Deals

Tara Lachapelle is a Bloomberg Gadfly columnist covering deals. She previously wrote an M&A column for Bloomberg News.

Thermo Fisher Scientific, a $55 billion life-science company with a reputation for dealmaking, may be up to something. Key word: may. 

The company dropped a curious filing this week -- a mixed securities shelf registration -- detailing how it may or may not issue debt or equity securities in the future that may or may not be used for acquisitions. It's all very vague, which for deal speculators is akin to dangling candy in front of a child. When might Thermo Fisher sell these securities? "From time to time." And what would the money be for? "General corporate purposes." You don't say.

Deal Machine
Over the past decade, Thermo Fisher has spent more than $37 billion on acquisitions.
Source: Bloomberg

Why must you tease us, Thermo? 

General corporate purposes may include the acquisition of companies or businesses, repayment and refinancing of debt, working capital and capital expenditures or the repurchase of our outstanding equity securities.

Of course, it's possible that the intended use of these funds is something far less intriguing than a big acquisition. But given that Thermo Fisher -- along with Danaher and Agilent -- has been rolling up businesses in the industry, it's worth considering what could be next. JPMorgan's Tycho Peterson pointed out in a report Tuesday that the shelf could be a harbinger of a larger deal in Thermo Fisher's pipeline. 

Thermo Fisher's largest purchase was in April 2013, when it won a bidding war for Life Technologies at $15 billion (including net debt), gaining laboratory equipment that helps to map DNA. This type of testing is increasingly being used so that doctors can determine the best course of treatment for patients -- such as those with cancer -- based on their genetic makeup. Thermo Fisher shares have risen 21 percent since that transaction closed. In January, it also agreed to buy Affymetrix for $1.1 billion to expand its technology offerings for scientists doing cellular analysis. These give you an idea of what Thermo Fisher's into.

Pinpointing its next target proves tricky, though. For one, there are no glaring holes in Thermo Fisher's business. And many of the remaining takeover candidates are either expensive, have risks to their technology, present antitrust hurdles or are simply too small to move the needle, according to Jonathan Palmer, an analyst for Bloomberg Intelligence. "Thermo Fisher is looking at deals at all times," he said. "But finding a compelling asset is easier said than done."

Big Needle to Move
Thermo Fisher has grown to become such a big company that it takes larger deals to drive sales and profit.
Source: Bloomberg
*Average estimate provided by analysts.

There's Qiagen, a $5.1 billion company based in the Netherlands. Its stock price more than doubled between 2012 and 2015, but has fallen 20 percent so far this year as revenue slid. After tax-inversion deals became the focus of health-care takeover activity, Qiagen landed on analysts' lists of potential targets, given its Dutch domicile. But the U.S. government is trying to stymie companies from seeking foreign tax havens, and even some presidential candidates have said they're committed to stopping this.

There's also Cepheid, a money-losing diagnostic company valued at $2.3 billion. While its stock has plunged more than 40 percent since July, bigger than the Nasdaq Biotechnology Index's loss over that span, Cepheid still isn't cheap. Its enterprise value is equal to 83 times analysts' average Ebitda estimate for this year and 3.7 times the consensus sales projection. Myriad Genetics, valued at $2.6 billion and a 2016 Ebitda multiple of 213, is also expensive and perhaps too small to fulfill Thermo Fisher's needs.

Other companies in the space include Waters and PerkinElmer, valued at $10 billion and $5.3 billion, respectively. Regulators would likely scrutinize a Thermo Fisher takeover of Waters, and PerkinElmer is one of those perennial targets that's just never gotten bought. These companies are all neighbors, though: PerkinElmer's headquarters in Waltham, Massachusetts are a three-minute drive from Thermo Fisher's. Waters is just a few towns over.

Circle of Life Science
Will Thermo Fisher choose one? Price and antitrust concerns are hurdles.
Source: Bloomberg

Another big player in the industry is Illumina, which is also quite pricey and has a $23 billion market value. Roche, a European pharma giant that has a diagnostics division, made a hostile bid for Illumina in 2012, but walked away when it became clear that neither the company nor its shareholders thought the price was enough. Speaking of Roche, Palmer says that its diagnostics business -- as well as the life-science units of General Electric and Becton Dickinson -- may be appealing, but it's unclear whether they'd ever be for sale. 

Thermo Fisher, what say you?

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Tara Lachapelle in New York at tlachapelle@bloomberg.net

To contact the editor responsible for this story:
Beth Williams at bewilliams@bloomberg.net