.8

Varian Oxford Diffraction $42.0 $15.0 2.8

Greatest Number of Instrument and Laboratory Product–Related Acquisitions in 2008

Company Number of Acquisitions

Thermo Fisher Scientific 7

Agilent Technologies 5

Affymetrix 3

Bruker 3

GE 3

Invitrogen 3

VWR Funding 3

Chart: Value of Top 5 Pure-Play Instrument and Lab Product–Related Acquisitions

2006 $2,950 $10,600

2007 $5,366 $3,600

2008 $1,775 $6,700

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