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At JP Morgan, Investors Focus on M&A; Thermo Hints at LC Market as ABI Eyes Cell Analysis

This story originally appeared in Biocommerce Week, a newsletter that has been discontinued.
 
SAN FRANCISCO — Investors attending the JP Morgan Healthcare Conference here this week appear to be most interested in the M&A strategies of the molecular biology tools firms presenting at the conference. And based on comments made by executives, it looks like 2007 will be another busy year for mergers and acquisitions.
 
For starters, Thermo Fisher Scientific may look to grow in the liquid-chromatography space. “I would like to be stronger in chromatography,” said CEO Marijn Dekkers. “We’re not a market leader, and that’s not easily solved.”
 
Dekkers reiterated earlier statements that the life sciences and industrial tools industries remain very fragmented. “There are a lot of companies out there who want to be acquired,” he said.
 
Another company with relatively clear M&A ideas is Applied Biosystems. Tony White, CEO of ABI’s parent company Applera, noted that the firm does not have a strong presence in cell analysis, and it intends to change that in the future through internal and external efforts.
 
Bullish on M&A
 
Even though Thermo Fisher is in the midst of integrating operations from the $10.6 billion merger of Thermo Electronic and Fisher Scientific – and both Thermo and Fisher made several acquisitions in the year leading up to their combination — Dekkers said the firm is not backing off from the M&A market. “All of the people who were running these businesses before are still running them,” so there has been little disruption, he said.
 
Asked during a breakout session following his presentation about the firm’s long-term plans for use of cash, Dekkers said acquisitions remain the firm’s first priority. “There is no reason why that won’t continue,” he said.
 
One potential area where Thermo Fisher may look to buy is in the liquid chromatography space. Dekkers pointed to the firm’s acquisition last month of LC sample-prep company Cohesive Technologies (see BioCommerce Week 12/20/2006), but said the firm has yet to develop a customer base in the market. Dekkers hopes that Thermo’s Accela HPLC platform, which was introduced in 2006, will help the firm gain some market share, though he acknowledged that Waters and Agilent are the clear-cut leaders in this market.
 
But Thermo Fisher is not alone. All of the companies that presented during the first two days of the JP Morgan conference said M&A activity was in their plans for the coming year.
 
While most said they would stick with smaller, tuck-in acquisitions, officials from Bio-Rad Laboratories said a larger acquisition is a possibility.
 
“We were lucky to make a few on the smaller side in ’06,” said Norman Schwartz, Bio-Rad president and CEO. He said the firm is evaluating some potentially larger deals, eyeing candidates in the range of $200 million in annual sales in both the life sciences research and diagnostics fields. But he cautioned that “there are very few large ones out there.”
 
Last year, the firm made two acquisitions aimed at expanding its proteomics portfolio. In March, the firm acquired ProteOptics, an Israel-based firm that developed an instrument for studying protein-protein interactions (see BioCommerce Week 3/1/2006). Bio-Rad followed that in August with the roughly $20 million acquisition of Ciphergen’s proteomics instrument business (see BioCommerce Week 8/16/2006).).
 
Thinking Small
 
Still, most of the officials presenting at the conference said they would stick with smaller deals. Qiagen has long been a proponent of pursuing small, niche-specific businesses – a strategy which has greatly bolstered its sample preparation and molecular diagnostics offerings (see related article, this issue).
 
“I always believe that acquisitions are not a strategy, per se, but are only a supplement and ingredient to strategies,” said CEO Peer Schatz.
 
“Acquisitions are certainly important, and we have been very aggressive in terms of the number of targets and the way we’ve gone about doing acquisitions,” he told Biocommerce Week. “That won’t change going forward. But I don’t necessarily think it is a winning strategy to try to attract investors by putting out a lot of press releases with closed transactions. That is often very short-sighted.”
 
Likewise, Waters Chairman, President and CEO Doug Berthiaume said that the firm “will continue to shy away from life-changing acquisitions,” but continue with add-on acquisitions. “We are not likely to look at a major acquisition that dilutes the focus of the company,” Berthiaume told investors.
 
Waters made three acquisitions last year of firms that do not focus primarily on the life sciences market, but rather on industrial applications. Those three businesses had combined sales of $21 million annually.
 
Vince Forlenza, executive vice president of Becton Dickinson, said that going forward, BD’s growth will primarily come from organic operations. He said if the firm does acquisitions this year, they will be “strategically obvious,” for example, focusing on technologies for hospital-associated infections.
 
BD recently completed the $350 million acquisition of TriPath Imaging, which followed last year’s $230 million acquisition of molecular diagnostics firm GeneOhm Sciences.
 
ABI, which diversified its portfolio last year by acquiring Ambion's research products division for $273 million in March (see BioCommerce Week 1/4/2006) and followed a few months later by buying Agencourt Personal Genomics from Beckman Coulter for $120 million (see BioCommerce Week 5/31/2006), intends to continue to look for acquisitions in 2007, Applera CEO Tony White told investors.
 
While he wouldn’t specify which areas ABI would target with M&A activity, White noted that the firm does not have a strong presence in cell analysis, and it intends to change that in the future through internal and external efforts. However, pressed during the breakout session whether a cell analysis instrument business would be a priority for ABI, White said that was not necessarily the case.
 
PerkinElmer acquired eight companies for a total of $150 million last year, six of which sell instruments or service offerings to the life sciences research field. CEO Greg Summe would not comment specifically on the firm’s M&A plans for 2007, but he said there are still opportunities. However, he did say the multiples “can be wild” in diagnostics.
 
Editor’s note: There will be additional coverage from the JP Morgan Health Care Conference in next week’s issue of BioCommerce Week.