Lab testing LBO offers murky result for both sides

QIAGEN

Today 10:50

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Aimee Donnellan
DUBLIN, Oct 22 (Reuters Breakingviews) - In many buyouts there’s a clear winner.  Either the private equity group talks a board into selling for a knockdown price or the seller bags a juicy premium. Qiagen QIA.DE doesn’t fall into either camp. For shareholders the $12 billion price tag is only marginally better than a bid they rejected from Thermo Fisher Scientific TMO.N six years ago. Meanwhile, EQT EQTAB.ST will have to invest heavily to get revenue humming, which may make it harder to widen margins.
A Qiagen takeover has been a long time coming. In 2020, US rival Thermo Fisher offered €43 a share in cash to buy Dutch-German group but its shareholders rejected it. A year later Bloomberg reported that France's bioMérieux BIOX.PA and the lab tester were exploring a $28 billion merger, but that never materialised. Now EQT has won the testing business, offering €46.50 a share, just 8% above the rejected 2020 offer. 
The price may not be compelling but Qiagen’s recent performance gives many shareholders a good reason to take it. In April, the group's shares sank to a seven-year low when it said it would only deliver 1% to 2% sales growth this year. In 2024, then CEO Thierry Bernard had promised 7% revenue growth until 2028. Meanwhile, Qiagen’s operating margin has fallen to 29%, an over 4 percentage point drop since 2020. This explains EQT’s pounce. The Swedish group may reckon that Qiagen is at an inflection point, where out of the glare of the public market it can invest in its strongest areas like sample preparation, tuberculosis testing and QIAcuity, which counts tiny amounts of DNA and RNA precisely. But to get a decent return, the new owner will need to boost both sales and margins.
Assume Qiagen grows revenue by its previous 7% target over the next five years and lifts its margin by 5 percentage points to 42% over the same period, delivering EBITDA of nearly €1.3 billion in 2031. An exit on the same 15.2 times multiple, valuing Qiagen at €19 billion including debt, would deliver a return of almost 20%. That's according to a Breakingviews calculation that assumes EQT uses gearing of 6.5 times EBITDA to fund its deal, and keeps capex at 8% of sales. That's roughly the kind of return private equity typically targets.
That, however, will be a heavy lift. Growing margins in testing is tricky given the amount of regulation and cost that comes with running a lab. And growth could easily disappoint: analysts are expecting revenue to rise annually by just 4% over the next five years, per Visible Alpha, and Qiagen’s tuberculosis franchise is facing new competition from Roche ROPC.S. EQT has plenty of experience in the sector. Over the past 10 years, over 40% of its private equity investments have gone into healthcare and life sciences. But the scale of the task with Qiagen suggests there may not be many easy targets left.  
     
Follow Aimee Donnellan on LinkedIn.
     
CONTEXT NEWS
Sweden's EQT will buy molecular testing company Qiagen for about €9.6 billion ($10.78 billion), the companies said on October 21.
Buyout firm EQT offered €46.50 ($52.22) a share for Qiagen, representing an 8.6% premium to its last close. Affiliates of the Abu Dhabi Investment Authority and Canada Pension Plan Investment Board are also participating in the offer.
The deal, which values Qiagen at about $12.1 billion including about $1.1 billion in net debt, is expected to close in mid-2027. EQT has secured equity and debt financing to fund the offer.
Qiagen said it was suspending its full-year 2026 outlook pending the deal. It reported preliminary third-quarter net sales of $548 million and adjusted diluted earnings per share of $0.65.
Qiagen shares were trading at €45.12 ($50.70) by 0833 GMT on October 22.

(Editing by Neil Unmack; Production by Streisand Neto)
((For previous columns by the author, Reuters customers can click on DONNELLAN/Aimee.Donnellan@thomsonreuters.com))