Thermo Fisher Scientific to acquire FEI

$4.2 billion buys Thermo an even stronger mass spectrometry leadership position with complementary tech

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WALTHAM, Mass.—Thermo Fisher Scientific Inc., already the world’s largest maker of scientific instruments, seems destined to get even larger soon thanks to a decision to acquire FEI, a clear leader in high-performance electron microscopy, for about $4.2 billion—a deal approved unanimously by both companies’ boards of directors.
“The addition of FEI’s leading electron microscopy platform is an outstanding strategic fit with our company and will create significant value for our customers and our shareholders,” said Marc N. Casper, president and CEO of Thermo Fisher Scientific. “In life sciences, there is growing adoption of electron microscopy to study the structure of proteins. The technologies we gain with FEI will complement our mass spectrometry leadership, putting Thermo Fisher in the best position to capitalize on this important trend. As the unrivaled leader in life sciences, we will also be able to leverage our global scale and commercial reach to extend the use of FEI’s products within our large biopharma customer base. Finally, the transaction will be immediately accretive to our earnings and will create value for our shareholders through cost and revenue synergies.”
Based in Hillsboro, Ore., FEI designs, manufactures and supports high-performance electron microscopy workflows that provide images and information at micro-, nano- and picometer scales, employing more than 3,000 employees worldwide and maintaining R&D, sales and manufacturing operations primarily in Europe and the United States. The business, which had 2015 revenues of $930 million, will become part of Thermo Fisher’s Analytical Instruments Segment.
“We are pleased to reach this agreement with Thermo Fisher, which offers a number of important benefits to FEI shareholders, customers and employees,” said Don Kania, president and CEO of FEI. “Our shareholders will see substantial and immediate value through the terms of this transaction. Our customers will benefit from the shared commitment Thermo Fisher and FEI have to innovation and customer service. And our employees will see new opportunities as our development and market expansion plans accelerate by being part of Thermo Fisher, a large and growing company. Fundamentally, this transaction bolsters our already-strong position in the marketplace and allows us to play an increasing role in enabling our customers to accelerate breakthrough discoveries, increase productivity and provide solutions to global challenges.”
FEI’s high-end electron microscopes are said to be complementary to Thermo Fisher’s mass spectrometry systems used for protein identification and characterization. FEI’s Cryo-EM technology, for example, is a disruptive technique used increasingly for the analysis of proteins in structural biology, according to Thermo. With its global scale and commercial reach, Thermo also expects many opportunities to drive the adoption of FEI’s technologies among its life-sciences customers, particularly in biopharma.
In addition, FEI brings imaging technologies that can expand Thermo Fisher’s capabilities in materials science; its 3D nano-characterization and nano-prototyping technologies, for example, are critical in supporting development of devices that are increasingly smaller and more complex to manufacture.
A few days after the announcement of the acquisition deal, Zacks Investment Research chimed in with its thoughts, including: “We view this FEI deal to be yet another milestone achievement for Thermo Fisher in recent months in terms of expanding its diverse global business, following the completion of the Affymetrix deal (for $1.3 billion) last month.”
The firm also added that looking ahead, this deal should accelerate Thermo Fisher’s revenues in the analytical instruments segment, where the company had low single-digit growth in the previous quarter.
In addition, Zacks analysts wrote, “In its May 2016 analyst meeting, Thermo Fisher announced plans to deploy capital worth $17 billion during 2017-2019, of which 70 percent will be contributed to mergers and acquisitions for business expansion. So far, apart from boosting revenues, the numerous acquisitions made by Thermo Fisher have benefitted its operating margin, also resulting in tax synergies. We believe the FEI deal, once completed, will be no exception.”
Analysts at the Motley Fool noted in part in their take, “Typically, when it’s an all-cash deal like this that won’t close for several months, the target company’s stock will trade a bit below the offer price to reflect the potential for the transaction to fall through. However, investors apparently are banking on a higher offer after shares of FEI Company jumped past the offer price, trading as high as $108.08 per share by mid-morning. That doesn’t mean a competing bid will emerge, but it is something to consider.”
Wells Fargo analyst Tim Evans suggested in an investors note that while there certainly are strategic rationales for the acquisition, it seems to be most valuable from a tax perspective, and he noted that the acquisition will push Thermo’s revenue mix somewhat toward capital spending, whereas other recent acquisitions have moved the mix more toward recurring revenue.
The transaction, which is expected to be completed by early 2017, is subject to the approval of FEI shareholders and the satisfaction of customary closing conditions, including applicable regulatory approvals. Thermo Fisher intends to use proceeds from committed debt financing and cash on hand to fund the transaction.

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