|Thermo Fisher CEO Marc Casper|
The plodding saga of Life Technologies' ($LIFE) sale process has come to a close, and while some might miss all that unnamed-source guesswork, now we have a new question to consider: Did Thermo Fisher ($TMO) overpay for the sequencing giant?
Thermo's winning offer came in at $13.6 billion, plus $2.2 billion to cover Life's debt, and some analysts say that's a rose-colored valuation for what is essentially the second-place team in gene sequencing. As Morningstar analyst Alex Morozov said in an investor note, Life's Ion Torrent sequencing platform certain gives Thermo entré into a growing market, but the growth potential doesn't justify the price tag.
"Even if the company manages to re-accelerate Life's stagnant business and exceed estimated synergies, it is hard for us to view this acquisition as value accretive at the price Thermo Fisher is paying," Morozov wrote. "Returns on invested capital will take yet another hit because of the rich price paid, and Thermo Fisher's penchant for serial acquisitions gives us pause."
|Life Technologies CEO Greg Lucier|
Life Tech lags behind competitor Illumina ($ILMN) in the sequencing world, and the company posted average sales growth of about 5% over three years, far below Illumina's 24%.
Then again, Illumina didn't exactly paint itself as a willing buyout target when it rebuffed Roche's ($RHHBY) multi-billion-dollar hostile advances, and, as ISI analyst Ross Muken pointed out in a note, Life still gives Thermo a seat at the sequencing table with the opportunity to outpace its rival down the road.
"While the bid price came in slightly higher than investors had expected, ultimately this will be viewed as a transaction with attractive near-term accretion characteristics, whereby the long-term return profile will be more dependent on how successful management is at reinvigorating top-line growth at Life," Muken wrote.
Investors would seem to be fairly split on the short-term implications, too: Life's shares closed at $73.11 on Monday, up 7%, but Thermo rounded out the day at $78.58, down about 6.3% from its early morning high of $83.90.