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Thermo Fisher Acquires Olink for $ 3.1 Billion


Vice President: Saumya Shah  

Analysts: Callum Ewart, Fintan O’ Regan, Adityawardhan Gaikwad, Royce Pan


Deal Overview 


Acquirer: Thermo Fisher Scientific 

Acquiree: Onlink Holding AB 

Deal Size: $3.1 Billion 

Buy Side Advisors: Cravath Swaine & Moore LLP (Legal), Advokatfirman Vinge KB (Legal)

Sell Side Advisors: J.P. Morgan, Goldman Sachs, Sweden Bankfilial, Banker & Mckenzie (Legal)


Introduction 


On October 17, 2023, Thermo Fisher Scientific Inc. and Olink Holding AB unveiled a transformative agreement that is poised to reshape the landscape of the proteomics industry. Thermo Fisher, a renowned  global leader in scientific services, announced its intention to acquire Olink, a leading provider of next generation proteomics solutions, for $26.00 per common share in cash, amounting to a total transaction value  of approximately $3.1 billion, inclusive of net cash of around $143 million. 


This strategic acquisition is strategically designed to enhance Thermo Fisher's capabilities in the high-growth  proteomics market. Olink, headquartered in Sweden with operations spanning the Americas, Europe, and Asia  Pacific, is celebrated for its advanced proteomics discovery and development solutions. Notably, Olink's  proprietary Proximity Extension Assay (PEA) technology, facilitating high-throughput protein analysis,  complements Thermo Fisher's existing life sciences and mass spectrometry offerings. 


Thermo Fisher Overview 


Thermo Fisher's Chairman, President, and CEO, Marc N. Casper, expressed the profound impact of proteomics  on life science research and precision medicine. He emphasized the complementarity of Olink's transformative  innovation with Thermo Fisher's leading platforms, envisioning accelerated scientific breakthroughs. The  transaction, expected to close by mid-2024 subject to customary closing conditions and regulatory approvals,  positions Olink within Thermo Fisher's Life Sciences Solutions segment. 


From 2021 to 2022, Thermofisher increased their revenues by 12%. This is particularly impressive given the  previous macroeconomic and geopolitical disruptions that led to huge global shifts within most markets. A  run down of their revenues and their proportions is given below.



Olink Overview  


Jon Heimer, CEO of Olink, echoed the dedication to advancing human biology through next-generation  proteomics. He highlighted the strategic fit with Thermo Fisher, projecting significant opportunities for  customers, colleagues, and immediate value for shareholders. With a revenue projection exceeding $200  million in 2024 and anticipated mid-teens organic growth within Thermo Fisher, Olink's integration promises  to contribute meaningfully to the broader scientific community. 


Industry Analysis 


The proteomics industry, a dynamic and integral component of the broader life sciences sector, is dedicated  to unraveling the complexities of proteins, studying their structures, functions, and interactions within  biological systems. This industry plays a pivotal role in advancing our understanding of cellular processes,  disease mechanisms, and drug discovery through a diverse array of technologies and methodologies.

 

The proteomics industry is poised for dynamic growth with ongoing innovations in mass spectrometry and the  integration of Next-Generation Sequencing (NGS). Anticipated applications in clinical research, diagnostics,  and personalized medicine, particularly in biomarker discovery, will fuel significant advancements. Evolving Technological trends in the industry underscore the dominance of mass spectrometry, facilitating high throughput protein analysis and identification. Additionally, the integration of Next-Generation Sequencing  (NGS) technologies into proteomics workflows enables a comprehensive analysis of the proteome at the  nucleic acid level, fostering a more holistic understanding of biological systems. 


Challenges in the proteomics industry include the complexity of data generated by experiments and the need  for standardization in methodologies. Addressing these challenges is crucial for ensuring data reproducibility  and comparability. However, opportunities abound, particularly in clinical applications where proteomics is  making significant strides in research, diagnostics, and personalized medicine. Biomarker discovery for early  disease detection and therapeutic monitoring represents a key growth area. 


Regulatory considerations in proteomics primarily revolve around ensuring data integrity, quality control, and  compliance with ethical standards. As proteomics technologies find increased applications in clinical settings,  regulatory agencies are actively developing guidelines to govern their use, reflecting the industry's evolving  nature. 


