Anatomical Pathology sale ups Thermo Fisher’s M&A war chest, analyst

Thermo Fisher Scientific will divest its anatomical pathology business for $1.1 billion to PHC Holdings. The sale leaves Thermo Fisher in a competitive M&A position among bioprocessing peers, says an analyst.

The business unit, part of Thermo Fisher’s Specialty Diagnostics Segment, includes microscope slides, instruments and consumables and will be taken over by Japan’s PHC Holdings Corporation – formerly Panasonic Healthcare Holdings – if the deal goes through in the second quarter of 2019.

The unit generates about $85 million in annual earnings, according to a Bloomberg report last October.

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According to Hidehito Kotani, CEO of PHCHD, the $1.14 billion (€1 billion) deal brings the firm an anatomical pathology business that “has shown steady growth with their strong customer base in global hospital markets, especially in the United States,” and will create value for stakeholders as part of the firm’s growing diagnostics and healthcare portfolio.

But according to Ross Muken, an analyst from Evercore ISI, “the unit is one of Thermo Fisher’s more mature businesses serving a shrinking client base under pricing pressure by CMS [Centers for Medicare & Medicaid Services].”

He noted: “Management has been diligent at consistently evaluating its portfolio, and has taken advantage of favorable offers for units that no longer prove core to the broad offering. With growth that is likely below corporate average and a moderate complexity mix of technology that serves an evolving market we think this is a very sensible outcome.”

Furthermore, the sale is likely to prop up Themo Fisher’s acquisitional power, Muken added, bolstering the bioprocessing firm’s M&A war chest.

“We think once this transaction closes Thermo Fisher will have more than $9 billion available for M&A, placing them in a competitive posture to all peers.”

The firm has been extremely active in its M&A activity over the past few years, most recently boosting its cell culture media offering through the addition of BD’s Advanced Bioprocessing business. But since 2014, Thermo Fisher has completed several multi-billion-dollar deals (see here).

Thermo Fisher will present its full year 2018 financials later this week.