Avantor Inc. (NYSE:AVTR) stock rose after Engine Capital LP, which holds roughly 3% of the company, urged management in a letter to consider a sale, refresh its board, boost share repurchases, cut costs, and divest non-core assets.
Engine Capital LP has called for sweeping changes to reverse years of operational missteps and lagging shareholder returns.
In a letter to the company’s board, the activist investor argued the life sciences distributor remains strategically valuable but has been held back by poor execution, weak oversight, and missed opportunities.
Engine said it invested in Avantor for its strong bioprocessing division, steady consumables market, global distribution scale, and recurring revenue potential.
Yet, it contends that since its record-setting 2019 IPO, Avantor has consistently fallen short of guidance, underperformed peers, and failed to meet financial targets at its 2021 and 2023 investor days.
Recent setbacks include organic growth declines and margin pressures in the Laboratory Solutions segment (LSS) and weaker-than-expected results in Bioscience Production.
Avantor’s shares now trade near all-time valuation lows, around 10 times next-twelve-month EBITDA, compared with historical multiples of 12x to 16x. Engine said this underperformance has erased significant shareholder value despite the company’s higher mix of recurring revenue and defensive product exposure.
The firm pointed to missed strategic opportunities, including turning down takeover approaches.
Court filings revealed that Ingersoll Rand Inc. (NYSE:IR) offered a premium valuing Avantor at $25-$28 per share in 2023, while another competitor also expressed interest. Engine now estimates the company’s strategic value at $17-$19 per share, still about 50% above its current stock price.
Much of LSS’s market share loss, Engine claimed, has been self-inflicted. Once well-positioned to expand customer reach through product bundling and service enhancements, Avantor instead fell behind rivals Thermo Fisher Scientific Inc. (NYSE:TMO) and Merck KGaA (OTC:MKGAF) (OTC:MKKGY), which grew three to five times faster since 2018. Former employees cited an overly complex organizational structure, lack of pricing discipline, internal turf wars, and a complacent culture as key contributors.
Engine also criticized the board for ineffective oversight, noting that LSS margins have dropped to record lows and now trail Thermo’s comparable division by about 450 basis points. The gap, it argued, could be closed with stronger cost controls and commercial discipline.
The investor outlined two possible paths: execute a turnaround plan focused on operational excellence, cost reductions, and capital allocation improvements, which could lift the stock to $22-$26 by 2027, or pursue a sale now at its estimated strategic value. Engine said both options would deliver better outcomes than maintaining the current course.
Price Action: AVTR stock is trading higher by 6.74% to $12.28 at last check Monday.
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