ELEVATOR PITCH

Bio-Rad (“BIO”) is a leading provider of healthcare consumables and equipment used for research and medical testing. The business is 70% recurring revenue base and has #1/#2 market share positions in ~80% of its business. Additionally, BIO owns 1/3 of German listed bioprocessing company Sartorius (“SRT”). SRT is a leading provider a leading provider of consumables and equipment used for drug manufacturing with a 70% recurring revenue. BIO is a long because;

• It trades at ~22x NTM P/E for a recession resilient business that will likely CAGR revenue at ~12% and EPS at ~20%.
• Core revenue growth will likely accelerate over the next 1-3 years driven by their market leadership in the high growth digital PCR market.
• An upgraded management team will likely unlock 300-400 bps of margin expansion from mainly from operational efficiencies.

At a 24x P/E exit multiple, which is arguably conservative vs. the comps on a growth adjusted basis, there’s 60% upside over the next two years.

BUSINESS SUMMARY

BIO is a leading provider of healthcare consumables and equipment used for research and medical testing, with a 70%

recurring revenue base and a #1/#2 market share in 80% of its business. Their geographic sales mix is 42% Americas, 33% EMEA and 25% APAC. They have 15K customers with no customer representing more than 2% of revenue. Their customer end market mix is diversified with 34% hospital labs, 21% academic/government, 15% biopharma, 11% reference labs, 10% transfusion labs and 9% applied. BIO is predominantly comprised of two segments; 1) the Life Sciences segment, which represents ~47% of revenue (which, notably, is the faster growing segment and has the highest incremental margins within the company); 2) the Clinical Diagnostics segment, which represents ~53% of revenue.

SRT is a leading provider of healthcare consumables and equipment used for drug manufacturing and lab research. The company is split into two divisions; 1) BioProcess Solutions “BPS” (~80% of EBITDA) and 2) Lab Products & Services “LPS” (~20% of EBITDA). The larger BPS segment provides the equipment and single-use consumables used in drug production, and is a 75% recurring revenue business with a strong growth profile. The company is a top 3 provider, has been gaining share, and largely sells to pharma/outsourced manufacturing customers, with no single customer representing more than 5% of revenue. The smaller LPS segment sells premium high value added lab products used in clinical research, primarily across the life sciences (55%), chemicals (20%), food and beverage (15%) sectors. SRT is a recession resilient business that will grow revenues at 10-20% for the foreseeable future as a result of its end market exposure to the growth of life sciences R&D spend and its strong position in single-use pharma drug development  equipment. The adoption of single-use (SRT’s main product) is expected to go from 40% to 75+% over time due to significant cost and time-to-market advantages vs. legacy methods. Additionally, SRT is generally spec’d into manufacturing facilities for up to 10-20 years, which creates significant regulatory and financial switching costs, and results in highly visible growth.

 KEY THESIS POINTS