Eurofins Scientific: A global leader in a secular growth industry at a discount
23% 27 year CAGR, despite its current 50% drawdown
Eurofins Scientific is one of the terific growth stories of the 21st century. Founded in 1987 with 4 employees in France and delivering wine authenticity testing services. Founder Gilles Martin learned quickly that the market was extremely limited and that conducting good market studies was vital in business. The company learned early to be frugal and efficient in its operations.
Eurofins grew until going public in 1997 amidst the biotech craze with just 7 million euros in revenue and a desire to be a serial acquirer of state-of-the-art laboratories. The company grew rapidly through acquisitions of laboratories in many different countries and markets. Overall the company did a range of secondary offerings raising a total of 57 million euros over a few years.
The breakthrough came in 2002, when Eurofins started to run a decentralized organization structure to scale its independent laboratories. Starting with food and feed testing as its first major market, Eurofins reached world leadership in 2008. Today the company has a dozen different segments.
What do they do?
Eurofins is a very diversified business that keeps expanding into new geographies and adjacent markets. They operate in several analytical services and testing markets with a focus on improving health, safety and the environment with its activity. As of 2022 they had 12 sub segments, with 4 world leaderships, 3 European leaderships and niche leadership positions. These submarkets are broken down into:
Life (41% of sales): Food and Feed Testing, Agro Testing and Environment Testing
BioPharma (29%): BioPharma Services, Agrosciences, Genomics and Forensic Services
Diagnostic Services & products (20%): Clinical Diagnostics Testing and In Vitro Diagnostics Solutions
Consumer & Technology Products Testing (10%): Consumer Products Testing and Advanced Material Sciences
We can see that Eurofins is not dependent on one single markets within its broad, diversified portfolio. Following the COVID-19 pandemic, Eurofins had inflated margins and revenues from elevated COVID-19 testing revenues. Keep this in mind as you evaluate the company’s fundamentals over the last five years.
A very fragmented market
Eurofins already owns over 950 laboratories and has over 1,000 companies in its holding company. It is tough to estimate a market size due to the diversification of the company, but generally we can assume that there are around 40,000-70,000 laboratories globally across relevant segments (ignoring potential future diversification into adjacent segments).
Large chains like Eurofins, SGS, Labcorp or Intertek account for a growing share, but still only have around 20% of labs. This leaves 80% of the market potentially up for grabs. Out of those 32,000-56,000 independent labs a fraction, maybe 15-25% will be a suitable fit. This leaves 4,800-14,000 potential targets.
Currently, Eurofins operates mainly in Europe (51% of sales) and North America (38%), with a faster growing rest of the world (11%) segment. They target 250 million Euros of annual growth from M&A, which sounds very realistic given the large share of independant labs that could be acquired. Overall the market is expected to grow modestly, with Eurofins targeting 6.5% annual organic growth.
What’s next?
What’s their strategy and competitive advantage?
How did Eurofins strategy help to achieve this market leaderships?
What are the risks?
We’ll discuss this and more in the premium section of this article.