Deal Valuation and Financial Analysis 


WACC Calculation





Terminal Value, Share Price and Sensitivity 



Valuation summary 


Through the DCF model method, we get that the present value of the Unlevered Free Cash Flows is $290  million. Since the company is EBITDA and EBIT negative, EV/EBITDA or EV/EBIT could not be used as  exit multiples. Using EV/Revenue exit multiple of 19.05x, the terminal value obtained was unreasonable.  Using competitor's EV/EBITDA multiple of 25.2, TV of $12927.6 million was obtained and this overvalues  the stock to an unrealistic level. Hence, terminal value calculated using perpetuity growth method was used.  


After discounting the free cash flow and terminal value, the enterprise value is $2.953 billion, whereas the  equity value is $3.019 billion. As there are 12,43,43,000 shares outstanding, the implied share price should be  $24.28. The current share price as on 31st December 2023 is $25.15 and Thermo Fisher has agreed to pay $26  per share. The share price Thermo Fisher has offered is 7.084% higher than the implied modelled share price. 


Comparable Company Analysis and Precedent Transactions


Comparable Company Analysis



By evaluating Olink's current valuation multiples compared to its competitors and peer comparisons  companies in the Healthcare, Life Science and Biotech industries, an analysis using the provided table above  enabled us to derive a spectrum of values for the share price, employing an industry-comparable perspective.  The optimal range identified through this assessment suggests a share price of approximately USD$8.71. This  contrasts the existing share price of $25.2, reflecting a 65% premium above the implied share price we  computed. This discrepancy raises the possibility that investors may anticipate elevated expectations regarding  its acquisition by Thermo Fisher.


Precedent Transaction Analysis 



Furthermore, we carefully considered comparable M&A transactions to establish a comprehensive range of  multiple values, providing a robust foundation for the overall valuation. The table analysis reveals a median  EV/LTM Revenue of approximately 5.1x, which, while significantly below the 19.6x Thermo Fisher paid for  Link, remains a meaningful benchmark for industry comparison. Notably, the median EV/LTM EBITDA of  35.1, surpassing the 28.6x for Olink, suggests a distinctive positioning in terms of profitability within the  market landscape. This comparison provides a basic understanding of the potential share price dynamics and  the control premium paid by the acquirers within the industry for the overall valuation. 


Deal Rationale 


Thermo Fisher Rationale  


Thermo Fishers' main rationale for acquiring Sweden’s Olink Holding was to expand its capabilities and  buyer’s presence in the proteomics market. Thermo Fisher said that the acquisition will be ‘’highly  complementary’’ to its mass spectrometry and life sciences platforms. The purchase of Olink is expected to  be dilutive to Thermo Fisher’s adjusted earnings by 17% per share in the first full year of ownership while  excluding deal-related costs, the transaction is expected to be accretive by 10% per share in that period  (Thermo Fisher Scientific to acquire Olink, a leader in next-generation proteomics 2023). Thermo Fisher has  been struggling with softening demand for its life sciences offerings, which includes the discovery and  production of new drugs and vaccines, as its biotech clients face a funding slump. 


Olink Rationale  


The acquisition will help Olink scale its business up and drive penetration into new markets alongside  strengthening its proteomics franchise of a strong line-up of Orbitrap mass specs. By getting bought by Thermo Fisher, Olink is expected to be able to leverage Thermo Fisher's leading quantitative polymerase chain reaction  [qPCR] franchise and NGS [next generation sequencing] installed base to accelerate meaningful discovery  work removing a prior hurdle. 


Olink is expected to generate over $200 million of revenue in 2024 and, being part of Thermo Fisher is  expected to grow this organically. Thermo Fisher is expected to realize approximately $125 million of adjusted  operating income from a variety of revenue and cost synergies by five years following this deal. 


Revenue Synergies 


By expanding their presence in the proteomics market, both companies will be able to reach new customers  allowing them to increase sales, thus enabling them to increase their revenue. The US Proteomics market size  has grown considerably over the past few years and is expected to expand at a compound annual growth rate  [CAGR] of 13.5% from 2022 to 2030 (Proteomics Market Size, Growth & Trends Report, 2022-2030 2022).  This is especially true for Thermo Fisher as they have been struggling to find customers with high demand,  therefore by reaching new customers, demand for its products will increase. 


Cost Synergies 


Unit costs are expected to decrease as by reaching new customers output is expected to increase greater than  their costs, resulting in lower costs per unit of output. Additionally, operational costs for Olink will decrease  as Olink will be able to utilise Thermal Fisher's chain reaction franchises that will enable them to carry out  their discovery work more efficiently. 


