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NEOGEN (NEOG) Gains on 3M's Food Safety Arm Merger Deal
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Shares of NEOGEN (NEOG - Free Report) have rallied nearly 7% since the news of the company getting into a tax-friendly food safety deal with 3M Company (MMM - Free Report) surfaced on Dec 14. Per the definitive agreement, NEOGEN plans to merge with the Food Safety business of 3M.
This merger is anticipated to establish a leader in the food safety sector, with a comprehensive product range and a strategic focus on the category’s long-term growth potential.
Deal Details
The transaction has an enterprise value of approximately $5.3 billion, including 3M’s Food Safety business’ new debt of $1 billion. This implies 32X EBITDA for 2022 (pre-run-rate synergies) and 27X adjusted EBITDA for 2022 (post run-rate synergies).
Based on NEOGEN’s closing share price as of Dec 13, 2021, the combined company is expected to have an enterprise value of approximately $9.3 billion. The transaction consists of a tax-free “Reverse Morris Trust” structure, wherein existing NEOGEN shareholders will own approximately 49.9% of the combined company while 3M shareholders will receive approximately 50.1% of the combined company.
The transaction is anticipated to close by the end of third-quarter 2022, subject to approval by NEOGEN shareholders, receipt of necessary regulatory clearances and fulfillment of other customary closing conditions.
Transaction Synergies
The consolidated business is expected to strengthen NEOGEN’s position in the field of food safety and supply chain solutions. The combined company will have a broad lineup of food safety products, particularly in indicator testing and pathogen detection areas, complementing NEOGEN's existing microbiology lines. In addition, NEOGEN will be able to offer 3M food safety customers its genomics services, which deliver DNA testing — a new offering for 3M food safety customers.
Post completion of the deal, significant global growth opportunities will open up for the consolidated company. According to NEOGEN, apart from the United States and Europe, substantial interest displayed by developing nations in improving food safety presents significant growth potential for the combined company. Further, there will be investment flexibility to pursue international expansion. The combined company’s complementary product offerings combined with NEOGEN's data-driven analytics approach will have enhanced digital capabilities to lead the digitization of the food security industry.
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In terms of revenue generation, the combined company is expected to have an improved financial profile, which is expected to enhance NEOGEN's already consistently high-performing revenue stream. The combination will boost NEOGEN's Food Safety segment sales to approximately 70% of total revenues post-transaction, with total projected pro forma revenues of approximately $1 billion expected in the first full year post-closing. Pro forma EBITDA is expected to be approximately $300 million with a higher overall EBITDA margin profile of approximately 30% expected in the first full year post-closing. These synergies are expected to be achieved by the end of year three following the close of the transaction.
Industry Prospect
Going by a MARKETSANDMARKETS report, the global food safety testing market is estimated to be $19.5 billion in 2021 and is projected to witness a CAGR of 7.9% to reach $28.6 billion by 2026.
Current Status of NEOG's Food Safety Business
For NEOGEN’s first-quarter fiscal 2022, Food Safety revenues reflected 15.8% (up 10% organically) year-over-year growth. The upside was driven by strong growth across the company's diagnostics portfolio, which includes increases of 36%, 17%, 15% and 14% in culture media, allergens, pathogens and environmental sanitation, respectively.
Notably, growth in environmental sanitation was enhanced by the recently-launched AccuPoint Advanced NG, which has been gaining market share since its launch in May 2021. The Megazyme acquisition also contributed to the quarter’s total revenues. Despite flat sales of Soleris instruments, the number of new placements since its launch contributed 9% to sales growth in consumables used in these instruments.
Price Performance
The stock has outperformed its industry in the past year. The company’s shares have moved up 5.7% against the industry’s 6.5% decline.
Thermo Fisher, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted earnings per share (EPS) of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.
Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.
Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.
Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%. It currently sports a Zacks Rank #1.
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NEOGEN (NEOG) Gains on 3M's Food Safety Arm Merger Deal
Shares of NEOGEN (NEOG - Free Report) have rallied nearly 7% since the news of the company getting into a tax-friendly food safety deal with 3M Company (MMM - Free Report) surfaced on Dec 14. Per the definitive agreement, NEOGEN plans to merge with the Food Safety business of 3M.
This merger is anticipated to establish a leader in the food safety sector, with a comprehensive product range and a strategic focus on the category’s long-term growth potential.
