MW is Short Eurofins (ERF.FP)
Muddy Waters is short Eurofins Scientific SE (ERF.FP) because the confusion and contradictions inherent in its financials and operations cause us to believe that it is optimized for malfeasance, rather than for conventional business. At best, Eurofins has a parasitic controlling shareholder who has been siphoning money from the company for two decades. Our view, however, is that Eurofins’ financials could contain material overstatements of profits, cash balances, and other asset values.
Eurofins is a company of oddities and contradictions:
As Eurofins grows larger, it makes smaller acquisitions, with 2019 acquisitions averaging $5.0 million of annual revenue, which declined by 2023 to $3.1 million. The vast majority of the acquisitions don’t meet the threshold for disclosure, keeping much of the spending opaque.
Eurofins denies that it is overly complex, but in 2023, its auditor had to reclassify €682 million of receivables and payables in the 2022 accounts.
Through 2019, Eurofins claimed that it didn’t seek to buy real estate because doing so “immobilizes capital at low rates of return.” Yet for two decades, Eurofins was seemingly paying far more to Dr. Martin than it would have if it purchased real estate itself.
Eurofins’ revenue per employee has long been a significant outlier in the TIC industry (~50% – 70% higher) while its comps’ metrics were in a tight range.
Eurofins’ margins, however, generally appear in-line with the industry. Mostly this is due to its compensation per employee also being a significant outlier (~30% higher). However, former employees repeatedly expressed to us that outside of high performing managers of large Business Units, Eurofins is generally nowhere near the top of the industry in pay scale.
Dr. Martin is well known among former employees for involving himself in seemingly small financial decisions of Business Units. Yet, Eurofins’ cash accounting seems prone to errors, and its much of its internal financial reporting seems prone to manipulation.
Despite being a seemingly mature business, Eurofins has raised and consumed billions of dollars in recent years, supposedly to fund growth.
In our view, there is an explanation that unifies these, and other, contradictions: Eurofins is optimized for malfeasance. We are unclear how deep the rot goes, but we suspect that it extends to reporting of revenue, profits, cash, and other asset accounts.
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