Thermo Fisher, Inc.
’s
TMO
inorganic expansion strategy gets a new momentum with the company entering into a whopping $17.4-billion deal to acquire PPD, Inc. Thermo Fisher also announced its board of directors’ approval of this definitive acquisition agreement.
The transaction is expected to close by the end of 2021, subject to the satisfaction of customary closing conditions, including the receipt of applicable regulatory approvals.
Impact on Stock
Immediately after the rollout of this news, shares of Thermo Fisher rose 3.4% on April 15 to close at $494.38.
A Few Words on PPD
For investors’ note, PPD is a global clinical research organization offering broad, integrated drug development, laboratory and lifecycle management services to help customers accelerate innovation and increase drug development productivity.
In 2020, PPD generated revenue of $4.7 billion. With the acquisition, PPD will get integrated under Thermo Fisher’s Laboratory Products and Services segment.
Financial Terms of the Deal
Per terms of the deal, Thermo Fisher will pay $47.50 a share for PPD, and will assume about $3.5 billion of net debt, which represents a premium of around 24% to the unaffected closing price of PPD’s common stock on NASDAQ as of Apr 13 or 32% to the 60-day Volume weighted average price inclusive of that date.
The PPD deal is expected to add $1.40 to Thermo Fisher’s adjusted earnings per share in the first 12 months after its closure. Overall, the buyout will deliver synergies of $125 million by the third year since the date of completion.
How Strategic is the Deal?
The combination will create one of the biggest drug-testing companies in the United States. The acquisition of PPD is going to expand Thermo Fishers’ global reach in the attractive, high-growth clinical research services industry.
Per Thermo Fisher’s management, the acquisition of PPD is a natural extension for the company and will allow it to provide its customers with vital clinical research services and will enable the company to partner with them in new and exciting ways.
PPD will bring a proven drug development platform, excellent patient recruitment capabilities, strong laboratory services and a complementary reputation for excellent quality and service which will enhance Thermo Fisher’s offerings. The combined synergies will further boost Thermo Fisher’s value proposition to pharma and biotech customers and allow them to access its services more efficiently.
Recent Notable Acquisitions
In February 2021, Thermo Fisher announced the completion of its previously announced acquisition of Mesa Biotech, Inc. – a privately held point-of-care molecular diagnostic company. The acquisition of Mesa Biotech is an important part of the Thermo Fisher’s strategy to expand the benefits of molecular diagnostics at the point of care, starting with COVID-19 testing.
During the same month, Thermo Fisher acquired cell-sorting technology assets from Propel Labs – a wholly-owned subsidiary of SIDIS Corp. A first of its kind, the Bigfoot Spectral Cell Sorter brings more powerful sorting capabilities and faster throughput, and its novel safety features broaden Thermo Fisher’s already strong flow cytometry offering.
Industry Prospects
Per Grand View Research
, the global clinical trials market size was valued at $44.3 billion in 2020 and is expected to reach $69.5 billion by 2028 growing at a CAGR of 5.7%.
Price Performance
Shares of the company have gained 50.7% in a year’s time compared with the
industry
’s growth of 31.1%.
Zacks Rank and Key Picks
Currently, Thermo Fisher carries a Zacks Rank #3 (Hold).
A few better-ranked stocks from the broader medical space include
Intuitive Surgical, Inc.
ISRG
,
Cantel Medical Corp.
CMD
and
ConforMIS, Inc.
CFMS
, each carrying a Zacks Rank #2 (Buy). You can see
the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Intuitive Surgical has a projected long-term earnings growth rate of 21%.
Cantel Medical has an estimated long-term earnings growth rate of 19%.
ConforMIS has a projected long-term earnings growth rate of 42%.
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