Bio-Techne

On June 25, Merck KGaA announced its proposal to acquire Bio-Techne for $73 per share in cash, which represents an enterprise value of $11.3 billion. The deal is expected to close by late 2026 or early 2027, subject to approval by regulators and Bio-Techne shareholders.

Why it matters: We think the deal makes strategic sense for Merck and view the price as attractive for Bio-Techne shareholders. Given the mutual benefit to both parties and the lack of notable regulatory hurdles, we think the deal is likely to be approved. Shares rallied 20% from the previous day's close. The deal is likely to strengthen Merck's existing position in protein sciences and cell and gene therapies and add exposure to new markets, including multiomics and spatial biology. Additionally, Merck anticipates EUR 140 million in cost synergies, and we think it could see sales synergies over time too. The proposed price of $73 per share is a 21% premium over our fair value of $60 and approximately a 36% premium to Bio-Techne's one-month volume-weighted average trading price. After Bio-Techne's steep selloff this calendar year, we think this is an attractive price.

The bottom line: We raise our fair value estimate for Bio-Techne to $71 per share, reflecting a very high likelihood of approval and an assumed close at the end of 2026. After the rally, the market seems to be pricing in similar assumptions. Bio-Techne has a narrow moat rating, driven by intangible assets and switching costs in its protein science business, with consumables representing 80% of revenue. Its portfolio fits well within Merck's offerings, solidifying its presence in next-generation markets while adding exposure to high-growth end markets.

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We maintain our fair value estimate of $71 per share, which is consistent with our assumption of a very high likelihood of approval of Merck KGaA's proposed acquisition of $73 per share in cash. We assume a close at the end of 2026 and a discount rate of 8.5%.

Bio-Techne has a narrow economic moat from strong intangible assets and some switching costs in its core protein sciences business.

The protein sciences segment (about 75% of sales and 90% of operating income) has a narrow moat based on its reputation for market-leading product quality, which has allowed for decadeslong pricing leadership. This segment consists of two divisions: reagent solutions and analytical solutions. Both sell products used by academic and industrial scientists conducting life sciences research.

The reagent solutions division sells specialized proteins, including antibodies, cytokines, and growth factors, as well as small molecules, tissue culture sera, and cell selection technology. Within life sciences, these consumables are commonly used for protein analysis in both basic research and translational research. Bio-Techne has a market-leading position in this space due to the high quality of its products.

We estimate that the cost of purchasing protein and antibody reagents for research purposes is roughly 1%-5% of total experiment expenses. Unreliable reagents can cause experiments to fail, so many researchers need quality proteins with high bioactivity and excellent lot-to-lot consistency. Despite its premium pricing strategy, Bio-Techne’s reputation for quality has allowed it to consistently maintain a substantial market share. We estimate it is the market leader in cytokines and growth factors with a 30%-40% share and a top-five player in antibodies with approximately 5% share. Bio-Techne’s proteins offered under its R&D Systems brand are among the most commonly cited in scientific literature, which we believe is a proxy for quality and reputation.

In addition to research-use-only-grade proteins and reagents for the lab, Bio-Techne also sells Good Manufacturing Practice-grade cytokines, growth factors, and other reagents that are used for manufacturing cell and gene therapies. This gives Bio-Techne exposure to a nascent but fast-growing area of development in life sciences.

Bio-Techne has acquired 19.9% of Wilson Wolf, a leading provider of cell culture devices for cell therapy, and we expect full acquisition by the end of 2027.

The analytical solutions division includes manual and automated protein analysis instruments and immunoassays, which are biochemical test kits that use antibodies to analyze and characterize proteins contained within a sample. Typical immunoassay methods include ELISA and western blot. Bio-Techne’s ELISA kits offered under its R&D Systems brand have substantial market share and are commonly cited in scientific literature. Key components of immunoassay kits are the antibodies, which need to be custom-designed to bind to the target proteins. Bio-Techne’s high-quality antibodies are a key driver behind its pricing power in immunoassay kits.

We also see some intangible assets and switching costs in the company’s protein analysis instruments, which contribute about 25% to segment sales and 18% to total firm revenue. In particular, we think Bio-Techne has meaningful differentiation in western blot with the only automated instrument on the market. Western blot can be finicky and time-consuming. Bio-Techne’s Simple Western brand of automated instruments is highly regarded by lab workers and commands premium pricing. Additionally, there is an element of switching costs as some of the key consumables for these automated instruments are "closed loop" and must be purchased from Bio-Techne.

The diagnostics and genomics segment, which accounts for about 25% of total firm sales, consists of three divisions: diagnostics reagents, molecular diagnostics, and spatial biology. Although we see elements of switching costs and intangible assets across these business lines, operating margins have been historically low and are likely to remain depressed due to high acquisition and scale-up costs in the molecular diagnostics and spatial biology divisions. We do not currently see a moat for this collection of businesses, but this could change depending on how the markets for these emerging technologies evolve.

In diagnostics reagents, the most mature division in the diagnostics and genomics segment, Bio-Techne sells a variety of chemistry controls, calibrators, and reagents for instruments made by clinical diagnostic manufacturers, such as Roche, Abbott, and Siemens. Most of the reagents are sold on an original equipment manufacturer basis. They are tailored to monitor or calibrate the customer’s specific instrument and often receive regulatory approval during the instrument’s approval process. Although there are trace switching costs since customers are unlikely to reopen a regulatory file simply to get a different control approved, we do not think this business is moatworthy as there are few barriers to entry, limited opportunity for test differentiation, and relatively thin profit margins.

In molecular diagnostics, Bio-Techne sells the Asuragen line of genetic carrier screening tests, oncology diagnostics, and molecular controls. In 2018, it acquired Exosome Diagnostics, which primarily sold ExoDx, a urine-based lab-developed test for early detection of high-grade prostate cancer that could aid a patient in deciding whether a tissue biopsy is recommended. It divested this business in 2025, and in hindsight, we do not think this was a good deal.

In spatial biology, the firm sells its RNAscope brand of in-situ hybridization assays for the detection of target RNA within intact cells; this was acquired in 2016 with the purchase of Advanced Cell Diagnostics. This cutting-edge assay allows for visualization of the presence, location, and quantification of target gene expression within a profiled tissue sample at single-cell resolution. Compared with older ISH technologies, it significantly improves the ratio of target signal/background noise and offers far superior sensitivity to the presence of the target gene.

The firm's reputation for excellent proteomic reagents and instruments allows it to generate high profit margins and strong cash flow.

Once the current challenges from unclear US government policies are resolved, Bio-Techne is likely to gain from the steady growth of the biologics market over the long term.

The company's portfolio could benefit from the high growth of certain nascent markets, especially cell and gene therapies and spatial genomics.

Bio-Techne's long-term strategy relies on acquisitions, and the company may have difficulty finding suitable targets because of high valuations or scarcity. Additionally, it may fail to successfully integrate and scale up an acquired business.

Like all life sciences tools and diagnostics makers, Bio-Techne will likely be adversely affected by depressed funding levels for academic and biotech research in the near term.

Technology platforms in proteomics and genomics are constantly evolving, and failure to read the market correctly could result in misallocated investments.