rohit behera - m&a work sample - thermofisher scientific acquires life tech

ThermoFisher Scientific Inc. (NYSE: TMO) Proposal to acquire Life Technologies (NYSE: LIFE)

Rohit Behera

1MGT 6066 Fall 2016 – Corporate Restructuring

Acquisition of BRAHMS

• Leading provider of specialty in-

vitro diagnostic tests

• Integrated in the specialty

diagnostics division

Acquisition of PHADIA

• Global leader in blood tests



• EPS rose by 35.8%Acquisition of DIONEX

• Leading manufacturer and marketer

of chromatography systems

• Integrated in the analytical

technologies segment

• Revenues rose by 4%

ThermoFisher Scientific (Acquirer) (NYSE: TMO)


Overview• World leader in serving science

• 39,000 Employees

• 2012 Revenue: $12.0B

• Supplies to pharmaceutical and biotech companies, hospitals and clinical

diagnostic labs, universities, research institutions, and government agencies

Acquisition of ONE LAMBDA Inc.

• Global leader in transplant

diagnostics



2013

2012

2011

2010

2009

Proven Track Record of

Acquisitions

37%

24%

18%

18%

-3%

Business Segments

Laboratory Products and Services

Life Sciences Solutions

Speciality Diagnostics

Analytical Technologies

Eliminations

51%

31%

8%

5%5%

Geographic Segments

United States

Other

China

Germany

United Kingdom

Acquisition of Life

Technologies

LIFE TECHNOLOGIES INC. (Target) (NYSE: 1255459D)


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Cash Flow to Total Debt

LABEQ DRUGS LIFE TMO

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After - tax Return on Invested Capital

LABEQ DRUGS LIFE TMO

Attractive Revenue Profile

Premium life Sciences brands

Overview• A global leader in life sciences

• 2012 Revenue: $3.8B (CAGR 23%)

• 10,000 Employees

• 50,000+ Products

43%

38%

19%

0%

Business Segments

Research Consumables

Genetic Systems

Applied Sciences

42%

29%

24%

3%2%Geographic Segments

Americas

Europe

Asia Pacific

Other Revenue

Other Foreign

60

70

80

90

100

110

120

130

140

150

160

Apr-12May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12Dec-12 Jan-13 Feb-13Mar-13

1255459D Price versus Peers & Benchmark (Normalized)

LIFE TECHNOLOGIES CORP Peer Index SPX

Attractive Fundamentals

• Life Technologies Corporation develops

biotechnology tools used by

researchers.

• Life's portfolio of products includes

technologies for capillary

electrophoresis based sequencing,

sequencing, mass spectrometry

sample preparation, and cell culture.

Industry Outlook* (Laboratory Supply Wholesaling in the US)


Strong economic recovery has spurred rebounds in the private sector, boosting demand for industry Products. Economic recovery is

forecast to increase revenue at an annualized rate of 0.7% to $21.3 billion during the five years to 2021.

• Greater competition will also spur

companies to hire more employees

during the five years to

2021. Over the five-year period,

industry employment is forecast to

increase at an annualized rate of

0.7% to 32,408 employees.

• An estimated 17.5% of biotech

revenueis devoted to R&D, and

growing demand in this field is

anticipatedto leadto revenue growth

forthe Laboratory

• During the five years to 2021,

IBISWorld forecasts that the industry

will continue to undergo restructuring

and acquisitions, with the number of

industry enterprises falling at an

annualized rate of 0.2% to 2,507

companies during the five-year

period.

*IBISWorld Industry report

Proposed Transaction Summary*


STRUCTURE

CONSIDERATION*

IMPLIED LIFE PRICE

PER SHARE

PREMIUM

ANTICIPATED

CLOSING

• All cash deal

• ThermoFisher will also take Life Technologies’ debt of $2.2B

• Total consideration of $16.3B

• Implied price per fully diluted share = $76

• Announced April 2013

• Anticipated closing early 2014 contingent upon regulatory approval

• At announcement, Life’s shares trading at $68

• Premium at announcement : 12%

*From investors relation presentation

Transaction Rationale


• Strengthens technology and innovation leadership through complementary offerings that broaden ThermoFisher’s

industry-leading portfolio

Life’s extensive offering of consumables for genomics, and molecular and cell biology and is well-known for its next-

generation sequencing capability,

Life’s technologies for bio-production and forensics applications.

