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Acquiring Elcos for $15M, PerkinElmer Hopes to Drive More Organic Growth

PerkinElmer is getting back into the acquisitions market — in a small way.

Wellesley, Mass.-based PerkinElmer last week announced the $15-million cash acquisition of Elcos, a German-based manufacturer of custom light-emitting diode-based products for biomedical and industrial applications.

Based in Pfaffenhofen, Elcos had revenues of $11.3 million in 2004, with over 60 percent of those revenues coming from health sciences applications, including blood glucose monitoring and patient monitoring, PerkinElmer said in a statement. Joachim Sieg, who founded Elcos in 1976, will remain with the company as a consultant after the acquisition is completed. No date was set for the closing.

The acquisition is PerkinElmer's first since 2001, when it purchased Packard Bioscience in an all-stock deal valued at approximately $650 million.

"There is no magic about the first one," PerkinElmer CEO Greg Summe told analysts at last week's Merrill Lynch Global Pharmaceutical, Biotechnology & Medical Device conference in New York. "We think we can take this technology and give it worldwide distribution, and open it up to a much broader range of customers and applications."

The acquisition comes after a two-year period where PerkinElmer wrestled with its debt and its operational efficiency (see BCW 12/23/2004). The company spent $175 million in FY '04 — $100 million of that in the fourth quarter alone — to reduce its long-term debt to $365 million. The company had $198 million in cash and cash equivalents on hand at the end of the quarter.

Elcos will reside in PerkinElmer's optoelectronics segment. PerkinElmer divides its business into three segments — life and analytical sciences, optoelectronics, and fluid sciences.

The life and analytical sciences segment charted 7-percent revenue growth in the quarter ending Dec. 31 with revenues of $312 million, up from $290 million a year ago. The company's optoelectronics unit, which houses its medical imaging and sensors segments, reported 12-percent growth with revenues of $101.5 million in the period, compared to $90 million a year ago. Its fluid sciences segment improved 27 percent to $65 million from $51 million a year ago.

The first two segments are somewhat complementary, as optoelectronics products for digital imaging sell into the health-sciences market in addition to providing flash units for the digital cameras embedded in cellular telephones. Contrast that with PerkinElmer's fluid sciences segment, which provides fluid control and containment systems for turbine engines and semiconductor fabrication facilities.

"[Elcos] has optical technology but, principally, it is in health-science based applications," Summe said. "The largest proportion of our investment is in the health sciences end-market with whatever technology we have to bring to it."

Summe said that the company has been active in acquiring technology, just not in making outright purchases.

"We have done many, many licensing and [technology] acquisitions over the past couple of years, but we haven't done any outright acquisitions literally since the end of '01, but I don't know if there is any magic to that recipe," he said. "This one just happened to take the form of an acquisition."

Summe said that PerkinElmer needs to access a broad range of intellectual content and products to develop its business and would be "happy" to arrange licensing, pay royalties, set up partnerships, or make acquisitions, to fuel growth.

"We are not in the market to do large, consolidating acquisitions partly because when you look at the applications that have the most attractive growth for us, there aren't a lot of large players in there," he said. "They are small companies in new emerging markets. In medical imaging, we are the largest provider of this product in the world. Who would we buy?"

PerkinElmer supplies digital medical imaging components to General Electric under a five-year, $250 million partnership.

"Our priority relative to business development is looking at areas where there is technology or product extensions that we think help drive organic growth in our applications," he said.

And, small acquisitions are relatively easier to digest, he said.

"On the positive side, you get free and complete control [with an acquisition]," he said. "On the negative side, it takes up a lot of time, for the integration, aligning cultures, repositioning all the people, getting the incentives lined up. In the shorter term, it tends to absorb more resources to make it happen, and that all factors into it."

Summe said the company is sticking with its business segment profile — and apparently all of its units — when asked about possible divestitures of non-healthcare related businesses.

"We have certainly got a lot of questions about the aerospace and semiconductor [segments] that have relatively little linkage into the life sciences," he said. "We look at it from incremental return on capital. If we have incremental growth, good opportunities in that business, our instinct is to let that happen. We look at it every few months, every six months. If, standing back, we came to the conclusion that someone else could grow those businesses faster than we could, we would clearly do that. But, we have good incremental investments. It doesn't take a lot of capital to drive good organic growth, so our instinct is to hold on to them for a while."

— Mo Krochmal ([email protected])

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