Transcript LOOKING BEYOND THE DEAL: WHAT YOU SHOULD EXPECT IN

LOOKING BEYOND THE DEAL: WHAT YOU SHOULD
EXPECT IN EFFECTIVELY INTEGRATING PEOPLE,
PROCESSES, AND ASSETS INTO A VIBRANT BUSINESS
LSI Biotechnology M&A Conference
October 6, 2006
TheBoston
Boston Consulting
Consulting Group
The
Group
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GOALS FOR THIS DISCUSSION
Briefly introduce you to BCG and our relevant capabilities
Share our perspectives on what you can expect in a biotech M&A, and
how to ensure success for your own company or your clients
•
Requirements for success in biotech M&A
•
Overview of the typical approach and issues you can expect to
encounter
•
Using R&D examples to make it real
Answer your immediate questions
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THE BAD NEWS: MOST MERGERS AND
ACQUISITIONS FAIL TO REALIZE THEIR POTENTIAL
“Our analysis shows that 61% of buyers destroyed shareholder wealth” -- BCG, Business
Week
“Many studies of mergers, stretching back to the last century have shown that, despite
some successes, the overall record is decidedly unimpressive” --The Economist
“In 57% of these merged companies, return to shareholders lagged behind the average for
their industries” -- The Harvard Business Review
While catastrophic failures are rare, the majority of mergers and acquisitions do not
achieve their goals
Transaction itself absorbs most of the company's energy
•
Leadership focused on consummating the deal, not on making the combined
business work
Value is created not only in the transaction itself, but in successful implementation
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THREE FUNDAMENTALLY DIFFERENT OBJECTIVES
NEED TO BE MANAGED FOR SUCCESSFUL
INTEGRATION
The measure of successful integration:
"the increase in performance of the
combined firm over what the two firms…
accomplish as independent firms"
1. Continue to
manage the
current
business
2. Design and
build the new
organization
3. Ensure
expected
"synergies"
and value
opportunities
are realized
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M&A IN THE BIOTECH WORLD BRINGS PARTICULAR
CHALLENGES...
For many biotechs, key resources are already stretched in “business as usual”
mode
Typical concentration of on-market products and the portfolio pipeline means
there is high vulnerability from disruption
Industry is highly networked, with a well-oiled rumour mill and highly mobile top
talent
Much valuable intangible knowledge exists, which may be lost if key talent departs
Titles and incentives/compensation structures may be quite different
Cultures are fiercely cherished (at the company level, and in working teams)
Processes on either side may not be scaleable for the new company’s size
...Which means that a rapid, disciplined
integration process is critical
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THE TYPICAL M&A PROCESS HAS MULTIPLE PHASES
Illustrative
Design
and
decision
making
Integration
planning
and data
gathering
Stage setting
Pre-announcement
Read-out of
• Integration
principles
• Team charters
• Key dates and
milestones
Pre-closing and
Month 1 post close
Month 2-4 post closing
Preliminary read-out of
• Budget with synergies
• Organization
• Integration plan
• Site strategy options
Detailed
implemen
tation &
progress
monitorin
g
Varying
Final read-out of
• Budget with synergies
• Organization
• Integration plan
• Site strategy
Timing of phases varies significantly, not just with size
and complexity of deal, but by function and geography
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CRITICAL CHOICES TO MAKE AND COMMUNICATE
UPFRONT TO ENSURE SUCCESS
Make the "philosophy" of the underlying the integration effort explicit
•
Create a new business, combining the "best of both"
•
Or, default to a proven, successful formula from one side
•
Say explicitly if it is a real merger - or, if in some areas, it is a takeover
Define the balance between scope and speed
•
Focus on critical areas first then move to other fronts later
•
Or, proceed in parallel on all fronts
•
Decide how much resource will be focused on integration versus on
day-to-day business and customers
Determine the principles of the desired organizations
•
Clean sheet, brand new
•
Or, build from one of the existing organizations
•
Will the feel be a new creation or an evolution?
