Lifco vs Halma, Danaher, Eurofins, Waters Corp, PM & BAT, Wayfair vs AMZN, Ocado, MongoDB

Published Last Week

1. IP Research: Lifco vs Halma: M&A Team Structure & Incentives

2. Lifco AB: Hultdin Acquisition Case Study

3. Danaher: Cytiva & the Chromatography Process

4. Eurofins Scientific: Food Division, Real Estate Contracts & Org Structure

5. Waters Corporation: Product Innovation, Support Services & Switching Cost

6. Philip Morris, British American Tobacco & the Global Nicotine Market: Reduced-Risk Products' Hurdles to Growth

7. Wayfair vs Amazon: Supplier Experience, Return on Ad Spend & Discounting

8. Ocado Solutions: Customer Painpoints & Sales Process

9. MongoDB: Engaging Developers, Cost Optimization & Migrations

Lifco vs Halma: M&A Team Structure & Incentives

Last month, we published research on the org structure and opco CEO incentives of Lifco vs Halma, two top-performing industrial acquirers of mission critical assets. Both companies are a similar scale and market cap yet organized very differently.

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This week we explore how the two companies organize and incentivise their M&A team. As with most public companies, the incentive structure for the second tier of management and M&A staff is often undisclosed. We believe such insight can provide valuable perspective into a company’s philosophy. Over the last few months, we’ve interviewed various Former M&A Executives and Divisional or Sector Managers to explore various questions.

For example, how does Halma split responsibilities between its Sector M&A Teams and Divisional Chief Executives?

How does Lifco pay M&A staff?

How much does each company balance deploying capital with the multiples paid?

It’s difficult to measure the precise value an M&A team adds each year. Each transaction is a one time decision that acquires cash flows that ideally last in perpetuity. But the M&A team doesn't run the business into perpetuity. So how should they be measured?

This research piece summarizes our learnings on the various methods used to structure, incentives, and the overall M&A philosophy of Halma and Lifco. This is also relevant for anyone interested in Constellation Software or other companies consistently using M&A as value-creation tool.

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Danaher: Cytiva & the Chromatography Process

Over the last 5 years, DHR has spent $40bn+ on acquisitions to position itself for the growth in biologics across monoclonal antibodies and new therapies:

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This interview with a Former GE Healthcare executive, with over 40 years experience selling life sciences equipment and reagents, walks through the chromatography process and competition. Chromatography is arguably the most important step in the manufacturing process; the separation techniques are critical to purify the drug. Cytiva is the global leader in chromatography equipment and resin.

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This separation technique is also the most expensive part of the manufacturing process for customers. Typically, over 50% of the customer’s manufacturing cost is chromatography resin:

Many suppliers want to enter that field because the cost of Protein A resin is extremely high. We are talking about more than $10,000 to $15,000 per liter. You use it in 200 liters, 500 liters, and you can use them maybe 100 times if you're lucky, maybe 200 times, maybe 10 times. It's such a big business. Competitors are really steaming around it. But would you change something if it's approved by the authorities? You have to know that it's a raw material, a chromatography resin. It's a raw material, but it's a critical raw material. So if you change it, if you change the supplier, you have to file a new registration for it. - Former Sales Executive at GE Healthcare, Cytiva

It's also one of the most profitable businesses for DHR. Understanding the power of Cytiva’s chromatography business is one of the most important drivers of FCF for DHR. This interview focuses on understanding the mission criticality of the solution, pricing power, and how customers buy both filters and chromatography consumables.

Over the next few weeks, we plan to summarize our learnings on DHRs opportunity to bundle Cytiva with Pall’s filters and the potential risks to its chromatography FCF.

Eurofins Scientific: Food Division, Real Estate Contracts & Org Structure

Over the last few years, we have studied Eurofins Scientific's various testing divisions. In an interview with a Former Managing Director at Eurofins, we discuss the food testing business, the organization structure and the M&A process. We also focus on the allegations from the recent Muddy Water short report regarding leasing costs and governance:

I can tell you that in Nantes, it's around 100, a bit more than 100 euros per square meter a year, 120. It depends on the place and the building itself. The difficulty at Eurofins was that we were paying, as the operating company, way more than 200, 250 euros per square meter a year. The real estate company was paying and investing in some settings for the laboratory itself, such as HVAC for air replacement and cooling, which are very expensive. - Former Managing Director at Eurofins Scientific

Leasehold improvement co-investments between the founder's propco and Eurofins opco makes it difficult to find a clear market price to compare lease costs:

The rest, like tables and walls, were paid by the operating company, Eurofins. So it was not just the walls, but it was not everything either. It was somewhere in between. We were paying a price that was supposed to be a market price, but I guess there is no market price for such a setup. - Former Managing Director at Eurofins Scientific

Waters Corporation: Product Innovation, Support Services & Switching Cost

In this interview, a former Senior Scientist at Waters Corporation sheds light on the mission criticality and defensibility of its core products in the face of competition.

