Investors who were absorbed in watching the tech sector meltdown in 2000 might not have been aware that as tech was falling apart, another bubble rapidly emerged. With the promise and hype of genomics and proteomics fueling dreams of a revolution in medicine, a host of life science companies IPO'd with robust valuations, promising technology and little-to-nothing in the way of actual revenue.

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Like every other bubble, this popped and investors have been dealing with the wreckage ever since. Clearly companies like Illumina (Nasdaq:ILMN) have gone on to great success, while others went out of business entirely. And then there were companies like Caliper Life Sciences (Nasdaq:CALP) that could never quite live up to the initial hype, but eventually developed their technology to a point where they were interesting second-chance stocks.

In the case of Caliper, that second chance has come to a premature end as the company has accepted a buyout offer from PerkinElmer (NYSE:PKI). (In this article, we'll show you how to invest around mergers and the ups and downs. For more, see The Merger - What To Do When Companies Converge.)

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The Deal
PerkinElmer announced that it will acquire Caliper Life Sciences for $10.50 per share, or $600 million in total cash. That is a 42% premium to Wednesday's close and the highest price that Caliper shareholders will have seen since the spring of 2002. While a far cry from the one-time peak near $200, this price values Caliper at more than 4 times trailing sales and closes an impressive recovery run from the sub-$1 depths.

What PerkinElmer Is Getting
I wouldn't be at all surprised to see some long-time Caliper shareholders fume over this deal and complain that PerkinElmer is getting good technology too cheap. On the flip side, PerkinElmer shareholders should welcome this deal as it furthers the company's transition into life sciences, diagnostics and next-generation imaging.

Today Caliper has several independent technology platforms - molecular imaging, microfluidics, automation and liquid handling - and each has an interesting history and growth profile all its own.

Caliper's molecular imaging has been used by drug makers to assess the activity and efficacy of drugs, and Caliper can boast a role in the development of drugs like Pfizer's (NYSE:PFE) Sutent, Novartis's (NYSE:NVS) Tasinga and Bristol-Myers's (NYSE:BMY) Sprycel.

An Underappreciated Asset
The automation and liquid handling business may be an underappreciated asset to those who don't work in labs. Simply put, sample prep and other manual processes in life sciences research are a major pain in the hindquarters. They are tedious and time-consuming, and they are the primary source of error in many lab procedures. As life science tools get more complex and feature more steps (with more elaborate prep), there should be greater demand for automation, and Caliper's relationship with Illumina (to name one example) could pay off.


Microfluidics
Last and not least is the microfluidics business. This was a big part of the initial hype around Caliper, as the idea of a "lab on a chip" is quite appealing. Unfortunately, it has turned out to be a lot more difficult than initially thought, and microfluidics tests have had to compete with a variety of more traditional methodologies from the likes of Life Technologies (Nasdaq:LIFE) or Abbott Labs (NYSE:ABT), and newer approaches from companies like Cepheid (Nasdaq:CPHD) and Luminex (Nasdaq:LMNX).

This may be one of the biggest sources of upside and consternation in this deal. True, PerkinElmer should really be able to leverage the real-time molecular imaging technology and the automation tools. But it was looking as though Caliper was really getting close to an interesting LabChip product (the LabChip DX for molecular diagnostics), and it may drive Caliper investors nuts to see this turn out to be a real success for PerkinElmer.

The Bottom Line
PerkinElmer is in an arms race with the likes of Agilent (NYSE:A), Danaher (NYSE:DHR), ThermoFisher (NYSE:TMO) and Waters (NYSE:WAT). The acquisition of Caliper will not immediately shake up the world or throw markets into a tizzy. It is a savvy acquisition, though, as PerkinElmer may be setting itself up to reap the majority of the benefit of over 10 long years of development and research at Caliper. With microfluidics perhaps finally becoming "tomorrow's technology, today!", this could be an interesting mix of established high-quality tools and low-cost options on future technology with major promise. (For related reading, see Biggest Merger and Acquisition Disasters.)

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