New opportunities to support the convergence of life sciences tools and diagnostics.

• Creates the ultimate customer partner, enhancing ThermoFisher commercial strength and global reach

Life transacts more than half of its orders online through a highly regarded e-commerce platform.

This leading capability, combined with ThermoFisher extensive research and healthcare customer channels, creates a

world-class commercial infrastructure.

The combined company will also build on its strong foothold in Asia-Pacific, particularly in China, to meet increasing

customer demand in life sciences and healthcare.

• Creates compelling value for shareholders, with attractive financial returns and new growth opportunities

Opportunity for $275 million of adjusted operating income synergies in year three following the close, consisting of $250

million of cost synergies and $25 million of revenue synergies.

Transaction expected to be significantly and immediately accretive to adjusted EPS.

Target & Acquirer - standalone valuation


• Price Range/share: $60 to $90

• LIFE is fair valued in the market

• Premium paid for the acquisition is

reasonable

• Price Range/share: $100 to $127

• ThermoFisher is priced at the lower end,

leaving opportunities for significant

upside.

• Equity deal likely to be attractive.

Comparable Transactions Multiples


• LIFE is receptive to acquisition, as evident

in it hiring IB firm in Jan 2013

• Lower than median comparable deal

multiples is possibly due to the FRIENDLY

nature of the transaction.

• Deal Comp Multiples indicate that the

transaction value of this deal is FAIR.

Target Company Announcement Date

Total Value

($. Million) EBITDA EBIT Revenue Total Assets Book Value

Enterprise

Value

Cytyc Corp May 20, 2007 5657.65 22.17x 26.35x 8.89x 3.91x 7.87x 1.35x

Gen-Probe Inc April 30, 2012 3757.47 19.40x 25.56x 6.41x 3.43x 5.04x 1.31x

Immucor Inc July 5, 2011 1645.65 11.41x 13.06x 4.94x 2.60x 2.89x --

BioVeris Corp April 4, 2007 538.01 -- 22.36x 6.69x 8.99x 1.65x

Cytyc Prenatal Products Corp February 12, 2007 343.03 220.46x 256.76x 6.60x 2.96x 3.20x 1.59x

IRIS International Inc September 17, 2012 332.72 27.69x 50.25x 2.73x 2.88x 3.53x 1.93x

Cholestech Corp June 4, 2007 246.11 17.34x 21.03x 3.54x 2.44x 2.61x 1.13x

Trividia Health Inc February 3, 2010 188.41 15.72x 34.65x 1.55x 1.31x 1.67x 2.04x

