Biotech Values

[DewDiligence]

(AGN/VRX)—Good piece on Tyco that still rings true for roll-up companies in general. Another risk of this business model (aside from the likelihood of accounting irregularities) is that the growth in EPS relies to a large degree on the roll-up company’s having a higher P/E ratio than the companies it acquires, so that each acquired company’s earnings become capitalized at a higher price than they were before the acquisition.

Thus, as soon as something untoward occurs to the roll-up company that lowers its P/E ratio, the business model itself becomes unworkable.