top of page

The Evolving World of Mergers and Acquisitions

Words by James Coker

Darwinian theory dictates that organisms must evolve biologically to survive changes in their natural habitat. The fast-moving healthcare environment is prompting a similar reaction amongst pharmaceutical companies, with mergers and acquisitions (M&A) being one method increasingly used to adapt the industry’s shape and structure. In an age when complex treatments, such as specialised and precision medicines, are coming to the fore, this is often seen as a more efficient way for companies to grow ahead of expanding their own capabilities. However, recent history is replete with examples of these transactions failing to meet expectations. It is becoming increasingly evident that this vital evolutionary tool needs honing to ensure it can help lay the foundations for the industry’s future.

M&A have been a staple growth tool in the pharma industry since before the early 1990s and are used to develop capabilities in a variety of ways. “Pharma M&A are often attributed to complementing portfolios to mitigate patent expiry, but we also observe it directed at strengthening particular therapeutic areas, and to access significant single products. Access to innovation earlier in drug discovery also features,” explains Caroline Austin, Vice President, Head of Transactions, Business Development, AstraZeneca.

What has changed in recent years, however, is their sheer scale; 2019 especially will be remembered as a year that altered the shape of pharma. From the conclusion of Takeda’s $62 billion merger with Shire to BMS’s completed acquisition of Celgene for the princely sum of $74 billion, it appears that big money transactions are becoming the norm. In fact, the $342 billion syphoned into M&A by drug manufacturers in 2019 surpasses the totals of every other year on record.

Such figures mean it is more important than ever for pharma companies to apply the most rigorous of analyses in identifying M&A opportunities, focussing only on those organisations and portfolios that fit with their strategic vision. This stage takes on even greater relevance when considering the alarming statistic that 83% of M&A fail across all sectors. “Whilst no two companies will have exactly the same strategic approach, it is critical to have clear search guidelines,” says Şeyda Caskurlu, Business Development Director, Europe, Sandoz. “Shopping around randomly without a clear vision and target is a waste of time and money for all stakeholders. Practical realities notwithstanding, we should always aim to be strategists rather than opportunists.”

Once the wheels of a suitable transaction are in motion, attention should turn to the prospective integration strategy, a phase that can define the outcome of a merger or acquisition. Caskurlu warns: “Delays at the integration stage: poor integration communications, disorganised planning or project management, and lack of capable teams with motivated and experienced people, can all create disruptions with the potential to destroy the entire value of the completed transaction.”

To avoid this doomsday-type scenario, deep insights into the organisation in question should be harvested, and a healthy respect given for their expertise and processes, particularly during the early stages following a transaction. Austin continues: “Identifying important factors for each party early on allows for establishing shared goals, ensuring that values are respected together with preserving the often unique capability or entrepreneurial approach that drives success of the assets in question.”

The importance of culture and employee buy-in to business performance has become increasingly recognised in recent years and should not be underestimated when bringing two separate entities together. As the author Peter Drucker wrote: ‘culture eats strategy for breakfast’, and it is clear that cultural alignment must be a focal point, if not the primary focus, of any integration plan for M&A.

“Many companies have learned the hard way that cultural differences can seriously hamper the achievement of identified synergy targets, particularly in the short and medium term. That’s why it is so critical to identify potential cultural issues up front and have a clear plan for resolving them post-acquisition,” says Caskurlu. “This should be part of a broader change management plan and governance structure, which ensures that all associates clearly understand the strategic direction of the integrated company, know their role, feel empowered to deliver on it, and feel that they are part of the journey.”

Benjamin Franklin’s immortal words ‘by failing to prepare, you are preparing to fail’ could not be more applicable when it comes to M&A in the pharma industry. The mega-money deals that have become a feature of M&A in pharma mean companies must be as thorough as possible when planning such moves, both in identifying the right opportunities and in post-deal integration planning. Getting these details right could be crucial for pharma’s ability to survive and flourish as their natural habitat continues to evolve rapidly around them.

Shopping around randomly without a clear vision and target is a waste of time and money

bottom of page