Engine Capital takes a stake in Avantor. Activist sees several ways to create

Company: Avantor (AVTR)

Business: Avantor is a life science tools company and global provider of mission-critical products and services to the life sciences and advanced technology industries. The company’s segments include laboratory solutions and bioscience production. Within its segments, it sells materials and consumables, equipment and instrumentation and services and specialty procurement to customers in the biopharma and health care, education and government and advanced technologies and applied materials industries. Materials and consumables include ultra-high purity chemicals and reagents, lab products and supplies, highly specialized formulated silicone materials, customized excipients and others. Equipment and instrumentation include filtration systems, virus inactivation systems, incubators, analytical instruments and others. Services and specialty procurement include onsite lab and production, equipment, procurement and sourcing and biopharmaceutical material scale-up and development services.

Stock market value: $8.85 billion ($12.98 per share)

Activist: Engine Capital

Ownership: ~3%

Average Cost: n/a

Activist Commentary: Engine Capital is an experienced activist investor led by Managing Partner Arnaud Ajdler. He is a former partner and senior managing director at Crescendo Partners. Engine’s history is to send letters and/or nominate directors but settle rather quickly.

What’s happening

On Aug. 11, Engine sent a letter calling on Avantor’s board to focus on commercial and operational excellence, demonstrate organic growth, reduce costs, optimize the portfolio, refresh the board and use free cash flow to repurchase stock. Engine noted that the company can alternatively consider a sale.

Behind the scenes

Avantor is a market leading distributor of life science tools and products for the life sciences and advanced technology industries. The company is comprised of two segments: laboratory solutions (LSS) (67% of revenue) and bioscience production (BPS) (33% of revenue). LSS is one of the three top life sciences distributors in the world (Thermo Fisher and Merck KGaA being the other two).

BPS is a supplier of high-purity materials and is the leading supplier of medical-grade silicones. Despite being one of the few scaled global life science tool distribution platforms, the company has vastly underperformed. At its 2021 investor day, management projected earnings per share above $2 for 2025; and at its 2023 investor day, management targeted an EBITDA margin exceeding 20%. Now in 2025, these currently stand at 96 cents per share and 11.8%, respectively. Consequently, Avantor’s share price has declined 53.96%, 59.69%, and 43.41% over the past 1-, 3- and 5-year periods, as of Engine’s announcement Monday.

Engine believes that Avantor’s significant underperformance is a consequence of self-inflicted mistakes rooted in a flawed leadership team and framework. A complex matrix organizational structure and resultant lack of accountability have led to mass leadership turnover, including Avantor’s CEO, CFO and both segment leaders within the past three years, contributing to a dysfunctional decision-making process and inefficient employee structure.

The biggest casualty of this rocky management team is LSS, which has lost significant profitability and market share to its peers. Specifically, poor capital allocation decisions have destroyed significant value. In 2020 and 2021, Avantor spent a total of $3.8 billion to acquire Ritter, Masterflex and RIM Bio – companies that were notably purchased during the peak of the pandemic when life sciences businesses were trading at exceptionally high multiples. Applying Avantor’s next 12 months 10x multiple to the 28x average acquisition price implies over $2.4 billion in lost value on these acquisitions, contributing to the company’s high leverage.

On top of that, despite LSS’s ongoing underperformance and the need for strong leadership, from June 2024 to April 2025, LSS was left without a leader due to a non-compete lawsuit involving the hiring of its new segment leader, underscoring the operational dysfunction that has been taking place at the company.

But perhaps the nail in the coffin for this management team and board is that despite this cascading set of errors and the internal knowledge of these forecasted losses, they were still given a way out. In 2023, the company was approached by Ingersoll Rand to be acquired at an estimated $25-$28 per share, a 20%-35% premium of the share price at the time, yet the board inexplicably rebuffed this approach. Today, Avantor trades at just under $13 per share.

Enter Engine, who has announced an approximately 3% position in Avantor and is urging the board to focus the organization on commercial and operational excellence, demonstrate…