Overstone International Value Fund on Merck KGaA
Thesis
Merck is a relatively recent purchase whose Life Science division returned to growth, expanding by more than 8% in the March quarter. The fund sees green shoots in research spending as well as near-term demand from customer safety-stock building. Merck also agreed to acquire Bio-Techne, which strengthens its early-stage drug research exposure and shifts the mix toward higher-growth proteins and antibodies. Although the valuation has risen since purchase, the fund notes that sales and margins remain depressed, leaving room for recovery.
“Bio-Techne bolsters Merck’s early-stage drug research business and skews towards higher growth areas such as proteins and antibodies.”
Key risks
- The Bio-Techne acquisition was agreed at a high 23x EBITDA multiple
- Expected acquisition synergies may not be fully realised
- Some recent Life Science demand came from temporary safety-stock building