Life Technologies April 15, 2013 15402.34 13.20x 20.93x 4.03x 1.80x 3.29x 1.17x

Median 440.52 19.40x 26.35x 5.67x 2.92x 3.37x 1.59x

Average 1588.63 47.74x 61.09x 7.13x 3.28x 4.48x 1.57x

Min 188.41 11.41x 13.06x 1.55x 1.31x 1.67x 1.13x

Max 5657.65 220.46x 256.76x 22.36x 6.69x 8.99x 2.04x

Transaction Value /

TRAILING 12 MONTHS

Target Company Announcement Date

Total Value

($. Million) EBITDA EBIT Revenue

FTM Net

Income

FTM Free

Cash

Cytyc Corp May 20, 2007 5657.65 -- -- -- -- --

Kyphon Americas Inc July 27, 2007 3812.84 26.22x 34.35x 6.55x 62.37x --

Gen-Probe Inc April 30, 2012 3757.47 17.24x 23.78x 5.86x 31.65x 26.39x

Immucor Inc July 5, 2011 1645.65 -- -- -- -- --

BioVeris Corp April 4, 2007 538.01 -- -- -- -- --

Cytyc Prenatal Products Corp February 12, 2007 343.03 -- -- -- -- --

IRIS International Inc September 17, 2012 332.72 23.77x -- 2.58x 59.10x 94.53x

Cholestech Corp June 4, 2007 246.11 -- -- 3.16x 27.62x --

Trividia Health Inc February 3, 2010 188.41 12.31x 22.38x 1.49x 37.24x --

Life Technologies April 15, 2013 15402.3 11.02x 13.76x 3.92x 17.36x 16.19x

Median 440.52 20.51x 23.78x 3.16x 37.24x 60.46x

Average 1588.63 19.89x 26.84x 3.93x 43.59x 60.46x

Min 188.41 12.31x 22.38x 1.49x 27.62x 26.39x

Max 5657.65 26.22x 34.35x 6.55x 62.37x 94.53x

FOWARD 12 MONTHS

Transaction Value /

Transaction Scenarios – Accretion/Dilution Analysis* (Base Case – 100% cash deal) – As Announced


Purchase of Equity 13,283.20$

- Cash & Equivalents 277.90$

+ Preferred Equity -$

+ Minority Interest 0.70$

+ Total Debt 2,397.00$

= Total 15,403.10$

Uses (in Millions)

Common Stock -$

+ Transaction Financing 13,283.20$





= Total 15,403.10$

Sources (in Millions)

Deal Size/Multiples Target @ Deal Price Target Acquirer

Price +12.0% 76.13 68 79.59

Equity Value (million) 13,283.20$ 11,864.70$ 28,787.70$

Enterprise Value (million) 15,403.10$ 13,984.60$ 34,897.80$

P/E FTM 2013 (estimated) 18.1x 16.2x 14.7x


EV/EBITDA CY 2013 12.6x 11.4x 12.5x

EV/EBITDA CY 2014 11.8x 10.8x 8.6x

Pro Forma Acquirer Proforma Target Acquirer

CY 2013 EPS Acc +30.6% 7.08 4.21 5.42

P/E required to maintain share price 11.2x 16.2x 14.7x

Additional Synergies to break even (million) (666.90)$

CY 2014 EPS Acc +25.9% 8.76 4.50 6.96



Net Leverage (Net Debt/TTM EBITDA) +3.6x 6.0x 2.0x 2.4x

Equity Ownership by Target Holders 0.0%

• Highly Accretive

• Credit Rating might be a concern

• Expect credit rating agencies place TMO’s bonds under credit watch or

even downgrade due to increased leverage ratio

Assumptions• Cash / Share: $76.13

• Exchange Ratio: 0.0

• Cost of Debt: 3.0%

• Margin Tax: 10%

• Synergies: $250 million

*As per Bloomberg M&A estimates

Transaction Scenarios – Accretion/Dilution Analysis* (Scenario - 100% stock deal) –

Unlikely





• Margin Tax: 10%



Price +12.4% 76.41 68 79.59





EV/EBITDA CY 2013 12.6x 11.4x 12.5x

EV/EBITDA CY 2014 11.9x 10.8x 8.6x


CY 2013 EPS Acc +1.8% 5.52 4.21 5.42



CY 2014 EPS Dil -4.2% 6.66 4.50 6.96


Additional Synergies to break even (million) 173.10$

Net Leverage (Net Debt/TTM EBITDA) -0.1x 2.3x 2.0x 2.4x


• Highly Dilutive

• Will be difficult to obtain acquirer shareholder approval

• Attractive for target shareholder due to estimated TMO’s upside potential






= Total 15,451.30$

Uses (in Millions)

Common Stock 13,331.50$

+ Transaction Financing -$





= Total 15,451.30$



Transaction Scenarios – Accretion/Dilution Analysis* (Scenario– 50% cash & 50% stock deal)





• Margin Tax: 10%



Price +12.1% 76.20 68 79.59





EV/EBITDA CY 2013 12.6x 11.4x 12.5x

EV/EBITDA CY 2014 11.9x 10.8x 8.6x


CY 2013 EPS Acc +13.5% 6.15 4.21 5.42



CY 2014 EPS Acc +8.0% 7.52 4.50 6.96





• Moderately Accretive

• Moderate impact on credit rating

• Will be difficult to obtain acquirer shareholder approval

• Attractive for target shareholder due to estimated TMO’s upside potential






= Total 15,451.90$

Uses (in Millions)







= Total 15,451.90$



Transaction Scenarios – Accretion/Dilution Analysis* (Reverse Scenario) – IMAGINARY





• Margin Tax: 18.3%


• Price Premium: +12.1%

What if Life Tech tries to acquire ThermoFisher?


