Ready to buy...but not ready to integrate

It happens frequently in the fast-paced world of mergers and acquisitions, and more particularly to strategic buyers. The acquirer devotes so much time and attention to signing a definitive agreement or letter of intent (LOI) to acquire another organization that it can’t give equal and proper consideration to planning for integration. All of a sudden, the closing date is here—along with the pressure to begin producing value from the transaction. Now what?

Case in point: Life sciences acquisitions
The pharmaceutical and life sciences industry—a sector experiencing a significant upswing in M&A activity as many blockbuster drug patents expire—offers a perfect illustration of the importance of planning ahead for integration.

Large life sciences companies that historically have relied on high-volume blockbuster drugs for growth and profitability must find new profitable products to replace them. In today’s market, the greatest growth and profitability potential resides in the smaller specialty or “orphan” drugs used to treat chronic and rare conditions. Given lengthy drug development cycles, the easiest way to enter the orphan drug market often is to buy into it. Accordingly, many large players are actively seeking to acquire smaller biotech or life science organizations that have developed, or are developing, specialty drugs. But as the large firms try to integrate these smaller operations into their organizations, they are encountering some big and unexpected challenges due to operational differences.

One significant difference is the approach to marketing and distributing blockbuster drugs versus orphan drugs. Simply stated, it’s an entirely different game based on patient retention rather than volume. Under the blockbuster drug model, big life sciences companies did not have to worry about patient relationships. Orphan drugs, on the other hand, require a complex and highly patient-centric approach; one where the company knows every patient and takes steps to manage their drug use. These drugs require new patient service programs, financial assistance programs and in-care or out-care services that ensure patients take their medications as prescribed. The acquirer, therefore, must understand this key difference in running an orphan drug business and be prepared to deliver the patient programs necessary for deriving value from the acquisition—a very different business model.

Cultural differences between large and small companies can also erode the value potential of an acquisition. For example, the policies and structure that are common in large organizations can be perceived as development roadblocks to smaller, more nimble operations. Decision making often happens at a significantly different pace, and executives used to walking down the hall to discuss and conclude on particular matters may struggle with more formal, committee-based processes. These issues sound basic, but addressing them as part of the integration is fundamental to success. After all, when you acquire a niche biotech organization, you aren’t just buying the product but also the people.

Integration success starts with the right resources
Whether in the pharmaceutical sector or any other industry, successful integration planning begins with having the right resources involved from the outset.

Most companies have resources dedicated to corporate or business development but not to merger integration. Pulling in “available” resources, therefore, can have significant implications. First, these individuals will be strained if they have to balance new integration challenges with their “day jobs” running the business. And while they understand how to run a business, they most likely have never been involved in running a complex integration.

A good starting point is to identify a dedicated integration manager early on in the deal discussions and to involve that individual during the due diligence. In turn, that integration manager will have the insight and knowledge to begin building an integration road map based on the deal’s financial model and success criteria.

For more information about West Monroe Partners’ merger and acquisition integration services, please contact Steve Sapletal at ssapletal@westmonroepartners.com.



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