“Communicate openly.“ “Be ready for a rise in complement and antiviral focused firms.” “Deals may be smaller yet more active for medical devices and supply chain companies.” Read on to learn about the impact of COVID-19 on M&A trends from Adam Nelson, Senior VP, Life Sciences, and get more business and technology tips to emerge successful following a merger, acquisition or spinoff.
Q. COVID-19 has impacted every industry, and the arrival of the vaccine has turned the spotlight on Life Sciences organizations. How does this impact M&A trends and what does it mean for large pharmas and medical device companies?
A: While COVID-19 had an impact on basically every aspect of business, including M&A, it has also spawned and accelerated growth in several companies that are focused on antivirals, respiratory, and the complement system, which focuses on proteins and antibodies in the immune system. A premier example of a complement-focused firm involved in M&A is the $39B AstraZeneca (AZ) acquisition of Alexion Pharmaceuticals. This type of activity is expected to add to AZ’s already strong oncology focus in a post-COVID-19 world.
For medical devices companies, M&A will continue. While deals may be smaller in size, companies will look to bolster manufacturing and supply chain capabilities while increasing market share in a specific area, be it ortho, packaging, polymer, or safety products.
Q. With the potential rise in M&A activities, what are your top pieces of advice following a merger, acquisition or divestiture?
- Focus on the Transition Service Agreement (TSA), yet take advantage of change opportunities: The TSA has always been a primary focal point post announcement and sets the tone for both companies’ actions. Although leadership relays the message of “business as usual,” the reality is usually an atmosphere of uncertainty and job security concerns, resulting in the need to focus on risk mitigation. Along with risk, operational readiness, and compliance, it has been shown that traditional legacy cost-reduction synergies may provide about a 2% lift. However, by adding digital- and analytics-related technologies during an M&A, organizations may realize an additional 4–5% increased savings (McKinsey). CxOs would do well to evaluate in-flight digital projects and integrate them (and teams) with M&A integration charters to improve deal structures and showcase the new company’s future.
- Communicate openly: Since fear and distractions are high post-announcement, companies should communicate openly with staff the real reasons for acquisition — be it IP, the patents, the market reach, or others. Open communication will set minds at ease and allow people to focus on immediate tasks, which might include finding a new job or embracing the new company model. This way of communicating will enhance and accelerate any TSA activity and remove distractions.
- Honor your promise: A related area of focus ensures stakeholder and employee experience during an M&A transition. Often, the acquiring company welcomes the target and cites that their culture will not be affected, promising diversity and ensuring fair evaluation of IT investments. However, to realize synergies quickly, companies sometimes shortcut processes leading to sub-optimal onboarding. These shortcuts impact the acquired workforce with feelings of lower importance, leading to lower productivity. Subsequently, there is a higher risk and implications related to retention lost knowledge and future scalability. Toward the prior observation, communicate openly and then follow through with the expressed intent.
- Identify roles and responsibilities in advance: When announcements occur, employees are enthused about their new role and are eager to contribute to the new entity. The current business world is an active M&A ecosystem, and Life Science firms at various stages in their growth cycles are being scooped up. Employees often have strong attachments, and shifting loyalties to a new firm is not always easy. People make the place, not the patents, research IP, or even customers. So, identify the team with roles and responsibilities in advance within the bounds of the announcement. Identifying teams will ensure greater success for the new entity.
Q. Anyone who’s been involved in a merger, acquisition or divestiture knows the difficulty of dealing with tech complexities. What do you recommend companies do to simplify technology complexities?
- Remove human bias in tech selection (with a smaller, more focused team): Simplifying technology complexities during M&A activity can be straightforward. What should be avoided is human bias. Technology features, scalability, adoption, deployment costs, and support costs should be treated objectively. Staff might have issues with a new user interface or the adoption of applications from the smaller (or acquired) firm, yet that should not override the new firm’s best technology. A small, dedicated team made up of the front-line staff should be able to quickly review, evaluate, and recommend (including evaluating warranties, services and contracts), even with business users reviewing and scoring the technology to represent most of the firm’s best interests.
- Create a stand-alone mirror copy: A significant challenge post-M&A is exiting the TSA due to substantial penalties that might be incurred if deadlines are not met. And shortcuts often prove detrimental to both firms. The new company could leverage interim steps to overcome this challenge, such as creating stand-alone mirror data and ecosystem copies. In this way, a longer-term integration or conversion can occur while exiting the TSA can be accelerated by turning off links back to source systems that will not be moved. This reduced scope — versus trying to migrate full systems — can help mitigate exit delays and less-than-ideally-informed decisions.
- Create a global template: Another method to simplify technology complexity is having a global template to ease the data mapping activity. Anyone involved in an ERP deployment, conversion, or migration, concurs with the complexity and iterations that can accompany data preparedness when target information is not well known and well-documented. You can learn more about global templates in the article: A Prescription for M&A Success: 5 Considerations You Should Not Ignore published in PM360.
Q: And lastly, do you anticipate a silver lining in Life Sciences?
A: The pandemic has created a global need for more attention on antivirals. In recent years, oncology has outpaced other disease states for research. While spending tends to focus on profit potential, the disadvantage is that it might be detrimental to other disease states. The entire world and global health funds will likely increase investment toward respiratory- and viral-related efforts without detracting from other disease states. The vaccine market and the related medical product business will grow in M&A, partnership, and joint venture activity. While pricing and margins are lower, volumes are higher and without the same barriers to entry or patent cliffs.
Also, the recent attention to an adaptive supply chain is a good thing. The need for more raw materials and advanced production facilities can positively affect remote and underserved locations (and the labor force). It is certainly a silver lining since the new focus will allow firms the ability to shift plant and manufacturing to other products quickly, enabling real-time views into track-and-trace and distribution. All this requires an underlying focus on adaptive technologies that can be quickly leveraged by both sides of a merger or acquisition.
While companies in pharma shift their focus to adaptive technologies, there is a lot going in other industries too. Read on to find what my colleagues have to say:
- M&A Forecast for Manufacturing with Prasoon Saxena, Senior VP, Manufacturing
- M&A Forecast for Financial Services & Insurance with Wayne Busch, President, Financial Services and Insurance
- M&A Forecast for Health Plans with Shashi Yadiki, President, Health Plans
Post Date: 3/3/2021