Merck KGaA (AO) | Buy | Good things come to those who wait

Research evidence excerpt

Merck KGaA (AO) | Buy | Good things come to those who wait

an attractive Life Science deal could re-ignite investor interest in Merck. Sentiment on both Merck and the Life Science

sector has started to rise very recently, but we expect market dynamics to continue to improve.

The long-awaited deal made sense and received a positive reception during the day.

Markets reacted positively to Merck’s investor call on the Bio-Techne acquisition yesterday, seemingly appreciating the logic.

The main single positive, we would say, is Merck standing behind high single digit growth for Bio-Techne standalone, and then

firmly hinting that sales synergies a) are likely to come (even though the CFO advised analysts "not to put them in your models

yet", they are too early to quantify), but b) sales synergies would come on top of that already strong stand-alone growth profile.

Markets seem to recognise 1) the high-growth potential addition of Bio-Techne, 2) the “complementary” nature of the deal, and 3)

a valuation that seems eminently sensible (with no hint of “COVID premium”).

The deal makes a lot of sense to us, too. We see a complementary offering that should combine:

The ability to get significant cost synergies, most likely from parts of the discovery solutions base business – Merck’s legacy

Sigma Aldrich lab products business, combined with Bio-Techne’s reagents business.

Sales synergies should also be a key feature, by leveraging Merck’s regional (and multi-channel) sales/distribution strength with

the Bio-Techne portfolio, and also the benefits of a more “end-to-end” offering to customers. That part is harder to quantify, but

that has been a stated top priority for new CEO Kai Beckmann, and now we see it in action.