- Cash & Equivalents 1,008.30$


+ Minority Interest -$


= Total 38,388.20$

Uses (in Millions)



- Cash & Equivalents 1,008.00$


+ Minority Interest -$


= Total 38,388.20$



Price +12.1% 89.24 79.59 68





EV/EBITDA CY 2013 13.8x 12.5x 11.4x

EV/EBITDA CY 2014 9.5x 8.6x 10.8x


CY 2013 EPS Acc +79.4% 7.55 5.42 4.21


Additional Synergies to break even (million) (1,349.70)$

CY 2014 EPS Acc +108.8% 9.39 6.96 4.50


Additional Synergies to break even (million) (1,976.30)$




Enhanced Financial Scale and Market Position


Combination increases ThermoFisher’s scale and efficiency, driving meaningful value to stockholders.

2014 Revenues

2014 EBITDA

12/31/2014 Debt

THERMO FISHER LIFE TECH Combined with Synergies

Debt / EBITDA (x)

$12,644.6 million29.0 YoY Growth (%)


$7,118.4 million

3.2x



$2,400 million

2.2x


$5386.4 million24.0 YoY Growth (%)

$12,500 million

4.5x

Enhanced Market Position


Combined companies create greater financial value, drive greater market efficiencies and remain nimble to better capitalize on international

market opportunities

NET REVENUE – 2014 ($ in millions)

EBITDA – 2014 ($ in millions)

$-

$5,000.00

$10,000.00

$15,000.00

$20,000.00

Thermo Fisher LifeTechnologies

Illumina Inc AgilentTechnologies

Waters Corp Mettler-Toledo Bruker Corp VWR Corp ABAXIS Inc HaemoneticsCorp

Perkin ElmerInc

$-

$1,000.00

$2,000.00

$3,000.00

$4,000.00

$5,000.00

Thermo Fisher LifeTechnologies

Illumina Inc AgilentTechnologies

Waters Corp Mettler-Toledo Bruker Corp VWR Corp ABAXIS Inc HaemoneticsCorp

Perkin ElmerInc

Regulatory and Competitive Consideration

Competition enforcement agencies around the world reviewed this transaction and brought

up the following risks of a less competitive market. (US, Australia, Canada, China,

European Union, Japan, and Korea)

ThermoFisher post merger market share:

• Greater than 50% of the worldwide market for individual siRNA reagents

• Greater 90% of the market for siRNA reagent libraries.

• Greater 50% share of the worldwide market for cell culture media

• Approximately 60% of the market for cell culture sera.


BUSINESS DESCRIPTION

Cell Culture Serums and cell growth media for live cell cultures

Gene Modulation siRNAs, shRNAs, and purification kits to isolate DNA and RNA

Magnetic beads Beads for isolating nucleic acids

SATISFYING REGULATORSThermoFisher sells 3 business to GE for $1.1 billion

TOTAL 2013 SALES = $250 MILLION

Competing Bids

Life Tech chose Thermo over Sigma-Aldrich Corp, a maker of chemicals for research laboratories, and a

private equity consortium consisting of Blackstone Group, Carlyle Group, KKR & Co and Temasek

Holdings.


Offer from consortium of PE firms

Offer from competitors

The private equity consortium raised its offer on the

Friday before the deal was announced from $65 to

about $67 per share (roughly $11 billion), short

of ThermoFisher's bid.

Life Technologies had sought a higher price

from bidders after receiving committed offers.

"Life is a company with nearly 85% recurring

revenues, has the highest operating margins among

its peers, and is a free-cash-flow machine,"Jonathan Groberg,

Analyst, Macquarie Capital Inc.