Risks 


The location of the two companies is seen to be a major threat in this deal. Despite having offices globally,  Thermo Fisher is based in Waltham, MA, 20 miles west of Boston. Whereas, Olink is primarily located in  Uppsala, Sweden. Therefore the long distance between the two companies will make it hard to utilise and  merge each company’s operations such as Thermo Fishers' chain reaction franchises effectively. This will  make it difficult to achieve revenue and cost synergies as the synergies are reliant on being able to effectively  integrate and merge both companies’ technologies and processes. 


There is a risk that Thermo Fisher’s valuation will fall as they are paying a high price to acquire Olink.  However, its size relative to the overall company is not large enough to significantly affect Thermo’s valuation.  Risks are also arising as Thermo Fisher Scientific has experienced a tough year in 2022. Thermo Fisher’s sales  and earnings headwinds from declining Covid testing is finally nearing an end, however. This year’s results  have been a setback to their long-term growth plan; thus, a variety of risks have increased. These include the  dependency on China for growth now that the geopolitical environment has become more volatile meaning  that it will be more difficult for them to plan ahead meaning that consumer and investor confidence may be  reduced. 


Additionally, Olink’s growth seems to be slowing. Thermo Fisher’s acquisition announcement states that they expect revenue of $200 million in 2024, but this is only slightly above Olink’s 2023 guidance (Kelly, 2023).  Even by year 5 after the close, Thermo only expects the deal to add $125 million per year of operating income  including synergies. Although the deal may have some strategic value for Thermo Fisher, extending the  offerings in the Life Sciences segment and making Thermo more of a ‘’one-stop shop’’ to its customers.  Overall, it is not a needle-moving acquisition for Thermo’s growth targets, amounting to only 1-2% of EPS  five years out. 


Conclusion 


In the dynamic realm of proteomics, Thermo Fisher Scientific's acquisition of Olink Holding AB at $3.1 billion  heralds a strategic pivot. The $26 per common share in cash, representing a significant premium, underscores  Thermo Fisher's commitment to fortify its presence in the life sciences sector. With approval from both boards  and strong support from major shareholders, the deal positions Olink as an integral part of Thermo Fisher's  Life Sciences Solutions division. 


However, the financial intricacies revealed in Olink's recent net losses and the ambitious revenue projection  necessitate careful navigation. Thermo Fisher's vision to seamlessly integrate Olink's proteomics expertise  into its existing platforms presents a transformative opportunity, yet execution risks loom. As the proteomics  landscape evolves, the success of this acquisition hinges on effective integration, financial prudence, and the  realization of synergies to deliver enduring value to shareholders in a rapidly advancing scientific landscape.


References 


  1. Thermo Fisher Scientific to acquire Olink, a leader in next-generation proteomics (2023) Olink  Holding AB. Available at: https://investors.olink.com/news-releases/news-release-details/thermo fisher-scientific-acquire-olink-leader-next-generation (Accessed: 18 December 2023).  

  2. Kelly, S. (2023) Thermo Fisher Buys Olink holding for $3.1B, pushing further into ProteomicsMedTech Dive. Available at: https://www.medtechdive.com/news/thermo-fisher-buys-olink-31b proteomics/696820/ (Accessed: 18 December 2023).  

  3. (2022) Proteomics Market Size, Growth & Trends Report, 2022-2030. Available at:  https://www.grandviewresearch.com/industry-analysis/proteomics-market (Accessed: 05 January  2024).

  4. Unsplash (n.d.). Sangharsh Lohakare (@sangharsh_l) | Unsplash Photo Community. [online] unsplash.com. Available at: https://unsplash.com/@sangharsh_l [Accessed 7 Apr. 2024].


The opinions expressed in the reports are those of the members of the Junior IB team and are not affiliated with any university or institution. The financial recommendations provided are for educational purposes only and the Junior IB team takes no responsibility for any losses that may occur from implementing any ideas presented in the reports. The Junior IB team is not authorized to provide investment advice. The information, opinions, and estimates presented in the reports reflect the Junior IB team's judgment at the time of publication and are subject to change without notice. The price, value, and income of any securities or financial instruments mentioned in the reports may fluctuate. The Junior IB team has no business relationship with any of the companies mentioned in the reports  and does not receive any compensation for their inclusion. 


Copyright © April 2024 | The Junior IB.



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