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Thermo Fisher Adds FEI Co., Inorganic Expansion Continues


Staying ahead of the expected time of completion, Thermo Fisher Scientific, Inc. TMO recently closed the acquisition of FEI Company, Inc., a prominent player in the field of high-performance electron microscopy. This colossal $4.2 billion takeover remains part of Thermo Fisher’s strategy of expansion through acquisitions.

This buyout will enable Thermo Fisher to access FEI’s industry-leading high-performance electron microscopy platform used for protein study, which in turn facilitates life-science research. Following the deal closure, Thermo Fisher plans to integrate the FEI business within its Analytical Instruments segment. We view the FEI deal, following the completion of the $1.3 billion Affymetrix takeover in April, as yet another milestone achieved by Thermo Fisher in terms of expanding its diverse global business.

Deal Details

FEI’s Cryo-EM technology is a groundbreaking microscopy solution that complements Thermo Fisher’s mass spectrometry systems used to identify and characterize proteins. With the growing adoption of electron microscopy in high-resolution analysis of protein structure, we expect the FEI buyout to aid Thermo Fisher in driving Analytical Instruments revenues, particularly in the biopharma market.

Moreover, FEI’s unique 3D nano-characterization and nano-prototyping imaging technologies are expected to enhance Thermo Fisher’s capabilities in the materials science space. On account of its ownership of these technologies, FEI enjoys a strong presence in the semiconductor market. Meanwhile, the acquisition will create new growth opportunities for Thermo Fisher's customers in the life sciences space.

Financial Gains

Over the past few quarters, growth at Thermo Fisher’s Analytical Instruments segment continues to remain sluggish, with low single-digit growth. However, with the FEI inclusion, growth is expected to accelerate in the near term.

In terms of the financial benefits from the FEI deal, management expects to witness immediate accretion to the company’s earnings. In particular, FEI’s industry-leading services business, spread across more than 20 countries, drives high-margin, recurring revenues. The Services segment represents approximately 25% of total FEI sales ($930 million in 2015). No doubt, the addition of this services business will benefit Thermo Fisher’s services capabilities as well.

Moreover, the FEI deal is expected to be accretive to Thermo Fisher’s adjusted EPS by 30 cents in the first full year after closure. Thermo Fisher also expects to realize total synergies of approximately $80 million by the end of three years following the deal closure, with about $55 million of cost synergies and roughly $25 million of adjusted operating income benefits from revenue-related synergies.

Our View

We note that as part of its strategy to effectively deploy capital, Thermo Fisher has undertaken several acquisitions in the recent past. Earlier this year, the company announced plans to deploy capital worth $17 billion during 2017–2019, of which 70% will be for mergers and acquisitions aimed at business expansion.

So far, apart from boosting revenues, the numerous acquisitions made by Thermo Fisher have benefited its operating margin and resulted in tax synergies. We believe the FEI acquisition will be no exception.

Zacks Rank & Key Picks

The company currently carries a Zacks Rank #3 (Hold). Better-ranked medical stocks are ABIOMED, Inc. ABMD, Cepheid CPHD and CryoLife Inc. CRY. All the three stocks hold a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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