TMO - Proven Ability to Deliver Growth

• Sales in 2012 were $12.51 billion, increase of $951

million from 2011. The increase was due to

acquisitions, including Phadia® and Dionex®, and

higher sales at existing businesses.

• Demand from customers in academic and

government markets slowed. Expected weakness in

academic and government markets in near term due

to uncertainty in the government funding

expectations in the US and Europe

• TMO’s strategy to augment internal growth at

existing businesses with complementary

acquisitions seems to have paid off well.

Example

One Lambda, a provider of transplant

diagnostics, was acquired in Sep 2012

to enhance the company’s presence in

specialty in vitro diagnostics and add

new capabilities to the company’s

transplant – testing workflow.

17

Full Year 2008– 2012 EPS Growth

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Diluted EPS

MGT 6066 Fall 2016 – Corporate Restructuring

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Free Cash Flow Margin

Full Year FCF Margin 2008– 2012

Proven Ability to Deliver Productivity Efficiency

• In 2012, total company operating income and

operating income margin were $1.48 billion and

11.8%, respectively, compared with $1.25 billion and

10.8%, respectively, in 2011. The increase in

operating income was primarily due to profit on

incremental sales from acquisitions and existing

businesses

• $67 million of cash restructuring costs primarily for

continued headcount reductions and facility

consolidations in an effort to streamline operations,

including severance to reduce headcount at several

businesses and abandoned facility expenses at

businesses that have been or are being

consolidated, such as the consolidation of several

facilities in the U.S. and Europe.

• Return on Capital and Return on Assets is expected

to improve once post merger integration (Phadia,

One Lambda and Dionex) activities are completed.

18

Efficiency Metrics

MGT 6066 Fall 2016 – Corporate Restructuring

17.0%

17.5%

18.0%

18.5%

19.0%

19.5%

20.0%

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

EBITDA Margin

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Return on Capital

5.1x5.1x5.2x5.2x5.3x5.3x5.4x5.4x5.5x5.5x

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Inventory Turnover

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

FY 2008 FY 2009 FY 2010 FY 2011 FY 2012

Return on Assets

THERMO FISHER’s Successful Acquisition Track Record


PHADIA

DIONEX

ONE LAMBDA

• Enhances ThermoFisher's leadership position in high growth, high margin specialty diagnostics

• Accelerates growth opportunities for Phadia

• Expected to be immediately accretive to adjusted EPS; generates revenue, cost & tax synergies

• PHADIA expected to increase 2011 revenue by $190 M and improve EPS by $0.07

• Sales in 2012 improved by $951M in 2012 and by $262M in 2011

• Increase ThermoFisher's footprint in growing Asia-Pacific market

• Improve performance & productivity for customers

• Expected to be accretive to adjusted EPS by $0.13 to $0.15 in first 12 months post close and expected to

generate $60 million in total operating synergies in year three

• Sales in 2012 improved by $951M in 2012 and by $262M in 2011

• Enhances ThermoFisher’s Presence in Specialty in vitro Diagnostics

• Creates Opportunities to Leverage ThermoFisher’s Commercial Infrastructure in Emerging Markets

• Upon close the transaction is expected to improve adjusted EPS by $0.09 to $0.11 per share

• Transaction was expected to generate revenue and cost synergies to improve operating income by $15M

• Transaction resulted in annual cost saving of $85M in 2013


Analyst Reaction

“We believe TMO remains well-positioned as a stand-alone entity, and LIFE is a “nice to have”

rather than a “must have,” we remain constructive on the potential for a deal for TMO.

Tycho W. Peterson, J P Morgan

TMO remains the most likely acquirer, in our view... according to press reports, TMO was the only strategic bidder for LIFE, and

bid higher than private equity. While we expect TMO’s bid to include equity (so that the company can stay in its leverage comfort

range), a higher bid that includes equity that is likely to appreciate should be easily superior to a lower cash offer.

