Successful acquirers know what they are looking for before they begin. They have developed insights driven by thorough analyses of markets, customers, competitors, regulators and internal capabilities that lead them to identify a handful of very specific acquisition criteria. Moreover, these criteria enable a dispassionate evaluation of the target’s fit from a strategic, financial and cultural perspective.
Most research indicates that only 40% to 60% of mergers succeed — and just 30% are cross-border mergers (Association for Corporate Growth). What exactly is a successful merger, and why aren’t there more success stories? Generally, a merger is considered to be successful if the company achieves both the strategic imperative behind the merger and the merger synergies and operating results promised when a deal is announced.
Regardless of the strategic imperative, it has been our experience that the most successful mergers recognize that true long-term value is found in the white spaces within and between key value-creation functions (Product Development, Sales & Marketing and Supply Chain), while less successful mergers tend to focus too much attention on back-office integration and systems consolidation.
This is often immediately reinforced by the creation of a single Merger Integration team, with functional departments each addressing issues related to their functional scope. Instead, we recommend a two-pronged approach, reporting to an Integration Team Leader.
SILVER TEAM This team takes the internal perspective, and is responsible for day one execution and synergy capture (cost reduction) related to Human Resources, Legal, Finance & Accounting and Information Technology. A key role of this team is avoiding employee defections and managing employee communications.
GOLD TEAM This team takes the external / customer-focused perspective, and is responsible for maximizing the value contribution (revenue and profit) of the Product Development, Sales & Marketing and Supply Chain organizations. A key role of this team is avoiding customer defections and managing external customer communications.
The Gold Team should be formed to specifically focus on leveraging the synergies within and between the value-creation assets entrusted to the newly combined organizations. Revenue increase during a merger is always more difficult to achieve, and takes longer than expected.
Don’t underestimate the degree to which competitors will seek to poach your best customers and your best sales people, as your team develops strategies to address the following:
To what degree do we need to rationalize the existing portfolio of development projects? Can we establish common platforms for existing products?
How do we best combine our teams to increase efficiency, fully leverage new capabilities and improve innovation?
How can we consolidate our sales force to remove overlap yet improve customer retention and sales?
MARKETING & BRANDING
How do we enhance and project our brand(s)? To what extent, and when, do we combine or shift our brands? What messages do we want our customers to hear during the merger integration?
When and how do we introduce new capabilities? To what degree can we consolidate, and how do we make this seamless for our customers?
M&A has been ongoing for both sponsors and contract service providers, continuing consolidation on both sides of the industry
The strategy for some contract manufacturers to achieve integrated services for large portions – or all – of the pharmaceutical development lifecycle from discovery to commercialization has been one large driver in M&A. Contract manufacturing organizations (CMOs) turning themselves into contract development and manufacturing organizations (CDMOs) continues. There is also a rise in the number of ‘primary’ (drug substance) contract manufacturers that have expanded into ‘secondary’ (drug product) manufacturing — and vice versa.
For many in pharma, 2014 was seen as a peak year for M&A activity. Some $200 billion in deals came into play, even with failed bids like Pfizer’s attempt to acquire AstraZeneca and Abbvie’s efforts to acquire Shire. With 2015 in the rear-view mirror, industry observers and journalists alike were heralding the robustness and amazing acceleration of this past year’s M&A action. Top of mind for many was Pfizer’s now-thwarted acquisition of Allergan. This $160 billion deal was to be the largest M&A deal in the industry’s history. Earlier in 2015 Abbvie announced its intentions to acquire Pharmacyclics for $20 billion, a deal that was identified as the largest global M&A deal of 2015 — now that the Pfizer / Allergen deal is void, Teva’s $40 billion acquisition of Allergan’s Activis operations takes the top spot. Even with Pfizer / Allergan off the table, 2015 M&A activity was relatively robust, sustaining a trend that is likely to carry on throughout 2016.
To successfully integrate two companies, the approach must be consistent with the strategic intent. Guiding principles, priorities and governance must reflect the logic behind the merger. A well-defined integration strategy should clearly articulate both financial and non-financial goals, as well as risk mitigation strategies.
The following areas of focus are foundational to the ultimate success of an acquisition:
In conclusion, successful mergers and acquisitions thrive on intentional, measurable and adaptive plans with dedicated resources incentivized to deliver results – capturing both the silver and the gold.
Bruce brings more than 30 years of experience in business strategy, operational excellence, and corporate development. His clients have included several of the world’s leading life sciences, retail, consumer, and industrial companies. Prior roles Bruce has held include COO of a Philips Healthcare division, Consulting Partner with Ernst & Young, Managing Director at Alix Partners, and Distribution Sector Executive at IBM. He was honored to be the keynote speaker at one of the Healthcare Distribution Management Association’s annual conferences. Bruce resides in Dallas, TX.