Avantor (AVTR): Activist Pressure, Deleveraging and the Margin Test

Engine Capital, a new CEO and material deleveraging set the stage for a governance fight and strategic reset at Avantor. Engine Capital’s public campaign and letter to the board surfaced in August 2025 while the company has already reduced net debt by approximately $1.48 billion year‑over‑year and reported FY‑2024 net income of $711.5 million. Shares trade near $13.19 with a market capitalization around $8.99 billion, leaving a wide valuation gulf for activists to argue against. The tension is immediate: an activist says a faster, larger portfolio and capital‑allocation reset can double shareholder value by 2027, while management points to ongoing cost programs and earlier divestitures as evidence of progress.#

Recent financial snapshot: improvement in profitability despite flat top line#

Avantor’s fiscal 2024 results show a company that squeezed more profit from slightly lower revenue. According to Avantor’s FY‑2024 filing (accepted 2025‑02‑07), revenue fell to $6.78 billion from $6.97 billion in 2023, a decline we calculate at -2.73% year‑over‑year using the reported totals ((6.78–6.97)/6.97 = -0.0273). At the same time operating income rose to $1.08 billion, producing an operating margin of ~15.93% (1.08 / 6.78). Net income increased sharply to $711.5 million, a YoY jump of +121.58% driven by a combination of the operating rebound and lower financing/one‑time impacts. Free cash flow for FY‑2024 came in at $692 million, implying a free‑cash‑flow margin of ~10.21% (692 / 6.78). These are the raw facts: revenue stability, margin recovery and solid cash generation, but a top line that is not growing.

Avantor’s reported numbers and our calculations are summarized in the table below to make year‑over‑year trends clear.

All figures above are taken from Avantor’s annual filings (accepted 2025‑02‑07 for FY‑2024) and are calculated directly from the reported revenue and income line items. The picture is mixed: operating margin improved materially in 2024 versus 2023, but revenue remains below the 2021–2022 levels.

Cash flow, deleveraging and the balance‑sheet story#

Balance‑sheet moves have been the clearest, tangible progress point and the central plank of management’s defense against activist pressure. Avantor’s balance sheet shows total debt down from $5.54 billion in 2023 to $4.06 billion in 2024, a reduction of $1.48 billion, while net debt fell from $5.27 billion to $3.79 billion, an identical decrease in dollar terms once cash changes are accounted. That deleveraging reflects prior divestitures (including the Clinical Services sale) and sustained free cash flow. Using FY‑2024 reported EBITDA of $1.08 billion, a simple ratio of net debt to EBITDA yields ~3.51x (3.79 / 1.08), although the firm and some third‑party TTM metrics report different leverage ratios — we note that discrepancy below and explain why it arises.

The balance‑sheet trend and basic leverage calculations are shown here:

Our Net Debt / EBITDA figures use the reported year‑end net debt and the annual EBITDA line reported in the income statement. Third‑party TTM metrics (for example a 2.66x net debt / EBITDA figure present in some vendor datasets) often derive from adjusted or trailing twelve‑month adjusted EBITDA figures, and may exclude certain items (restructuring costs, fossil amortization or transaction adjustments) or use an average of the most recent four quarters. Where there is a divergence we highlight both numbers and explain that the difference is methodological: our calculation is straightforward arithmetic from year‑end reported totals, while the lower vendor TTM ratio implies higher trailing adjusted EBITDA or a different net‑debt definition.

Operating cash flow remained robust in FY‑2024 at $840.8 million, and free cash flow conversion remained high with FCF representing ~82.3% of operating cash flow (692 / 840.8). That conversion rate demonstrates cash quality: reported net income of $711.5 million translated into $692 million of free cash flow, indicating limited gap between accounting profit and cash generation in the period.

The margin story and the $400 million cost program#

A core part of the activist narrative is that Avantor’s margins can recover faster and further through deeper cost cuts, and the company has a visible program in that direction. Management has articulated a $400 million cost transformation program; FY‑2024 results show operating margin back to levels near the company’s better post‑merger history (operating margin ~15.93% in 2024 versus ~9.99% in 2023). The improvement is meaningful, but to assess sustainability we must parse drivers: price realization, mix shifts, one‑time items and structural savings.

The year’s margin expansion appears to be a mix of structural and temporary elements. Reported depreciation & amortization is elevated (FY‑2024 D&A $405.5 million), which reduces reported operating income volatility relative to underlying cash profits, and the SG&A line remains high at $1.64 billion in 2024. Management’s narrative centers on extracting recurring savings from the $400 million program and on commercial actions to improve mix into higher‑margin bioprocessing consumables. The evidence so far — renewed operating income and strong cash conversion — supports the program’s early effectiveness, but the underlying revenue trend (flat to down) means future margin gains must offset the lack of topline momentum to drive EV/EBITDA expansion.

Activist intervention: demands, leverage and probable outcomes#

Engine Capital’s public campaign (via a letter widely circulated in August 2025) crystallized the pressure. The activist disclosed a stake of roughly 3% and called for a sweeping board refresh, faster and deeper cost cuts, an aggressive divestiture program (including potential sales of non‑core distribution assets) and a reallocation of liberated cash to outstanding debt reduction and shareholder returns. Engine Capital’s public scenarios suggest a sale price of $17–$19 per share or a transformation outcome in the $22–$26 range by end‑2027 — claims grounded in re‑rating assumptions and accelerated margin expansion.

