Friday, December 2, 2011

The Year of Acquisitions

Like most industries, the Flow Cytometry Industry appears to be shrinking, in that the number of players on the industry side of things is getting smaller.  For many years, there were a few big players, namely Becton Dickinson and Beckman Coulter (who they themselves were products of mergers - BD+Ortho, and Beckman+Coulter).  They made instruments and reagents and pretty much sold the whole package.  Seeing the potential for others to capture some of the market share, we experienced a growth of smaller start-ups, either focusing on the hardware or the reagents.  Companies like Cytomation (maker of the MoFlo), and Guava on the instrument side of things introduced some nice products and created some much needed buzz.  A major impact of these companies was that it forced the major companies to invest in R&D and come out with more competitive products.  On the antibody side of things, reagent-focused companies like eBioscience and Biolegend gained popularity.  But, I think a real turning point happened when little-known Accuri Cytometers exploded on the scene with a low-cost, small footprint cytometer with capabilities similar to a FACSCalibur.  They took a page from the Guava playbook and targeted individual labs instead of the typical cytometer purchaser - a core facility.  Soon other companies were seeing the success of these platforms, and the much larger market outside of the core facility.  Companies like Stratedigm, Life Technologies and iCyt started offering smaller sized, less expensive cytometers.  It seemed like the cytometery industry - both on the instrument and reagent side - was expanding.  This lead to competition and innovation.  The old standby's like BD and Beckman Coulter were forced to come up with new and exciting products to maintain their market share.  And then the recession hit.

So, what happens in a recession.  Well, contrary to what you might think, many companies do just fine in a recession.  Of course their growth may slow, but then they also tend to accumulate capital as well.  In fact many companies wind up in a situation where they have lots of cash on hand and are sort of waiting to see what's going to happen.  John Waggoner explains in a USA Today piece (http://www.usatoday.com/money/perfi/columnist/waggon/2011-05-05-cash-in-on-mergers-and-aquisitions_n.htm)  that this past summer, it was estimated that companies in the S&P 500 stock index had a combined $940 Billion in cash.  I postulate that the well-established cytometry companies were/are in a similar boat...but to a much lower degree.

Mr. Waggoner goes on to explain, companies with cash-on-hand basically have three things they're going to do with it.

1.  They can reinvest in the company, hire more people, build more plants, funnel it into R&D, etc...  However, with funding becoming more and more scarce, there's not enough demand in the market to warrant such reinvestment.

2.  They can return money to their investors in the form of dividends.  Some companies are doing this, but probably in moderation.

3.  They can buy another company to position themselves for the recovery.  Mergers and Acquisitions are a pretty huge business in recent years.  In total, M&As are running at a $1.6 Trillion pace for 2011.  A good chunk of this is happening in the healthcare sector.  

Bingo.  Herein lies the recent increase in mergers and acquisitions.  For example, Accuri raises ~$30 Million to get their business going, BD sees the threat and buys them for $205 Million (not a bad ROI for the Accuri Investors).  BD removes the threat, and clears the way for its new flagship, small footprint, easy-to-use cytometer, the FACSVerse.  This works for reagent companies too.  Affymetrix buys eBioscience, EMD-Millipore buys Guava and now Amnis, Life Technologies licenses the acoustic focusing technology to build the Attune, and on and on it goes.  Even bigger name companies like Sony and Danaher are getting into the game.  Sony purchased iCyt to see if it can get its foot into the biomedical research arena, and Danaher purchased Beckman Coulter for who knows what reason.  At any rate, it seems like the industry is attempting to go back to the old days where you'd do all your shopping at one company.  Buy your instrument, reagents, analysis software, and all the rest from one company.  You'll end up having BD labs, Millipore Labs, Life Technology Labs and maybe even Beckman Coulter Labs.  A necessity in the current environment, but I'm sure things will oscillate back to the innovative start-ups taking on the big-boys once again.  So, who's next to be gobbled up?  I'm sure companies like Stratedigm, Blue Ocean, and Cyntellect are hoping their phones will start ringing.