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
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).
Kelly, S. (2023) Thermo Fisher Buys Olink holding for $3.1B, pushing further into Proteomics, MedTech Dive. Available at: https://www.medtechdive.com/news/thermo-fisher-buys-olink-31b proteomics/696820/ (Accessed: 18 December 2023).
(2022) Proteomics Market Size, Growth & Trends Report, 2022-2030. Available at: https://www.grandviewresearch.com/industry-analysis/proteomics-market (Accessed: 05 January 2024).
Unsplash (n.d.). Sangharsh Lohakare (@sangharsh_l) | Unsplash Photo Community. [online] unsplash.com. Available at: https://unsplash.com/@sangharsh_l [Accessed 7 Apr. 2024].
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