Avantor’s management has countered with a record of actions: roughly $1.5 billion of leverage reduction prior to the activist’s letter, a $650 million sale of its Clinical Services business, and continued execution of the $400 million cost program. Management also moved quickly on leadership, naming Emmanuel Ligner as CEO in mid‑August 2025, a hire that brings deep life‑sciences operating experience and addresses one of the activist’s core asks for industry expertise at the helm (reported by StreetInsider and MarketScreener). The CEO change narrows the governance gap but does not fully resolve the board composition dispute that Engine Capital has prioritized.

Possible outcomes fall into three buckets: incremental execution (accelerated but measured divestitures and continued deleveraging), radical reshaping (large carve‑outs or sale of big businesses that reposition Avantor into a narrower, higher‑multiple pure play), or an outright sale negotiated by the board. Each path has trade‑offs. Incremental approaches lower execution risk but may only slowly close the valuation gap. Radical reshaping could accelerate re‑rating but raise execution and buyer‑appetite risk. A sale would crystallize value quickly but depends on robust market interest and a clean separation of assets.

Valuation context: the gap to peers#

Avantor trades at modest multiples relative to many life‑science peers. Market metrics in vendor datasets show a price‑to‑sales near 1.35x, a P/E around 13x–13.1x and an EV/EBITDA around ~9x on forward data. By contrast, selected higher‑growth life‑science peers often trade at considerably higher earnings multiples, which is the basis for Engine Capital’s rerating thesis (see public comps in Multiples.vc and SimplyWall.st). The core thesis is numerical and simple: modest margin expansion and clearer capital returns can produce outsized upside because the current multiple is low.

However, closing that gap requires either sustainably higher organic growth or a demonstrable shift in the company’s growth profile via portfolio changes. With FY‑2024 revenue at $6.78 billion and consensus future revenue estimates only modestly higher (2025 estimated revenue about $6.62 billion per analyst aggregates), the re‑rating case centers on margin and capital‑allocation improvements more than top‑line acceleration.

Where the data and narratives diverge: methodological notes and risks#

Two recurring data frictions merit attention. First, vendor TTM leverage measures (for example Net Debt / EBITDA reported as 2.66x) differ from simple year‑end arithmetic (we calculate ~3.51x for 2024). This arises because vendors often use adjusted trailing EBITDA, not the reported single‑year EBITDA, and may smooth debt or include/exclude lease liabilities. Second, key ratios such as current ratio show variation between a TTM snapshot and year‑end balance sheet metrics; our year‑end current ratio calculation for 2024 (Total Current Assets 2.15B / Total Current Liabilities 2.01B) produces ~1.07x, while some datasets report 0.98x TTM — again a timing and definitional difference. We present both our calculations and the vendor numbers where relevant and caution readers that small methodological changes materially affect perceived leverage and liquidity.

Operational and market risks are also real. Revenue is sensitive to public research funding cycles and government/education demand; FY‑2024 revenue contraction and the recent Q2 2025 softness (reported in market commentary as flat organic revenue and margin compression) are the proximate catalysts for activist action. Execution risk on large divestitures or a dramatic portfolio reshaping is nontrivial; carve‑outs cost management time and can temporarily depress margins and cash flow. Finally, any accelerated buyback program depends on the company maintaining its improved cash generation while still servicing debt.

What this means for investors#

Investors should treat the current period as a governance and operational inflection: the company has demonstrably improved cash generation and reduced leverage by roughly $1.48 billion year‑over‑year, and FY‑2024 delivered $711.5 million of net income alongside $692 million of free cash flow. Those are real accomplishments that strengthen Avantor’s optionality. At the same time the top line remains below the 2021–2022 peak and near‑term growth expectations are modest, leaving valuation upside dependent on margin continuation, portfolio clarity and capital‑allocation decisions.

The activism dynamic increases the probability of outsized corporate action — faster divestitures, a more aggressive debt paydown or, in a disclosed scenario, a strategic sale. Each potential outcome maps to distinct investor implications: swapped ownership (sale) crystallizes near‑term value; a focused buyback plus deleveraging shrinks shares outstanding and raises per‑share metrics over time; and an incremental approach reduces execution risk but may leave the valuation gap only partially closed.

Key takeaways#

Bold action and better cash generation have created runway, but revenue momentum is the missing piece needed to sustain a multi‑turn rerating. Avantor’s FY‑2024 highlights are clear: net income of $711.5 million, free cash flow of $692 million, and net debt down roughly $1.48 billion versus 2023. Engine Capital’s campaign—backed by a modest stake and public valuation scenarios—raises the odds of a faster shift in strategy. The company’s new CEO, Emmanuel Ligner, brings relevant life‑sciences operating experience and narrows the governance gap, but the board composition and pace of portfolio reshaping remain central battlegrounds.

Investors watching [AVTR] should focus on three measurable near‑term signals: quarterly organic revenue trends (to see whether FY‑2024’s flat top line stabilizes or reaccelerates), the cadence and accounting recognition of savings from the $400 million program (to validate sustainable margin improvement), and concrete capital‑allocation actions (divestiture targets, buyback authorizations or accelerated debt paydown) that convert operational gains into demonstrable per‑share value.

Conclusion#

Avantor today is a company in the middle of an investor‑driven crucible. The firm has tightened its balance sheet and restored profitability while revenue has not yet returned to pre‑2023 levels. The entry of Engine Capital and the arrival of a new CEO make the next 12–24 months critical: the market is asking for clearer, faster evidence that cost savings and portfolio moves will translate into sustainable margin improvement and persistent cash returns. The facts on the table — improved cash flow, material debt reduction and an activist campaign calling for accelerated change — create the stage. Execution will determine whether Avantor closes the valuation gap or remains trapped in a lower‑multiple industrial distribution band.