Company: Qiagen NV (QGEN)
Business: Qiagen NV is a holding company based in the Netherlands. The company provides “Sample to Insight” solutions that transform biological samples into molecular insights. These solutions integrate sample and assay technologies, bioinformatics and automation systems. Its sample technologies are used for isolating and preparing deoxyribonucleic acid (DNA), ribonucleic acid (RNA) and proteins from blood or other liquids, tissue, plants or other materials. Its assay technologies make these biomolecules visible for analysis, such as identifying the genetic information of a pathogen or a gene mutation in a tumor. Its bioinformatics solutions interpret data to provide actionable insights. Qiagen's automation platforms based on polymerase chain reaction (PCR), next-generation sequencing (NGS) and other technologies tie these together in molecular testing workflows from “Sample to Insight.”
Stock Market Value: $9.32B ($43.13 per share)
Activist: Fivespan Partners, LP
Ownership: n/a
Average Cost: n/a
Activist Commentary: Fivespan Partners, LP is a San Francisco-based investment firm founded by Dylan Haggart and Sarah Coyne. Prior to Fivespan, Haggart and Coyne were partners at ValueAct Capital and most of the investment team is from ValueAct. Fivespan, named after the unique five-stone arched bridge in Haggart's hometown, views itself as a bridge between the market and companies. The firm prefers behind-the-scenes, collaborative and amicable activism, but it would resort to a proxy fight if it had no other choice. We believe that the firm would look for board seats in situations where it thinks it could add real value, but we do not expect Fivespan to pursue board representation as often as ValueAct does (i.e, roughly 50% of core portfolio positions). Haggart certainly has experience as a public company director. He served as a director of Seagate (2018 to the present) and Fiserv (2022 to 2024), at which he has delivered stellar returns over his tenures of 44.45% and 64.68%, respectively, versus 17.36% and 4.98% for the Russell 2000. Additionally, Haggart was an advisor to Seagate going back as far as 2016, over which time the company returned about 222%. Fivespan looks for high quality, idiosyncratic businesses with good, strategic assets. The firm does not advocate for the sale of its portfolio companies as a primary activist strategy, but like companies that people want to own. Accordingly, many of the firm's activist campaigns could end with a sale of the company, providing two paths to shareholder value. The fund is a drawdown structure that holds investments for at least three to five years, aims to have six to eight investments at a time and averages $100 million to $300 million in each investment.
What's happening
Fivespan Partners has built a position in Qiagen NV and has engaged in conversations with management.
Behind the scenes
Qiagen is a Netherlands-incorporated life sciences tools firm, dual-listed in the U.S. and Germany. The company provides sample technologies to isolate and process DNA, RNA and proteins; assay technologies to prepare these biomolecules for analysis; and automation solutions to bring these processes together. The company has two primary end markets from which it derives a balanced share of its revenue: Molecular Diagnostics (health-care providers) and Life Sciences (pharma/biotech research and other lab applications). It operates in an extremely attractive and growing industry with high returns on invested capital (ROIC) and margins. Qiagen specifically enjoys a leading market position, has a great brand reputation and favorably derives about 90% of its sales from recurring consumables revenue, with the remainder from the sale of its instruments and related services, a razor-razorblade model. Despite its dual-listing and European heritage, Qiagen's chairman and CEO are based in the U.S., and it generated 52% of its FY24 sales in North America, 32% in Europe, the Middle East and Africa, and 16% in Asia.
Fivespan looks for high quality, idiosyncratic businesses with good, strategic assets, and Qiagen fits this thesis nicely – a high-quality health-care business in a growing industry with secular tailwinds. However, despite having a respected name and a strong market position, the company has struggled to create shareholder value post-Covid, delivering 1-, 3-, and 5-year returns of 1%, -6%, and 1%, respectively. While peers trade at around 15 times EV/EBITDA, and leaders like Danaher 20 times, Qiagen currently trades at around 13 times. This contrasts with the stock historically trading at a significant multiple to peers.
Management has done the hard things right: investing in R&D, listening to the customers, and protecting the company's industry-leading brand, growing its topline at a 5.3% compound annual growth rate from 2019 to 2024. Now there is an opportunity to grow even faster and in a more focused manner. In an attempt to empire-build, Qiagen has lost sight of the core business, investing a lot in the diagnostics business and other ventures when the life sciences business has a superior return on invested capital. There are three levers to create shareholder value here. First, management should invest in and around its core business to accelerate growth. Moreover, they should not keep their plan a secret but communicate it better to the market. Second, Qiagen can be run a lot tighter, leaving room for margin expansion. Currently running at a 25% operating margin, a more disciplined approach could achieve operating margins upward of 30%. Third, Qiagen's balance sheet could be optimized. Most of its peers have far more leverage and should, due to the recurring nature of the business, yet the company has $1.15 billion of cash and short-term investments, $1.39 billion of debt and no good acquisition targets on the horizon. By levering up, Qiagen could fund additional investments in its core business and buy back some of its own stock at attractive prices ahead of growth and margin improvements. It is not often that there are opportunities for both revenue growth and margin expansion at the same time. When you have a situation like that, it certainly makes sense to buy back your own shares ahead of it.
Based on its activist philosophies, we would expect that Fivespan has had a position in Qiagen for some time and has been trying to work with management behind the scenes. The firm is a quiet investor and does not publicize its positions (i.e., this is one of six current positions and the only one known publicly). We think the company may not be playing as amicably as Fivespan. An indication of this is that, perhaps in response to Fivespan's engagement, the company recently pre-announced a beat for its Q1 results and raised expectations regarding its margins, targeting above 30% for the year and over 31% ahead of its 2028 timeline. Qiagen also put out a press release describing its product pipeline, nothing new per se, but a clear sea change in terms of its management of investor communications and proactive strategic planning. There are several ways this can go. Management can agree to embrace Fivespan, who is not advocating for any real controversial actions – growth and margin improvement, the same thing management wants. Management can ignore but placate the investor by taking actions consistent with the plan that results in shareholder appreciation. Or management can ignore the firm and continue down the same road with a flat stock price performance. Given that we do not expect that Fivespan will aggressively pursue a board seat here, we think the first option is preferable, the second is tolerable and the third is unacceptable. Often the tone of an activist campaign depends not on the activist, but the response of the company. This scenario could be a perfect example of that.
As mentioned before, Fivespan appreciates businesses with several paths to shareholder value, one of them being strategic transactions. Qiagen is a highly attractive asset. In fact, pre-Covid, the company held discussions with several suitors regarding a potential transaction. In 2020, they agreed to an improved offer of 43 euros per share from Thermo Fisher Scientific, but the deal ultimately collapsed after Thermo failed to reach the two-thirds tender offer threshold, in part due to a Covid-induced run-up in the share price and vocal shareholders like Davidson Kempner coming out against the deal. Today, the business is just as strong, if not stronger, and FY25 EPS is expected to come in higher than it was in 2020. A sale is never Fivespan's first choice when making an investment. The firm will focus on the operational and allocation improvements available to create shareholder value but evaluate that against any potential acquisition offer the company may receive and advocate for what it thinks is best for shareholders. With strategic and respected assets – and with the stock trading slightly below the previous offer price from five years ago – an unsolicited offer for the company is not outside of the realm of possibility.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments.
