Finance News

Danaher strikes again with Cepheid buy

Danaher strikes again with Cepheid buy

Source EP Vantage
Company DanaherCepheid 
Tags Comment, Company Strategy, Diagnostic, Acquisition, Free Content
Date September 06, 2016


And like that, the holiday season is over. With a shark’s instinct for wounded prey, Danaher  is to take out the poorly performing molecular diagnostics group  Cepheid  for $4bn in cash and debt. At $53 per share the offer is a 54% premium to  Cepheid ’s closing price on Friday, but the company’s shares have sunk badly over the past year: last September Cepheid ’s stock was worth just shy of the takeout price.

Danaher  clearly believes that it can wring more value out of the company than  Cepheid 's current management. But it is also a serial acquirer, keeping itself growing through deals big and small. Cepheid  is  Danaher ’s 13th purchase in five years, and its fourth worth over $1bn.

Vision

Despite a nearly doubling of revenues over the last five years Cepheid  has sunk ever further into losses - it reported a net loss of $48.5m in 2015 and as of December 31, 2015 it had an accumulated deficit of approximately $342.2m. Last year, it reported a 15% jump in its top line sales, to $539m.

Speaking on a conference call today, Danaher ’s chief executive Thomas Joyce said that his company would benefit from Cepheid ’s sales into small and medium -size hospitals and an increasing push into point-of-care testing. On the other side, Danaher  will be able to bring  Cepheid ’s products to new, high-growth markets such as China.

Danaher  also believes it can improve  Cepheid ’s “efficiency and profitability”. Cepheid  had already instituted an efficiency drive in the hope of, if not attaining profitability, at least staunching its losses.  Danaher  will build on this and reckons it can squeeze $100m in cost synergies and another $100m revenue synergies out of the acquisition over the next five years.

That is a lot of cuts. But Danaher  execs pointed to a prior acquisition as a potential model for how its incorporation of  Cepheid  might play out. In 2007 it bought Australian diagnostics group Vision Systems, and while this was a smaller deal – worth $520m – it had similar metrics and provides a “clear analogy” for  Cepheid , according to Mr Joyce. He said that as part of Danaher , Vision Systems is an $800m business with 20% operating margins.

“It was a smaller business but the same type of opportunity,” he said on the call.

US vs Europe

There appears to be some advantage in combining the companies’ respective molecular diagnostics instruments. Cepheid  is US-facing, and its GenXpert instrument has the largest installed base and most extensive test menu in the molecular diagnostics arena, running tests for viral infections such as HIV and hepatitis as well as hospital-acquired infections and tuberculosis, and also offering companion diagnostics for cancer drugs.  Cepheid  is “underpenetrated” in Europe,  Danaher  management believes.

Conversely, Danaher  has CE mark for its Veris system and is building sales in Europe, but US approval could still be some way off.

Danaher 's acquisitions of the past five years 
Date  Target  Target company focus  Value ($m) 
September 6, 2016  Cepheid   In vitro diagnostics  4,000 
August 31, 2015  Pall  Anaesthesia & respiratory; blood; drug delivery; endoscopy; general & plastic surgery; healthcare IT  13,800 
June 8, 2015  Bioptigen   Diagnostic imaging; healthcare IT; ophthalmics 
December 11, 2014  Nobel Biocare  Dental; diagnostic imaging; general & plastic surgery; orthopaedics  2,200 
December 4, 2014  Devicor Medical Products   Diagnostic imaging; general & plastic surgery 
June 27, 2014  DUX Dental   Dental; general hospital & healthcare supply 
May 2, 2014  Unfors RaySafe   Diagnostic imaging; healthcare IT; patient monitoring 
August 1, 2013  Flow Cytometry business of ReaMetrix India  In vitro diagnostics 
July 8, 2013  Kreatech Diagnostics   In vitro diagnostics 
April 9, 2013  HemoCue   In vitro diagnostics  300 
November 16, 2012  Aribex   Dental; Diagnostic imaging 
November 1, 2012  IRIS International  In vitro diagnostics  338 
June 30, 2011  Beckman Coulter   In vitro diagnostics  6,800 

Molecular diagnostics is a fast-growing segment, but that is a threat as much as a promise: once a company has an instrument it can be reasonably easy to add new tests and thus competition in this space is fierce.

Danaher  made great play of its ability to improve  Cepheid ’s efficiency. It will have much work to do if it is to drag it into profitability. Still, if it cannot manage to turn its new acquisition’s fortunes around, it can surely just move on to the next one.