…as a potential deal could be highly accretive… we could easily see >$500M of operating income synergies over time, with

overlapping sales channels, G&A functions, and LIFE’s overspending on R&D being low-hanging fruit. It should also be noted that

LIFE’s >1,000bp higher tax rate represents a significant source of potential net income synergies over time, in our view. With this in

mind, we believe it is not difficult to see >10% ROIC on a LIFE acquisition around $70, which should bolster the case for TMO as a

strong cash generator with improving returns.

…but we would expect TMO to under-promise and over-deliver. If/when a deal is announced, we believe that TMO is likely to

under-promise on synergies and accretion, consistent with the company's track record of being conservative with guidance over the

last year, and setting up a multi-year beat-and-raise story. While it is possible to see FY14 accretion as much as $1 in EPS (~17%), it

is far more likely that initial expectations could be for half this amount, in our view.

Thoughts on antitrust. While it is not uncommon for deals in this highly technical industry to receive second requests in the U.S.

(and it seems the revenue threshold would almost certainly require a China review), we believe that antitrust approval would

eventually be granted without any material effect on the business. If divestitures are required in the small parts of the business that

do overlap (PCR, parts of bio production), we find it difficult to see much north of 1% of the combined total revenue.

Event Studies


-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

CAR beforeinvestment firm

was hired

CAR afterinvestment firm

was hired

CAR before dealannouncement

CAR after dealannouncement

Cumulative Abnormal Return (TMO)

1 Day 10 Days 40 Days

0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%16.00%

CAR beforeinvestment firm was

hired

CAR afterinvestment firm was

hired

CAR before dealannouncement

CAR after dealannouncement

Cumulative Abnormal Return (LIFE)

1 Day 10 Days 40 Days

DATE EVENTLIFE previous day closing price

(Trading Volume)

LIFE same day closing price

(Trading Volume)

THERMO previous day closing price

(Trading Volume)

THERMO same day closing price

(Trading Volume)

$54.97 $60.79 $68.93 $69.40

(2,866,092) (16,500,554) (1,836,400) (1,738,400)

$68.23 $73.50 $79.59 $78.58

(3,253,850) (46,272,855) (2,325,200) (14,442,500)

18-Jan-13LIFE hires two investment

firms

15-Apr-13THERMO deal

announced

Post Deal Announcement


Approval by Target & Acquirer board of directors

Approval by LIFE

shareholders

Approval by European

Commission

Approval by Australian

Competition & Consumer Commission

Approval by Chinese

Ministry of Commerce

Approval

by Federal Trade

Commission

04/15/13 08/21/13 11/26/13 12/19/13 01/15/14 01/15/14

02/03/14

Deal

Completion

Closing Thoughts*


From ThermoFisher’s 2015 10K ….

• Sales in the Life Sciences Solutions segment increased $244 million to $4.44 billion in 2015 primarily due to the acquisition of Life Technologies, net of

divestitures. The increase in pro forma revenue at existing businesses was primarily due to increased demand for bioprocess production products as well as

biosciences products.

• During 2015 , the company’s cash flow from operations totaled $2.82 billion compared with $2.62 billion for 2014 . The increase resulted from cash

disbursements in the 2014 period totaling $325 million related to the acquisition of Life Technologies, including severance obligations, third-party

transaction/integration costs and monetizing certain equity awards held by Life Technologies employees at the date of acquisition.

• In addition, the company recorded $82 million of cash restructuring costs primarily for actions to achieve synergies from the Life Technologies acquisition.

• The company’s effective tax rate was 9.2% in 2014. Aside from the discrete tax on the divestiture, the company had a benefit from income taxes primarily due to

restructuring and other costs associated with the acquisition of Life Technologies.

0.00%

20.00%

40.00%

60.00%

2012 2013 2014 2015

2 Year Performance Post Acquisition

% of Total Revenue Total Revenue Growth

Division Revenue Growth EPS Growth

0

5

10

15

20

2012 2013 2014 2015

Life Science Division Total revenue

Revenue ($, billion)

*From ThermoFisher’s 2015 10K statement

rohit behera - m&a work sample - thermofisher scientific acquires life tech

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