What is the estimated size of the valuation gap mentioned and what catalysts are needed to close it?

Estimated valuation gap

Engine Capital’s letter says Avantor’s “significant valuation gap” is roughly $1.5 billion‑$2 billion – the difference between the company’s current market‑capitalisation (≈ $12 bn) and the intrinsic value that Engine’s valuation model (DCF + comparable‑company multiples) arrives at (≈ $13.5 bn‑$14 bn). In other words, the market is pricing the stock about 12‑15 % below what the fund believes the business is truly worth.

Catalysts needed to close the gap

1. Governance‑driven actions – appointment of independent directors, adoption of a more shareholder‑friendly charter and clearer succession planning. A refreshed board is expected to accelerate strategic decision‑making and improve capital‑allocation discipline.
   
2. Strategic “value‑unlock” initiatives –
   
   • Asset‑sale or spin‑off of low‑margin legacy businesses (e.g., non‑core chemicals or logistics assets) that can generate a one‑off cash infusion and raise the overall margin profile.
     
   • Margin‑enhancing cost‑cutting and supply‑chain optimisation that lifts adjusted EBITDA by 3‑5 % YoY.
     
   • M&A or joint‑venture activity that either expands higher‑margin life‑science franchises or adds scale to the bulk‑pharma platform, narrowing the earnings multiple gap.
     
3. Transparent communication of a “value‑creation plan” – a clear, investor‑facing roadmap (quarterly updates, target‑date milestones) that reduces uncertainty and narrows the discount applied by the market.
   

Trading implications

If Avantor can deliver any of the above catalysts—especially a credible governance overhaul combined with a disclosed asset‑sale or margin‑improvement plan—price action should move sharply higher, potentially compressing the 12‑15 % discount to 5 % or less within the next 6‑12 months. Until such catalysts materialise, the stock remains a value‑play with upside potential but also carries the risk that the discount persists if the board fails to act. A long‑position with a 12‑month horizon and a stop around the current 52‑week low (≈ $115) would capture the upside while limiting downside if the valuation gap remains unaddressed.