Firm: Qiagen NV (QGEN)
Enterprise: Qiagen NV is a holding firm primarily based within the Netherlands. The corporate offers “Pattern to Perception” options that remodel organic samples into molecular insights. These options combine pattern and assay applied sciences, bioinformatics and automation programs. Its pattern applied sciences are used for isolating and getting ready deoxyribonucleic acid (DNA), ribonucleic acid (RNA) and proteins from blood or different liquids, tissue, vegetation or different supplies. Its assay applied sciences make these biomolecules seen for evaluation, corresponding to figuring out the genetic info of a pathogen or a gene mutation in a tumor. Its bioinformatics options interpret knowledge to offer actionable insights. Qiagen’s automation platforms primarily based on polymerase chain response (PCR), next-generation sequencing (NGS) and different applied sciences tie these collectively in molecular testing workflows from “Pattern to Perception.”
Inventory Market Worth: $9.32B ($43.13 per share)
Activist: Fivespan Companions, LP
Possession: n/a
Common Price: n/a
Activist Commentary: Fivespan Companions, LP is a San Francisco-based funding agency based by Dylan Haggart and Sarah Coyne. Previous to Fivespan, Haggart and Coyne have been companions at ValueAct Capital and a lot of the funding staff is from ValueAct. Fivespan, named after the distinctive five-stone arched bridge in Haggart’s hometown, views itself as a bridge between the market and firms. The agency prefers behind-the-scenes, collaborative and amicable activism, however it could resort to a proxy struggle if it had no different selection. We consider that the agency would search for board seats in conditions the place it thinks it may add actual worth, however we don’t anticipate Fivespan to pursue board illustration as usually as ValueAct does (i.e, roughly 50% of core portfolio positions). Haggart definitely has expertise as a public firm director. He served as a director of Seagate (2018 to the current) and Fiserv (2022 to 2024), at which he has delivered stellar returns over his tenures of 44.45% and 64.68%, respectively, versus 17.36% and 4.98% for the Russell 2000. Moreover, Haggart was an advisor to Seagate going again so far as 2016, over which era the corporate returned about 222%. Fivespan seems for top of the range, idiosyncratic companies with good, strategic belongings. The agency doesn’t advocate for the sale of its portfolio corporations as a main activist technique, however like corporations that folks need to personal. Accordingly, most of the agency’s activist campaigns may finish with a sale of the corporate, offering two paths to shareholder worth. The fund is a drawdown construction that holds investments for no less than three to 5 years, goals to have six to eight investments at a time and averages $100 million to $300 million in every funding.
What’s taking place
Fivespan Companions has constructed a place in Qiagen NV and has engaged in conversations with administration.
Behind the scenes
Qiagen is a Netherlands-incorporated life sciences instruments agency, dual-listed within the U.S. and Germany. The corporate offers pattern applied sciences to isolate and course of DNA, RNA and proteins; assay applied sciences to arrange these biomolecules for evaluation; and automation options to convey these processes collectively. The corporate has two main finish markets from which it derives a balanced share of its income: Molecular Diagnostics (health-care suppliers) and Life Sciences (pharma/biotech analysis and different lab purposes). It operates in an especially enticing and rising {industry} with excessive returns on invested capital (ROIC) and margins. Qiagen particularly enjoys a number one market place, has an ideal model popularity and favorably derives about 90% of its gross sales from recurring consumables income, with the rest from the sale of its devices and associated providers, a razor-razorblade mannequin. Regardless of its dual-listing and European heritage, Qiagen’s chairman and CEO are primarily based within the U.S., and it generated 52% of its FY24 gross sales in North America, 32% in Europe, the Center East and Africa, and 16% in Asia.
Fivespan seems for top of the range, idiosyncratic companies with good, strategic belongings, and Qiagen suits this thesis properly – a high-quality health-care enterprise in a rising {industry} with secular tailwinds. Nevertheless, regardless of having a revered identify and a powerful market place, the corporate has struggled to create shareholder worth post-Covid, delivering 1-, 3-, and 5-year returns of 1%, -6%, and 1%, respectively. Whereas friends commerce at round 15 instances EV/EBITDA, and leaders like Danaher 20 instances, Qiagen at present trades at round 13 instances. This contrasts with the inventory traditionally buying and selling at a big a number of to friends.
