Thermo Electron and Waters, two of the leading life science instrument sellers, figuratively on Monday pulled out their wallets to tell Wall Street analysts they are in a mood to buy.
Presenting at the Bear Stearns Healthcare Conference in New York, Thermo announced plans to acquire InnaPhase, a Philadelphia-based supplier of data-management software and services, and Marijn Dekkers, president and CEO, said the company might consider spending a lot more.
“With balance-sheet strength, combined with debt leverage, we have about $1.5 billion capability to do cash acquisitions — if we would find the right ones,” he said.
John Ornell, the CFO of Waters, said the company may be able to spend $50 million and even perhaps as much as $100 million a year on acquisitions. The company had $420 million in cash on hand at the end of its second quarter ending July 3.
Thermo reported $307 million in cash at the end of its most recent financial quarter. The company will spend some $65 million to purchase InnaPhase after spending $74.7 million to buy asset manager US Counseling Services of Brookfield, Wis., in April. The company has completed five acquisitions over the last 12 months, adding $195 million in revenues for the company, Dekkers said.
Still, Thermo may have to consider a reserve account after Applera, MDS, and Applied Biosystems/MDS Scientific Instruments jointly filed a patent infringement complaint against it in US District Court for the District of Delaware on Sept. 9 related to its mass spectrometer systems. Applera successfully sued Waters in a related mass spec lawsuit that forced Waters to stop distribution of the infringing US products and pay $53.7 million for damages and interest.
Dekkers said the company is not worried about this litigation.
“They are claiming that we are using [triple-quadrupole mass spectrometry] technology that they have patented; we totally disagree,” said Dekkers. “We have a very different technology than Waters uses, plus we have two years’ warning. We were somewhat surprised that if they were going to sue us, why didn’t they do it two years ago? Why wait two years?”
Thermo said its two most recent acquisitions will help it expand its laboratory services offerings — a “big opportunity for us,” Dekker said.
These offerings will expand to include applications development and asset management for a larger customer base, as well as a stronger laboratory information management systems business.
Dekker said the company has segmented its customer base into two parts — scientists and lab managers.
“The lab manager is an ignored species by our industry, but is becoming more and more prominent and more and more of a decision maker in the purchasing,” he said.
For the scientist, the path is through improving instrumentation.
“With mass spec, it is easy to innovate because the end-market application and proteomics are so new that the instruments were not originally designed for [them],” he said. “You can still do a lot to have specific upgrading capabilities for those applications. If our customers bought a mass spec from us three years ago, they are becoming out of date. If they bought a GC from us eight years ago, it’s probably still going strong.”
Waters is hoping that the fourth quarter will launch it back on the road to winning back market share, said Ornell.
“Long-term, mass spec for Waters is a mid-teens grower, and we believe that with the offerings we have today, that we will be able to grow mass spectrometry in the middle teens for Q3 and Q4,” he said.
The company’s primary driver for mass spec growth will be the Quattro Premier systems [Micromass Quattro Premier LC/MS/MS], which started shipping in volume in the fourth quarter of 2003, he said.
Waters is also competitively positioned to compete in the informatics market with its acquisitions of NuGenesis Technologies for $43 million in January, and the $16 million purchase of Creon Lab Control in July 2003.
“Lab information is an area where we have spent some money on M&A activities and we will look to continue to invest in these types of product-line extensions and synergistic types of technologies that augment our product line,” Ornell said.
“We continue to look to grow our top line by these types of acquisitions that are accretive.”
— Mo Krochmal ([email protected])
Waters, Thermo Have an Appetite for Acquisitions
Recent Waters Acquisitions:
- NuGenesis Technologies, January 2004, $43 million
- Creon Lab Control, July 2003, $16 million
- Cash on hand — $420 million
- Appetite — “With balance-sheet strength, combined with debt leverage, we have about $1.5 billion capability to do cash acquisitions — if we would find the right ones,” Marijn Dekkers, president and CEO, Thermo
Recent Thermo Acquistions:
- InnaPhase, September 2004, $65 million
- US Counseling Services, April 2004, $74.7 million
- Cash on hand —$307 million
- Appetite — “We may be able to spend $50 million and maybe even perhaps as much as $100 million a year on these types of acquisitions,” John Ornell, CFO, Waters