Thermo Fisher Pays A High Price For Quality

Dionex (Nasdaq:DNEX) was on a lot of short-lists for potential life sciences M&A, and Thermo Fisher (NYSE:TMO) made that prediction a reality on Monday morning. Thermo Fisher, a large and diversified life sciences company announced that it was acquiring Dionex for $2.1 billion. 

Quality Does Not Come Cheap
Thermo Fisher is acquiring all of Dionex for $2.1 billion in cash, or $118.50 per share. That is a 21% premium to Dionex's price on Friday, and a healthy multiple for this niche company. Thermo is paying nearly five times trailing revenue and 20 times trailing EBITDA. That is well ahead of the current valuations for other niche analytical companies like Bruker (Nasdaq:BRKR), broad analytical companies like Agilent (NYSE:A), Waters (NYSE:WAT) and PerkinElmer (NYSE:PKI), and the acquiring company. In fact, investors pretty much have to turn to companies like Illumina (Nasdaq:ILMN) or Luminex (Nasdaq:LMNX) to see comparable valuations.

By the same token, there are plenty of reasons that validate that price tag. Dionex is one of the best companies in the sector in terms of ROIC and margins, and management have been very sound stewards of the company's capital. Where many companies fall all over themselves in trying to diversify and become a one-stop-shop for life sciences, Dionex has more or less stuck its specialty. That has allowed the company to build a 75% share in ion chromatography, while also building a decent (though small) high-performance liquid chromatography business. 


Please follow the link below for the full article:
http://stocks.investopedia.com/stock-analysis/2010/Thermo-Fisher-Pays-A-High-Price-For-Quality-TMO-DNEX-A-WAT-PKI-ILMN-LMNX1215.aspx