Buying a broader base

MDS Inc. to acquire Molecular Devices for $615 million

Chris Anderson
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TORONTO—March 20, 2007—MDS announced 92 percent of outstanding shares of Molecular Devices had been tendered by shareholders, effectively completing the acquisition process. The company has also initiated the tender for all remaining shares, leading the way to the combination of Molecular Devices with MDS Sciex into a new company called MDS Analytical Technologies.
TORONTO—Touting the complementary lines of life science tools and the opportunity to tap a broader and entrenched worldwide sales and distribution network, MDS Inc. announced late last month that it would acquire Molecular Devices for $615 million in cash.
"This acquisition transforms Sciex, which is today a category killer in mass spectroscopy, into a much broader platform for growth," says Stephen P. DeFalco, president and CEO of MDS. "Molecular Devices has a strong track record of innovation, with a constant flow of new products. They have delivered such innovative products as the FLIPR, ImageExpress and IonWorks to the market—over 64 percent of Molecular Devices' revenue in 2006 came from products launched in the last three years."
The acquisition comes as MDS looks to aggressively shift the focus of the company to the life sciences market. Last October, MDS announced an agreement to sell its laboratory diagnostics business to Borealis Infrastructure Management for CAD$1.325 billion, which would net the company more than CAD$1 billion upon closing. While this sale had yet to close at press time, DeFalco said proceeds from the sale would be the primary source of funds the company taps to complete the Molecular Devices buyout.
As a result of the acquisition, MDS will form a new business unit that will combine the MDS Sciex and Molecular Devices brand, to be headed by current MDS Sciex President Andy Boorn. Plans are to keep both the MDS Sciex and Molecular Devices name and brands as part of the new business unit moving forward.
In some ways, the move to purchase Molecular Devices was born not just to acquire complementary instrumentation—though Molecular Devices has significant penetration with its varied systems geared toward cellular research—but also to gain market access through Molecular Devices entrenched global sales and product support team which numbers more than 230.
"When you look at Molecular Devices, it has a bluechip customer base across the same markets served by Sciex," DeFalco notes. "They have a very strong reputation for quality and an installed base of more than 100,000 instruments."
Likewise, by moving MDS Sciex products through its channel, Molecular Devices President and CEO Joe Keegan saw an opportunity for growth. "By bringing these two world-class businesses together, we are creating a powerful industry leader," he says.
Jonathan Witonsky, industry analyst, drug discovery technologies for Frost & Sullivan, agrees the combination is a good fit. "I think MDS is going to be able to exploit this opportunity and there is not a lot of overlap with Molecular Devices," he says. Molecular Devices is the supplier that you think of when you think about cellular analysis and this will help MDS have a broader reach in that market."
Indeed, that is one of the real opportunities DeFalco sees as a result of the acquisition and is also a way for the company to have a new built-in distribution network for its own CellKey screening platform.
"Screening is a $2.9 billion market and the fastest growing is high content screening, which is currently about a $300 million market," DeFalco notes. "Molecular Devices has built the road for direct distribution. We believe it is a broad pipe that allows us to have a more intimate relationship with customers."
Two existing relationships, however—with Applied Biosystems and PerkinElmer for the distribution of its mass spec portfolio—will not be affected by the deal, DeFalco emphatically declares. "We have two very strong partners in mass spec, who serve the market very well, so those relationships will remain." u

Chris Anderson

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