**Company:** Avantor, Inc. (AVTR)

**Business Overview:** Avantor, Inc. is a life sciences tools company and global supplier of mission-critical products and services to the life sciences and advanced technology industries. The company operates through two business segments: Laboratory Solutions and Biosciences Production. Across these segments, it serves customers in biopharmaceutical and healthcare, education and government, and advanced technologies and applied materials industries by selling materials and consumables, equipment and instrumentation, and services and specialty procurement. Materials and consumables include ultra-high-purity chemicals and reagents, laboratory products and supplies, highly specialized formulated silicone materials, and custom excipients. Equipment and instrumentation encompasses filtration systems, viral inactivation systems, incubators, and analytical instruments. Services and specialty procurement includes on-site laboratory and production, equipment, procurement and sourcing, and biopharmaceutical material scale-up and development services.

**Market Capitalization:** $8.85 billion ($12.98 per share)

**Activist Background:** Engine Capital is an experienced activist investment firm led by Managing Partner Arnold Adler, formerly a Partner and Senior Managing Director at Crescendo Partners. Engine Capital typically sends letters and/or nominates directors but tends to reach settlements quickly.

**Recent Developments**

On August 11, Engine Capital sent a letter to Avantor, Inc.'s board calling for the company to focus on commercial and operational excellence, demonstrate organic growth, reduce costs, optimize its business portfolio, refresh board composition, and utilize free cash flow for share repurchases. Engine Capital noted that the company should also consider a sale.

**Background Analysis**

Avantor, Inc. is a leading life sciences tools and products distributor serving the life sciences and advanced technology industries. The company comprises two segments: Laboratory Solutions (LSS), representing 67% of revenue, and Biosciences Production (BPS), accounting for 33% of revenue. LSS ranks among the top three global life sciences distributors alongside Thermo Fisher Scientific and Merck Group.

BPS serves as a supplier of high-purity materials and a leading provider of medical-grade silicones. Despite being one of the few scaled global life sciences tools distribution platforms, the company has significantly underperformed. During its 2021 Investor Day, management projected earnings per share exceeding $2 for 2025, while at the 2023 Investor Day, management targeted EBITDA margins above 20%. As of 2025, these metrics stand at only $0.96 per share and 11.8%, respectively. Consequently, according to Engine Capital's Monday announcement, Avantor, Inc.'s stock has declined 53.96%, 59.69%, and 43.41% over the past 1, 3, and 5 years, respectively.

Engine Capital believes Avantor, Inc.'s significant underperformance stems from self-inflicted wounds rooted in a flawed leadership team and framework. A complex matrix organizational structure and resulting accountability gaps have triggered massive leadership turnover, including changes in CEO, CFO, and heads of both segments over the past three years, creating decision-making confusion and organizational inefficiency.

The most significant casualty of this turbulent management team has been LSS, which has lost substantial profitability and market share to competitors. Specifically, poor capital allocation decisions have destroyed significant value. In 2020 and 2021, Avantor, Inc. spent a total of $3.8 billion acquiring Ritter, Masterflex, and RIM Bio—companies purchased during the pandemic peak when life sciences valuations were exceptionally high. Comparing Avantor, Inc.'s current 10x forward multiple against the 28x average acquisition price suggests these acquisitions destroyed over $2.4 billion in value while creating high leverage.

Additionally, despite LSS's continued underperformance and need for strong leadership, the segment operated without leadership from June 2024 to April 2025 due to non-compete litigation complications in hiring a new segment head, highlighting operational dysfunction within the company.

Perhaps most damning for this management team and board, despite this chain of errors and internal awareness of expected losses, they still had opportunities to exit. In 2023, Ingersoll Rand expressed interest in acquiring Avantor, Inc. with an estimated offer of $25-28 per share, representing a 20%-35% premium to the then-current stock price, but the board inexplicably rejected the acquisition proposal. Today, Avantor, Inc. trades at just under $13 per share.

Enter Engine Capital, which announced holding approximately 3% of Avantor, Inc. and is urging the board to focus on enhancing commercial and operational excellence, achieving organic growth, reducing costs, optimizing the business portfolio, refreshing board composition, and utilizing free cash flow for share repurchases.

Engine Capital notes that Avantor, Inc.'s reported $6.8 billion in revenue is spread across 6 million stock-keeping units (SKUs), while Thermo Fisher Scientific's comparable division achieves similar revenue with less than half the SKUs, indicating significant portfolio optimization opportunities, particularly in the LSS segment, through focused procurement to improve inventory turnover, rebates, and margins.

Divesting non-core assets represents another portfolio optimization approach. For the BPS segment, certain facilities have remained idle for extended periods, constraining growth. For LSS, smaller-scale facilities in minor regions might be more valuable to competitors, as might some assets acquired during the aforementioned acquisition spree.

Regarding cost management, Avantor, Inc.'s poor acquisition history and low valuation limit accretive acquisition opportunities. While the company is working to reduce leverage below 3x, markets worry about potential resumption of costly acquisition strategies once this target is achieved. Engine Capital believes free cash flow should be equally allocated between share repurchases and debt reduction.

Furthermore, executive compensation presents concerning issues. In 2024, despite a 2% organic revenue decline and 7% stock price drop, the board awarded CEO Michael Stubblefield 110% of his target annual bonus, highlighting the need to align management incentives with shareholder value creation.

Engine Capital believes all these changes are best implemented through comprehensive board refreshment. Adding directors with executive leadership, capital allocation, and distribution expertise to replace board members who have overseen years of value destruction (potentially targeting Chairman Jonathan Peacock specifically) should signal a new chapter to the market. Engine Capital believes that if these changes are properly implemented, Avantor, Inc.'s stock could reach $22-26 per share by the end of 2027.

As a secondary option, Engine Capital suggests that if the standalone path appears unviable, the board should consider selling the entire company or splitting LSS and BPS into separate entities.

When Avantor, Inc. acquired VWR (now the core of the LSS business), it was valued at approximately 12x EBITDA or $6.5 billion, while BPS peers trade at a median 17x EBITDA multiple. Both businesses' valuations are inconsistent with Avantor, Inc.'s current approximately 8x EBITDA valuation, and from a risk-adjusted perspective, a strategic path might best unlock this value. If so, this could attract interest from private equity and strategic investors. New Mountain Capital held Avantor, Inc. before its IPO and maintains approximately 2% ownership. Strategic investors like Ingersoll Rand might also be interested, especially at prices well below their previous offer. Engine Capital believes Avantor, Inc. could sell for $17-19 per share.

Overall, Engine Capital has not only made a compelling case that Avantor, Inc. needs significant change but has also presented a clear multi-path forward plan. While some changes are already underway—a new CEO takes office next week and management announced a $400 million cost reduction plan—the scale of required changes according to Engine Capital's 2027 projections makes timely completion unlikely.

Engine Capital's plan includes strengthening execution, instilling cost discipline culture, improving capital allocation, evaluating the business portfolio, linking executive compensation to shareholder value creation, and refreshing board composition. Engine Capital's plan is correct, but with the company's revenue and operating margins declining since 2022, refreshing the board, instilling new culture, reversing declining revenue and operating margins, and evaluating and executing asset sales (many of which cannot occur simultaneously) may require significantly longer than two years, especially with the director nomination window not opening until January 8. Additionally, the type of transformation Engine Capital advocates typically cannot be achieved through friendly settlements.