Avantor Inks Deal to Optimize Portfolio, Reduce Debt

Avantor, Inc. AVTR recently signed a definitive agreement to divest its clinical services business, including kitting, biorepository, and related equipment and ancillaries (collectively known as Clinical Services), to Audax Private Equity (Audax). The transaction is expected to close in the fourth quarter of 2024, subject to regulatory approvals and other customary closing conditions.

The clinical services business is currently part of Avantor's Laboratory Solutions segment.

Avantor's management plans to discuss the divestiture on its third-quarter 2024 earnings conference call.

The divestiture is expected to enable the company to enhance its focus on strategic growth opportunities in its lab and production businesses while strengthening its balance sheet.

Rationale Behind the Divestiture

Avantor expects the transaction to result in approximately $475 million in after-tax cash proceeds and a reduction of approximately $50 million in capitalized leases. Management intends to utilize the after-tax proceeds for debt paydown, which will likely strengthen the company's balance sheet and reduce interest expenses.

Per management, the agreement is an important step for Avantor as it continues to optimize its portfolio in line with its new operating model. The deal is expected to accelerate its ongoing business transformation and sharpen the company's strategic focus.

Industry Prospects

Per a report by Future Market Insights, the global analytical laboratory service market is valued at $472.6 million in 2024 and is projected to be worth $1,375 million by 2034 at a CAGR of 11.3%. Factors like the growing popularity of point-of-care testing and the increasing adoption of smart lab infrastructure with sensor networks are likely to drive the market.

Given the market potential, the latest divestiture will likely provide a significant impetus to Avantor's lab and production businesses.

Notable Development

Last month, Avantor reported its second-quarter 2024 results, wherein it registered an improved mix from increased bioprocessing revenues. This, along with the accelerated impact of its cost transformation initiative, drove more than 100 basis points of sequential adjusted EBITDA margin expansion during the quarter.

Price Performance

Shares of Avantor have gained 15.1% in the past year compared with the 7.9% rise of the industry and 26.3% growth of the S&P 500.

Image Source: Zacks Investment Research

Zacks Rank & Key Picks

Currently, Avantor carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader medical space are DaVita Inc. DVA, Quest Diagnostics Incorporated DGX and Boston Scientific Corporation BSX.

DaVita, sporting a Zacks Rank #1 (Strong Buy) at present, has an estimated long-term growth rate of 17.5%. DVA's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 24.2%.

DaVita's shares have gained 47.5% compared with the industry's 20.4% rise in the past year.

Quest Diagnostics, carrying a Zacks Rank of 2 (Buy) at present, has an estimated long-term growth rate of 6.2%. DGX's earnings surpassed estimates in each of the trailing four quarters, with the average being 3.3%.

Quest Diagnostics has gained 13.9% compared with the industry's 20.4% rise in the past year.

Boston Scientific, carrying a Zacks Rank of 2 at present, has an estimated long-term growth rate of 12.6%. BSX's earnings surpassed estimates in each of the trailing four quarters, with the average surprise being 7.2%.

Boston Scientific's shares have rallied 55.2% compared with the industry's 11.1% rise in the past year.

To read this article on Zacks.com click here.