Thermo Fisher Scientific Inc has reached a definitive agreement to acquire PPD Inc, a leading clinical research service provider. Thermo Fisher’s shares gained 3.46% after it was confirmed that the two companies’ boards had approved the proposed $20.9 billion cash and debt acquisition. Thermo Fisher will buy PDD at $47.50 a share; paying $17.4 billion in cash and will take over an estimated debt of $3.5 billion.
The purchase price represents a 24% premium to PPD‘s common stock price as on April 13, 2020. A leader in the $50 billion clinical research services industry, PPD should strengthen Thermo Fisher’s (TMO) scientific prospects in the attractive and high-growth industry.
“The acquisition of PPD is a natural extension for Thermo Fisher and will enable us to provide these customers with important clinical research services and partner with them in new and exciting ways as they move a scientific idea to an approved medicine quickly, reliably and cost effectively,” said Marc N. Casper, CEO of Thermo Fisher.
The acquisition should also enhance Thermo Fisher’s value proposition among Pharma and biotech customers. The company also stands to realize $125 million in synergies over the next three years consisting of $75 million in cost savings and $50 million in adjusted operating income benefit.
Thermo Fisher shares are up 6% year to date after a 43% gain in 2020. (See Thermo Fisher stock analysis on TipRanks)
Weighing in on the acquisition, Citigroup’s analyst Patrick B Donnelly says the takeover makes a lot of sense based on valuation and fundamentals. According to the analyst, the $15 billion plus price target translates to a “reasonable” EBTIDA multiple for a company poised for growth in the “foreseeable future”.
Donnelly has since reiterated a Hold rating on the stock with a $530 price target implying 7.2% upside potential to current levels.
Consensus on the Street is a Strong Buy. Ten analysts rate it as a Buy and one as a Hold. The average analyst price target of $559.55 implies a 13.18% upside potential to current levels.
Thermo Fisher scores a “Perfect 10” on TipRanks’ Smart Score rating system. This implies that the stock is likely to outperform market expectations.
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