Deal Details
The transaction has an enterprise value of approximately $5.3 billion, including 3M’s Food Safety business’ new debt of $1 billion. This implies 32X EBITDA for 2022 (pre-run-rate synergies) and 27X adjusted EBITDA for 2022 (post run-rate synergies).
Based on NEOGEN’s closing share price as of Dec 13, 2021, the combined company is expected to have an enterprise value of approximately $9.3 billion. The transaction consists of a tax-free “Reverse Morris Trust” structure, wherein existing NEOGEN shareholders will own approximately 49.9% of the combined company while 3M shareholders will receive approximately 50.1% of the combined company.
The transaction is anticipated to close by the end of third-quarter 2022, subject to approval by NEOGEN shareholders, receipt of necessary regulatory clearances and fulfillment of other customary closing conditions.
Transaction Synergies
The consolidated business is expected to strengthen NEOGEN’s position in the field of food safety and supply chain solutions. The combined company will have a broad lineup of food safety products, particularly in indicator testing and pathogen detection areas, complementing NEOGEN's existing microbiology lines. In addition, NEOGEN will be able to offer 3M food safety customers its genomics services, which deliver DNA testing — a new offering for 3M food safety customers.
Post completion of the deal, significant global growth opportunities will open up for the consolidated company. According to NEOGEN, apart from the United States and Europe, substantial interest displayed by developing nations in improving food safety presents significant growth potential for the combined company. Further, there will be investment flexibility to pursue international expansion. The combined company’s complementary product offerings combined with NEOGEN's data-driven analytics approach will have enhanced digital capabilities to lead the digitization of the food security industry.
In terms of revenue generation, the combined company is expected to have an improved financial profile, which is expected to enhance NEOGEN's already consistently high-performing revenue stream. The combination will boost NEOGEN's Food Safety segment sales to approximately 70% of total revenues post-transaction, with total projected pro forma revenues of approximately $1 billion expected in the first full year post-closing. Pro forma EBITDA is expected to be approximately $300 million with a higher overall EBITDA margin profile of approximately 30% expected in the first full year post-closing. These synergies are expected to be achieved by the end of year three following the close of the transaction.
Industry Prospect
Going by a MARKETSANDMARKETS report, the global food safety testing market is estimated to be $19.5 billion in 2021 and is projected to witness a CAGR of 7.9% to reach $28.6 billion by 2026.
Current Status of NEOG's Food Safety Business
For NEOGEN’s first-quarter fiscal 2022, Food Safety revenues reflected 15.8% (up 10% organically) year-over-year growth. The upside was driven by strong growth across the company's diagnostics portfolio, which includes increases of 36%, 17%, 15% and 14% in culture media, allergens, pathogens and environmental sanitation, respectively.
Notably, growth in environmental sanitation was enhanced by the recently-launched AccuPoint Advanced NG, which has been gaining market share since its launch in May 2021. The Megazyme acquisition also contributed to the quarter’s total revenues. Despite flat sales of Soleris instruments, the number of new placements since its launch contributed 9% to sales growth in consumables used in these instruments.
Price Performance
The stock has outperformed its industry in the past year. The company’s shares have moved up 5.7% against the industry’s 6.5% decline.
Zacks Rank and Key Picks
NEOGEN currently carries a Zacks Rank #3 (Hold).
Two better-ranked stocks from the broader medical space are Thermo Fisher Scientific Inc. (TMO - Free Report) and Medpace Holdings, Inc. (MEDP - Free Report) . You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
Thermo Fisher, currently carrying a Zacks Rank #2 (Buy), reported third-quarter 2021 adjusted earnings per share (EPS) of $5.76, which surpassed the Zacks Consensus Estimate by 23.3%. Revenues of $9.33 billion outpaced the Zacks Consensus Estimate by 12%.
Thermo Fisher has an estimated long-term growth rate of 14%. TMO surpassed estimates in the trailing four quarters, the average surprise being 9.02%.
Medpace reported third-quarter 2021 adjusted EPS of $1.29, surpassing the Zacks Consensus Estimate by 20.6%. Revenues of $295.57 million beat the Zacks Consensus Estimate by 1.2%.
Medpace has an estimated long-term growth rate of 16.4%. MEDP surpassed estimates in the trailing four quarters, the average surprise being 11.9%. It currently sports a Zacks Rank #1.