Bio-Rad Labs Takeover Seen With Low Valuation: Real M&A

Bio-Rad Laboratories Inc. (BIO) is presenting potential buyers with the most affordable acquisition in the U.S. life-science equipment industry as investors bet the family-run company will now be open to a sale.

Even with the shares almost tripling in the last decade, Bio-Rad is valued at 7.4 times earnings, the least expensive of any life-science equipment maker in America with a market value of at least $1 billion, according to data compiled by Bloomberg. Dougherty & Co. says Bio-Rad, of Hercules, California, is now a likely takeover target after Chairman David Schwartz, who founded the maker of tools for blood testing and laboratory research in 1952, died last week at the age of 88.

Bio-Rad, which manufactures more than 5,000 life-science tools and 3,000 diagnostic-test products, has boosted revenue every year since 1994 and analysts project record profit next year. While the family still controls more than 50 percent of the voting power and David Schwartz’s son Norman is chief executive officer, shares of Bio-Rad rose 11 percent on April 3 amid takeover speculation. The $3.2 billion company’s diagnostic business may lure Thermo Fisher Scientific Inc. (TMO) as it seeks bolt-on acquisitions, according to Miller Tabak & Co., and Life Technologies Corp. (LIFE) may also be interested, said Dougherty.

“People are lining up their bets on this one,” Junaid Husain, an analyst for Minneapolis-based Dougherty, said in a telephone interview. “Potential suitors know that this is a diversified company and it’s very prudently managed. That’s why it’s a piece of property that everybody wants.”

Blood Typing

Bio-Rad CEO Norman Schwartz was not available for comment, according to Tina Cuccia, a spokeswoman for the company.

Ron O’Brien, a spokesman for Waltham, Massachusetts-based Thermo Fisher, declined to comment on whether the company is considering a takeover of Bio-Rad. Suzanne Clancy, a spokeswoman for Carlsbad, California-based Life Technologies, didn’t respond to a phone call or e-mail seeking comment.

Bio-Rad, founded by David Schwartz and his wife Alice Schwartz, a biochemist, became a publicly traded stock in 1966. The company makes everything from laboratory instruments to reagents for blood typing and its products are used by hospitals, research centers, science classrooms and biotechnology companies. Bio-Rad gets about two-thirds of its sales from clinical diagnostics.

Analysts are projecting Bio-Rad’s net income will climb 16 percent next year to a record $186.5 million on an adjusted basis, according to estimates compiled by Bloomberg.

‘Attractive’ Valuation

Bio-Rad shares rose the most in 40 months on April 3, after the company disclosed that David Schwartz had passed away on April 1. The stock has climbed 189 percent in the last 10 years to $112.27 as of last week, compared with a 133 percent gain for the Standard & Poor’s Midcap Health Care Index. (S4HLTH)

“The stock reaction would suggest that some investors feel they’re more likely to be acquired now,” Les Funtleyder, a New York-based health strategist and portfolio manager at Miller Tabak, which oversees $800 million, said in a phone interview.

Even after the stock gain, the company’s $3.1 billion in equity and net cash is valued at 7.4 times its $416 million in earnings before interest, taxes, depreciation and amortization last year, data compiled by Bloomberg show. That’s cheaper than the 14 other U.S. life-science equipment companies with market values higher than $1 billion, for which Ebitda multiples are available. The group has a median multiple of 13, the data show.

Based on its Ebitda multiple, Bio-Rad is “low versus the peer group, so it would be attractive,” Dougherty’s Husain said. “A lot of companies would look at this and see that they can easily integrate Bio-Rad’s tools business into their own and then its critical diagnostics would be a nice, easy way into the critical diagnostics market.”

Bolt-On Acquisitions

Thermo Fisher, the largest maker of laboratory instruments, might be interested in adding Bio-Rad to its diagnostics business, Miller Tabak’s Funtleyder said. The $20 billion company, which acquired Sweden’s Phadia AB last year for $3.5 billion to expand in testing for allergies and autoimmune diseases, will continue to seek bolt-on acquisitions, CEO Marc Casper said in an interview with Bloomberg News in February.

Life Technologies, which makes lab supplies for scientists and researchers, may also consider acquiring Bio-Rad to increase revenue from lab tools and enter the clinical diagnostics business, said Husain and Christi Bird, an analyst at Frost & Sullivan.

“If you look at some of the bigger companies, such as Thermo Fisher and Life Technologies, they aim to be a complete provider of life science tools,” Bird said in a phone interview. “Life Technologies obviously has a very aggressive M&A strategy and is not afraid to go after some of the big companies. Thermo Fisher would also be in that area.”

Schwartz Family

Even if the Schwartz family decides to put the company up for sale, it “would take quite a bit of time” before a deal takes place, despite the stock’s immediate reaction last week, said Miller Tabak’s Funtleyder.

David Schwartz’s wife, who sits on the board, and his son, the CEO and a director, may not be willing sellers, Jerome Dodson, San Francisco-based president overseeing $6.1 billion at Parnassus Investments, said in an e-mail. Parnassus owned shares of Bio-Rad as of December.

The Schwartz family controls the majority of the stock’s voting power, according to a filing last week with the U.S. Securities and Exchange Commission. Alice Schwartz is 85 years old and Norman Schwartz is 62, as of the company’s April 2 proxy statement.

‘Green Light’

While it may be too soon for the family to seek out a deal, Bio-Rad is likely to be sold in the future as life sciences and pharmaceutical companies look for acquisitions to help maintain revenue and profit expansion, according to Sachin Shah, a merger arbitrage and special situations analyst at Tullett Prebon Plc.

“This is an emotional time for them and they’re going to need time to grieve,” Shah said in a phone interview from Jersey City, New Jersey.

Still, “I’m sure acquirers are watching the situation to see what Norman and the board do,” he said. “If they give that green light, I’m sure their peers and potential acquirers are going to make those inbound calls. The business is very attractive. In the future it’s not likely to be a standalone entity.”

To contact the reporters on this story: Tara Lachapelle in New York at tlachapelle@bloomberg.net; Ryan Flinn in San Francisco at rflinn@bloomberg.net.

To contact the editors responsible for this story: Daniel Hauck at dhauck1@bloomberg.net; Katherine Snyder at ksnyder@bloomberg.net; Reg Gale at rgale5@bloomberg.net.

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