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Impactive Capital brings a sustainable brand of activism to Meridian Bioscience


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Company: Meridian Bioscience Inc.

Business: Meridian BioscienceLife science company which develops, produces, distributes and sells diagnostic kits for respiratory and gastrointestinal diseases. Two business units make up the company. Life Sciences is responsible for developing, manufacturing, and selling a variety of master mixes and reagents that are used in various platforms to test for infections. Meridian, for example, develops the components of Covid-19’s liquid component and other antigen test ingredients. Another business segment is the Diagnostic business. It offers almost 200 diagnostic test kits and transport media to hospitals and outpatient clinics in nearly 70 countries.

Stock market valuePrice: $1.1B, or 26.50 per share

Impactive Capital: Activist 

Percentage of Ownership 9.93%

Average cost: $20.62

Commentary of an activist:Impactive Capital, an activist hedge fund was established in 2018 by Lauren Taylor Wolfe & Christian Alejandro Asmar. Impactive Capital is an activist hedge fund that focuses on governance, environmental and social issues (or AESG™This investor started out with a $250m investment from CalSTRS. It now owns over $2Billion. In just three years, they have made quite a name for themselves as AESG™ investors. Wolfe and Asmar recognized that the opportunity existed to leverage tools to generate returns, particularly on the social or environmental side. Impactive’s focus is on systemic positive change in order to build sustainable and competitive long-term businesses. They will employ all the usual operational, financial and strategy tools activists use but will also apply ESG change that is important to the company, drives profitability and shareholder value.

What’s Happening?

Impactive Capital reported that VIVO has attracted 9.93% of its investors.

The Behind-the Scenes

VIVO is an under-recognized and misunderstood company. It has a strong CEO, unique intellectual property, and is difficult to follow. Life sciences was the company’s best business and it prospered due to the Covid epidemic. This used to make up about one third of company revenues, but now it makes up approximately 60%. It has gone from $64.3million in 2019 to $190million today. This growth can be attributed to their Covid test materials, which have enabled them to get on more platforms. This business has seven clients who generated more than $1 million in revenue for them in 2018. It now has more than 40 clients. While a lot of this revenue is Covid-related — which will come down at some point — there will likely still be Covid testing to some degree well into the future like flu testing and most of the pandemic-related revenue should continue. The bigger effect of the pandemic was that many new clients came to the business, and they will be customers of other company products. Meridian offers high-quality products that support the product’s functioning, which allows them to make high margins.

Although the Diagnostics segment used to make up the majority of the business, it is currently in a transition. It sells simple-to-use diagnostic test with a focus in GI, and respiratory. The business suffered from poor management that underinvested in research and development and capex. They hired a new CEO in 2017 to help turn the business around and launched Revogene’s new platform. Management should not only be able stop this company’s bleeding but can also invest in the right things to help it grow.

It will have two businesses. One is growing rapidly and the other should be growing for the first times in many years. Meridian trades at a 10x EBITDA multiplier compared to its life sciences peers, which trade near 20x, and to diagnostic peers who trade in the teens according to normalized 2024 EBITDA.

This is not the first time Impactive has included an ESG thesis into each investment. While this is not necessarily a situation where Impactive will take a board seat, we expect this to be a situation in which Impactive is heavily involved with the company and one where they will be able to implement AESG activism that is consistent with their investment thesis — using ESG to drive value creation and profitability.

VIVO, a relatively small company with a limited following, does not have an ESG focus. However it has a strong ESG footprint. The company’s air-dryable and lyo-ready reagents decrease the requirement for cold chain storage, Styrofoam packaging and improve shelf life. It is both more eco-friendly and economically efficient. Impactive is familiar with working with such companies at the shareholder level in order to establish sustainability goals and to create sustainability reports that can be used to communicate ESG benefits to market. Impactive and Meridian will work together to develop their executive compensation plans. These provisions could include compensation tied to the achievement of certain ESG, diversity, equity or inclusion goals. This will help to attract more investors and potentially increase their client base.

It is hugely advantageous for a small business like VIVO to be open to ESG guidance. We always tell companies that they can get free financial and strategic advice from an activist. Well, when they need ESG advice, having an AESG™ investor like Impactive gives them free, high quality ESG advice from a shareholder who is also focused on shareholder value. Impactive is able to offer financial and strategic counsel if required.

Ken Squire, the president and founder of 13D Monitor is an institution research service that focuses on shareholder activism. He also founded and managed the portfolio for the 13D Activist Fund which invests in a range of activist 13D investments.