Sigma-Aldrich's $17 billion buyout seen as boost for lab supplier VWR

By Bill Berkrot (Reuters) - The large premium Germany's Merck KGaA agreed to pay in a $17 billion (10.37 billion pounds) acquisition of Sigma-Aldrich Corp shines a spotlight on, and potentially raises the value of, a company Merck discarded a decade ago. VWR Corp, a supplier of laboratory chemicals and equipment with annual sales of about $4.2 billion, is owned by private equity firm Madison Dearborn Partners. It is gearing up for an initial public offering after filing with U.S. regulators in June. "They are No. 2 in the distribution of laboratory equipment after the Fisher division of Thermo Fisher , so they are an important asset," said Paul Knight, an analyst with Janney, Montgomery Scott. The Sigma-Aldrich deal announced on Monday not only raises awareness of consolidation in that segment of the life sciences sector, but "raises the value of VWR," Knight said. The sector has been consolidating for a few years, including Merck KGaA's $7 billion acquisition of Millipore in 2010, Danaher Corp's purchase of Beckman Coulter for nearly $7 billion in 2011 and Thermo Fisher's $16 billion deal for Life Technologies completed this year. "Thermo raised the stakes in the industry by having a bigger and bigger product line every year with acquisitions," Knight said. While molecular diagnostics and genetic testing, which help identify mutations and biomarkers that can match patients with medicines likely to help them, are seen as sexier, faster growing life sciences businesses, when it comes to selling laboratory chemicals and instruments, size matters. "In these lab consumables and on the life sciences research side, you really need to have the scale. If you want to get big in this area really quick, there's not a lot of (buyout) alternatives out there," said Morningstar analyst Michael Waterhouse. "The big one that's left is VWR." Merck KGaA sold the VWR business in early 2004 to private equity firm Clayton, Dubilier & Rice for $1.68 billion, which in turn sold it to Madison Dearborn in 2007. "It's the scarcity factor now if you want to get into that space," agreed Mizuho Securities analyst Peter Lawson. "It's not like biotech where you if you miss out on one particular asset there's another oncology asset that appears that's going to be the next best thing," Lawson said. "These are established entities with high barriers of entry, and if you miss the boat on one, you've missed it." Madison Dearborn declined to comment on the IPO strategy. VWR did not return calls seeking comment. Given the need for product breadth and scale to compete with Thermo Fisher, Morningstar analyst Alex Morozov said, "for VWR, it would be very difficult to go on their own." Knight sees Danaher as a potential suitor for VWR. "Danaher wants to consolidate the industry and their new CEO is from the life sciences business," he said. "They're clearly a possibility." The timing of the IPO could complicate a sale, Knight noted. "A strategic buyer would usually prefer to have it done before you're dealing with public shareholders." (Reporting by Bill Berkrot; Editing by Marguerita Choy and Cynthia Osterman)