Administration has performed the exhausting issues proper: investing in R&D, listening to the shoppers, and defending the corporate’s industry-leading model, rising its topline at a 5.3% compound annual development fee from 2019 to 2024. Now there is a chance to develop even quicker and in a extra targeted method. In an try to empire-build, Qiagen has overlooked the core enterprise, investing quite a bit within the diagnostics enterprise and different ventures when the life sciences enterprise has a superior return on invested capital. There are three levers to create shareholder worth right here. First, administration ought to spend money on and round its core enterprise to speed up development. Furthermore, they need to not hold their plan a secret however talk it higher to the market. Second, Qiagen might be run quite a bit tighter, leaving room for margin enlargement. Presently operating at a 25% working margin, a extra disciplined strategy may obtain working margins upward of 30%. Third, Qiagen’s stability sheet might be optimized. Most of its friends have much more leverage and may, as a result of recurring nature of the enterprise, but the corporate has $1.15 billion of money and short-term investments, $1.39 billion of debt and no good acquisition targets on the horizon. By levering up, Qiagen may fund further investments in its core enterprise and purchase again a few of its personal inventory at enticing costs forward of development and margin enhancements. It isn’t usually that there are alternatives for each income development and margin enlargement on the similar time. When you might have a scenario like that, it definitely is smart to purchase again your personal shares forward of it.
Based mostly on its activist philosophies, we might anticipate that Fivespan has had a place in Qiagen for a while and has been making an attempt to work with administration behind the scenes. The agency is a quiet investor and doesn’t publicize its positions (i.e., that is certainly one of six present positions and the one one recognized publicly). We predict the corporate will not be enjoying as amicably as Fivespan. A sign of that is that, maybe in response to Fivespan’s engagement, the corporate not too long ago pre-announced a beat for its Q1 outcomes and raised expectations concerning its margins, focusing on above 30% for the 12 months and over 31% forward of its 2028 timeline. Qiagen additionally put out a press launch describing its product pipeline, nothing new per se, however a transparent sea change by way of its administration of investor communications and proactive strategic planning. There are a number of methods this will go. Administration can conform to embrace Fivespan, who shouldn’t be advocating for any actual controversial actions – development and margin enchancment, the identical factor administration desires. Administration can ignore however placate the investor by taking actions per the plan that leads to shareholder appreciation. Or administration can ignore the agency and proceed down the identical street with a flat inventory worth efficiency. Provided that we don’t anticipate that Fivespan will aggressively pursue a board seat right here, we predict the primary possibility is preferable, the second is tolerable and the third is unacceptable. Usually the tone of an activist marketing campaign relies upon not on the activist, however the response of the corporate. This situation might be an ideal instance of that.
As talked about earlier than, Fivespan appreciates companies with a number of paths to shareholder worth, certainly one of them being strategic transactions. Qiagen is a extremely enticing asset. The truth is, pre-Covid, the corporate held discussions with a number of suitors concerning a possible transaction. In 2020, they agreed to an improved supply of 43 euros per share from Thermo Fisher Scientific, however the deal finally collapsed after Thermo failed to succeed in the two-thirds tender supply threshold, partly as a consequence of a Covid-induced run-up within the share worth and vocal shareholders like Davidson Kempner popping out in opposition to the deal. As we speak, the enterprise is simply as sturdy, if not stronger, and FY25 EPS is predicted to return in increased than it was in 2020. A sale is rarely Fivespan’s first selection when investing. The agency will deal with the operational and allocation enhancements obtainable to create shareholder worth however consider that in opposition to any potential acquisition supply the corporate could obtain and advocate for what it thinks is greatest for shareholders. With strategic and revered belongings – and with the inventory buying and selling barely under the earlier supply worth from 5 years in the past – an unsolicited supply for the corporate shouldn’t be exterior of the realm of chance.
Ken Squire is the founder and president of 13D Monitor, an institutional analysis service on shareholder activism, and the founder and portfolio supervisor of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
