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 techniques. Its pattern applied sciences are used for isolating and making ready deoxyribonucleic acid (DNA), ribonucleic acid (RNA) and proteins from blood or different liquids, tissue, crops or different supplies. Its assay applied sciences make these biomolecules seen for evaluation, akin to figuring out the genetic data of a pathogen or a gene mutation in a tumor. Its bioinformatics options interpret knowledge to supply 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 had been companions at ValueAct Capital and many of the funding workforce 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 combat if it had no different selection. We imagine that the agency would search for board seats in conditions the place it thinks it might add actual worth, however we don’t count on Fivespan to pursue board illustration as typically as ValueAct does (i.e, roughly 50% of core portfolio positions). Haggart actually 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 period 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 firms as a major activist technique, however like firms that folks need to personal. Accordingly, lots of the agency’s activist campaigns might finish with a sale of the corporate, offering two paths to shareholder worth. The fund is a drawdown construction that holds investments for a minimum of 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 carry these processes collectively. The corporate has two major 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 amazing model repute and favorably derives about 90% of its gross sales from recurring consumables income, with the rest from the sale of its devices and associated companies, 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. Nonetheless, regardless of having a revered title and a robust 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 presently trades at round 13 instances. This contrasts with the inventory traditionally buying and selling at a major a number of to friends.
Administration has performed the onerous issues proper: investing in R&D, listening to the purchasers, and defending the corporate’s industry-leading model, rising its topline at a 5.3% compound annual development charge from 2019 to 2024. Now there is a chance to develop even sooner and in a extra targeted method. In an try and empire-build, Qiagen has overlooked the core enterprise, investing so much 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 maintain their plan a secret however talk it higher to the market. Second, Qiagen may be run so much tighter, leaving room for margin enlargement. Presently working at a 25% working margin, a extra disciplined strategy might obtain working margins upward of 30%. Third, Qiagen’s stability sheet might be optimized. Most of its friends have much more leverage and will, 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 might fund extra investments in its core enterprise and purchase again a few of its personal inventory at enticing costs forward of development and margin enhancements. It’s not typically that there are alternatives for each income development and margin enlargement on the similar time. When you’ve a scenario like that, it actually is sensible to purchase again your individual shares forward of it.
Primarily based on its activist philosophies, we’d count on that Fivespan has had a place in Qiagen for a while and has been attempting to work with administration behind the scenes. The agency is a quiet investor and doesn’t publicize its positions (i.e., that is one among six present positions and the one one identified publicly). We expect the corporate will not be taking part in as amicably as Fivespan. A sign of that is that, maybe in response to Fivespan’s engagement, the corporate just lately pre-announced a beat for its Q1 outcomes and raised expectations relating to its margins, concentrating on above 30% for the yr 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 may go. Administration can comply with embrace Fivespan, who isn’t advocating for any actual controversial actions – development and margin enchancment, the identical factor administration needs. Administration can ignore however placate the investor by taking actions in step with the plan that ends in shareholder appreciation. Or administration can ignore the agency and proceed down the identical highway with a flat inventory value efficiency. On condition that we don’t count on that Fivespan will aggressively pursue a board seat right here, we predict the primary choice is preferable, the second is tolerable and the third is unacceptable. Typically the tone of an activist marketing campaign relies upon not on the activist, however the response of the corporate. This state of affairs might be an ideal instance of that.
As talked about earlier than, Fivespan appreciates companies with a number of paths to shareholder worth, one among them being strategic transactions. Qiagen is a extremely enticing asset. The truth is, pre-Covid, the corporate held discussions with a number of suitors relating to a possible transaction. In 2020, they agreed to an improved provide of 43 euros per share from Thermo Fisher Scientific, however the deal finally collapsed after Thermo failed to achieve the two-thirds tender provide threshold, partially because of a Covid-induced run-up within the share value and vocal shareholders like Davidson Kempner popping out towards the deal. In the present day, the enterprise is simply as sturdy, if not stronger, and FY25 EPS is anticipated to come back 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 towards any potential acquisition provide the corporate could obtain and advocate for what it thinks is finest for shareholders. With strategic and revered belongings – and with the inventory buying and selling barely beneath the earlier provide value from 5 years in the past – an unsolicited provide for the corporate isn’t 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.
