So far, shares of Agilent are not reacting favorably to the news, down a little more than 1% on the session.
BioTek is a manufacturer of cell imaging systems, microplate readers, washers, and incubators that are used during cell analysis. Live cell imaging is used by scientists to get a better understanding of biological functions of cells through the observation of cell structures and processes in real time.
The observation of real-time changes provides more insight into the health and functionality of a cell compared to a stand-still picture provided by the imaging of fixed cells.
Live cell imaging has gained significant adoption in the fields of immuno-therapy and cancer research.
As the technology advanced and became more prominent, Agilent focused on building out its cell analysis business through acquisitions. It began with its acquisition of Seahorse Bioscience in 2015. Seahorse Bioscience provides specialized instruments in live-cell assays with a specific focus on cellular metabolism analysis.
Agilent followed that acquisition with the purchase of soluble sensor maker Luxcel in January 2018, and then ACEA Biosciences last September. Upon the closing of its ACEA Biosciences deal, Agilent's cell analysis business topped $250 mln in annual revenue.
Its acquisition of BioTek is its most aggressive move yet.
Agilent is already very familiar with BioTek since the two companies are partners. While Agilent focused on cell metabolism research, BioTek provided the imaging equipment that could support Agilent's work.
In addition to the familiarity and natural fit, BioTek should add around $180 mln in revenue to Agilent this year. That may not look overly significant given that the company is expected to generate $5.1 bln in revenue, but BioTek is growing faster than Agilent's recent low-to-mid single digit growth.
Furthermore, Agilent anticipates the deal will be accretive to EPS by $0.02-$0.04 in FY20, compounding thereafter.
So, the question is, why isn't the stock reacting favorably to the deal?
One possible hang-up is the price. Agilent is paying about 7x annual revenues for BioTek, which looks rich relative to BioTek's growth rate. The stock has also climbed by 13% over the past week, so there could also be some profit-taking in play today.
Key Takeaways: M&A activity has accelerated lately, providing a boost to the broader markets. The big M&A news today is Agilent's $1.1 bln acquisition of BioTek. With Agilent steadily expanding its presence in the cell analysis market, this acquisition looks like a strong fit. It's also expected to be slightly accretive to earnings in 2020 with a more pronounced impact thereafter.
The main knock on the deal is that Agilent paid a pretty hefty price for the company.