Tickers in this Article: BEC, RHHBY, ABT, SI, GE, DHR, GPRO, CPHD
If multiple reports from respected sources like Wall Street Journal and Bloomberg are to believed, Beckman Coulter (NYSE:BEC) is on the block. If true, the board deserves applause for bowing out and seeking the best possible source of good returns for its shareholders.

IN PICTURES: 5 Tips To Reading The Balance Sheet

A Long Way From a Deal
Beckman itself has not commented on any of the rumors, but multiple reports indicate that the company has tapped Goldman Sachs (NYSE:GS) to manage a potential sale of the company. Some reports have gone so far as to indicate that this is in direct response to the receipt of bids or indications of interest for the company - though apparently from private equity buyers and not other companies. (For more, see Potential Takeout Targets.)

Match Game
The stock has shot up more than one-quarter in response to these rumors, and the market is once again playing the Chinese menu game (pick one from column A and then one from column B). It is unlikely that any of Beckman's current major rivals would want to make a bid. It would not make sense for Abbott (NYSE:ABT) to be eager to buy into the chemistry business (where Beckman is strongest). Siemens (NYSE:SI) and Roche (Nasdaq:RHHBY) would not only have potential antitrust worries to reconcile, but would also have to explain to their shareholders how that deal would complement their stated efforts to produce more growth from their testing businesses from next-gen technology.

Beckman Coulter is a rare pure-play with substantial size, though, so surely there would be interested parties. General Electric (NYSE:GE) has talked openly about putting a lot of capital to work in healthcare and the recent acquisition of Clarient is hardly a large deal. Moreover, GE has shown interest in this market before, reportedly having been interested in buying Abbott's diagnostics business some years ago.

Beyond GE, Danaher (NYSE:DHR) would also be a credible candidate. Danaher has talked of wanting to increase its healthcare exposure and for all of its problems, Beckman still has some of the market-leading product lines that Danaher often looks for in targets. Better still, Beckman has suffered for years under questionable management and Danaher may see this as an opportunity to lever its operating excellence across a platform that could really use some. (For more, see Investing In Healthcare Stocks.)

A Starry-Eyed Valuation Probably Isn't in the Cards
Investors can probably expect to see more than a couple articles on this potential sale where the writer interviews sell-side analysts and those analysts talk about the rich multiples paid in prior diagnostics deals. And it's true - companies like Siemens, Hologic (Nasdaq:HOLX) and Becton Dickinson (NYSE:BDX) have paid healthy multiples for diagnostics companies in the past. In the case of BEC, though, it is important to realize that this is a scratch-and-dent company that is strongest in the more commoditized (or at least high-volume/lower-margin) part of the diagnostics market.

More to the point, Beckman really has not kept up so well in more advanced testing. BEC is stronger in chemistry than immnoassay, and seems to be getting left behind in molecular diagnostics. While companies like Gen-Probe (Nasdaq:GPRO), Cepheid (Nasdaq:CPHD), Hologic or Bio-Rad (NYSE:BIO) are all smaller than Beckman in diagnostics, they all have interesting growth platforms that BEC lacks. (For more, see A Checklist For Successful Medical Technology Investment.)

The Bottom Line
None of that is not to say that Beckman is a bad company. Beckman has an installed base of over 200,000 instruments and good growth outside the U.S. It just means that the company is not likely to get a strong double-digit multiple on EBITDA in a sale. With the company suffering in the wake of a recall of its troponin test and needing to prove to the Street that it has attractive growth prospects, it just means that a buyer likely does not have to pay too much for the company.

Even though a multiple of eight-times trailing EBITDA might strike some analysts as too cheap, it would be a more than fair price for BEC, and a price that would still mean that the stock could fetch as much as another 10% in a deal. (For more, see Trademarks Of A Takeover Target.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

comments powered by Disqus

Trading Center