My vision is different. I work for several major pharmaceutical companies, such as AstraZeneca, a UK company. And you know, Bristol Meyers Squibb, BMS. That's not true for each of these companies. At AstraZeneca, it's mainly Agilent. At AbbVie, it's mainly Agilent, too. At BMS it's mainly Waters. The reason I said 'mainly' is because from an industrial perspective, it's easier to manage. The major reason is that chromatography systems involve complex software which is difficult to learn. When a company purchases an instrument, they also purchase the software and spend a lot of time training on both. Once the lab is comfortable using it, it's very difficult for the same group of scientists to learn another software. That's the main reason. - Former Senior Scientist at Waters Corporation

Philip Morris, British American Tobacco & the Global Nicotine Market: Reduced-Risk Products' Hurdles to Growth

Philip Morris (PMI) started its R&D initiatives for reduced-risk products more than 30 years ago giving the company a head start versus the competition. This forced British American Tobacco (BAT) to quickly follow with less perfected alternatives. This led to what seems to be lower-quality BAT vs PM products.

In this interview, a former Regional Head, Product Compliance and RRP QA at Philip Morris International sheds light on the global nicotine market dynamics in the shift to reduced-risk products.

"Two reasons. The heating system. They couldn't use the blade system that PMI developed, as PMI prevented anyone from using it. So, BAT had to use something else and they had to do it quickly, which meant it was not mature. Therefore, the heating system is inadequate, and the base product, the reconstituted tobacco, suffers because of patent issues. They had to find a workaround. - Former Regional Head at Philip Morris

Wayfair vs Amazon: Supplier Experience, Return on Ad Spend & Discounting

Between 2020 and 2023, Wayfair's sales declined by approximately 15% while maintaining its gross margin at ~30%. One potential driver of stable gross margins is Wayfair pressuring its suppliers for lower wholesale prices. This interview explores this point and the advantages and shortcomings of Wayfair's CatleGate offering and the main differences with Amazon.

One of the disadvantages of working with Wayfair that I feel is very important is their pricing. They will come to you every other day asking for price reductions. This has happened more times than I can count. It's not just a single manufacturer. For example, we passed through around a 7% price reduction this last May, just three months ago, based on comps and customer feedback. We passed it through, and they immediately came back last week needing more. They want to co-sponsor. If you can get 5%, Wayfair will give 5%. This is a constant thing. I think newcomers to Wayfair might feel bullied into doing that, thinking something bad would happen if they didn't comply. - Supplier to Wayfair and Amazon

Ocado Solutions: Customer Painpoints & Sales Process

Ocado Group, the online grocery technology solutions provider, has seen its stock plummet 85% since its highs in early 2021. An interview with the former Chief Commercial Officer of Ocado Solutions gives more context to the slower rollout of Kroger and other customers. The interview also discusses Ocado Intelligent Automation and competitors.

The channel shift where online grocery penetration would grow and people would shift all their purchases from physical stores to online never happened. The business cases and capacity requirements calculations were based on these assumptions of full channel shift and increased online grocery penetration. - Former Chief Commercial Officer of Ocado Solutions

MongoDB: Engaging Developers, Cost Optimization & Migrations

A former Sales Director at MongoDB explores how sales reps attempt to gain a larger share of application workloads and grow consumption.

So to your point, it's very hard to convince someone to build a new application. That was not really the motion; the motion was going and finding all the applications that were being built in a given organization or being refactored or moved to the cloud. There are so many different flavors of new workloads, which could also be inefficient workloads. Here, the convincing is not about building a new application, but really finding the pain that the current application has and convincing the customer or the prospect that there's a better way, an alternative to the current state or current pain that the application is experiencing, such as poor performance, outages, or running on a competitive platform. MongoDB could be a better solution to that. So that's a new workload for us too. - Former Sales Director at MongoDB