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THE TYPICAL INTEGRATION TEAM STRUCTURE IS
MATRIXED
Integration Steering
Committee
Integration Leadership
Functional Platforms
e.g., HR, Communications,
Finance, Legal, IT
Team 1
e.g., Research Alliances
Operational Teams
e.g., Research, Development,
Manufacturing, Sales,
Marketing
Team 2
e.g., Development portfolio
• Overall integration
accountability
• Set process, guidelines,
timelines and integration
focus integration
• Seconded line manager
• Day-to-day integration
responsibility
Integration Program
Management Office
• Drive and co-ordinate the
overall integration process
and communications
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ILLUSTRATING THE TYPICAL INTEGRATION
AGENDA FOR R&D
1
Overall
leadership
2
Synergies
3
People and
organization
Orchestrating R&D integration
Stabilizing functions and “ring-fencing” critical projects
(especially in phase III and registration)
Baselining and synergies
Organization & governance
model definition
Retain key talent & launch culture assessment / alignment
4
Portfolio
5
Processes and
site model
First review of Research, preclinical and clinical programs
Re-prioritize and resource specific
projects; identify programs to be
halted
Review alliances and CRO outsourcing
Site consolidation scenarios
6
Support
Functions
Integrate mission critical processes
(e.g., adverse event reporting)
Develop new “best in class”
processes
Review and resize support functions
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THREE PRIMARY RISK AREAS IN BIOTECH R&D
Issue
Greatest risk area
Typical drivers
People retention
and motivation
Departure of key
scientists/managers
Uncertainty due to lack of communication, long
process, insufficient visibility of leadership
Broader
organizational
malaise/cynicism
Perceived risk to individual’s role, status, project,
career prospects, site
Loss of mentors and personal networks
Disconnect with perceived vision, values of new
organization
Short-term project Delay/derail key late- Integration distracts from senior management focus
delivery/ business stage programs
stabilization
Loss of key players
Failure to protect key programs during transition
period
Longer-term
productivity
Innovativeness of
organization
Failure to appreciate, reinforce, rebuild internal
networks and communities of interest
Miss the right balance between creativity/freedom
and process standardization
Overemphasis on cost reduction
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AN EARLY FOCUS ON THE PEOPLE
PROCESSES IS MANDATORY
Many Parallel Activities Required, With Clear Compliance
To Policies & Regulations
Redundancy
Appointments
Leavers
Statement of policy
Selection policy, criteria
and methods
Severance policy and
timing
Rationale, likely numbers,
timing and cost
Objectivity
Severance terms
Selection criteria and
process
Announcements
• Process and timing
Consultation and
information process
Tracking
Support availability
• Community
initiatives
• Reemployment
training
Communications
Employee
communications policy
• Top-down and
bottom-up
Code of communications
practice
Rules about external
communications
Dispute process
Stayers
Reward strategy
Statement regarding ‘best
of both worlds’
Statement of main beliefs
and directions
Statement on employee
relations policy
Relocation policy and
detail of terms, eligibility,
etc
Policy on harmonisation
• Priorities and timing
• Pay, benefits,
pensions
Attitudes to employee
involvement and
representation, unions
Incentives and benefits
Policy on learning and
development
Development of values
Employee relations
Interim measures
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CLEAN TEAMS CAN BE USED TO ENABLE RAPID
PORTFOLIO DECISIONS POST-CLOSE (I)
Basic legal requirements
No merger shall go into effect until regulatory
approval is secured
Exchange of commercially sensitive information
is prohibited before approval – e.g., specific
pricing or costing, detailed plans, R&D
pipelines, etc.
No pre-close coordination is allowed that
lessens or impairs current or future competition
• Unilateral decision making
• Management teams must operate their
business separately
Clean teams cannot execute decisions & are
limited in coordinating outside clean
environment
Business considerations for using clean
teams
1
Likelihood of deal being approved
• Greater the likelihood, the more a
company can do prior to approval
2
Commercial sensitivity of pre-close
activity
• Driven by amount of overlap, other
issues
3
Need to accelerate integration
implementation post-close
• May require direct line management
involvement
4
Potential resistance of management at
acquired company
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CLEAN TEAMS CAN BE USED TO ENABLE RAPID
PORTFOLIO DECISIONS POST-CLOSE (II)
Data Gathering Team
• Define business principles (e.g.
accounting standards, common
definitions)
• Exchange and validate noncompetitive information and
assumptions
• Design and test transfer of data
• Provide links to give functionality
"day-one“
• Organize and structure
information, systems and
processes to be compatible
vs.
Clean Team
• Secure critical and competitively
sensitive data in format that can be
quickly interpreted and integrated
• Document knowledge, proprietary
information, and/or strategic data
that is at risk if unexpected attrition
occurs
• Accelerate risk mitigation through
contingency planning for areas
over which companies do not have
full control until post-close
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RESEARCH: KEY LESSONS
Do not expect Research to be as data-driven as Development
•
Definitions/boundaries are blurred
•
A “program” is often a contract with a promising scientist or an
institution, with very broadly defined deliverables
Ultimately senior R&D executives’ views on research strategy will be critical to
many decisions
•
Place them at center of research decision-making from the start
- more top-down-driven process than some other areas in R&D
•
Hard to reach bottom-up consensus in integration time frame
Use a small team to help with the day-to-day work
•
Scientific discussion can still take place in larger forums
Don’t underestimate the importance of research networks and communities
•
Maintain productive networks as much as possible
•
Seek to build new networks where necessary, not just define a new
organization chart
•
Scientists like to talk science – have them sharing science early to
foster a sense of community
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DEVELOPMENT: KEY LESSONS
Early-on, need to create and communicate an objective mechanism for decision
making regarding technologies and program/project portfolio for the new entity
Anticipate long lead time before data ready for key project decisions
•
High degree of complexity and large number of people contributing
make this inherently time-consuming
•
Ensure sufficiently resourced
Protect critical programs, particularly key late-stage drugs
•
Ensure adequate resourcing/stability
•
In some cases, be willing to compromise implementation timetable to
ensure program delivery
Significant “tail” of activity needs to be planned for as projects move across
sites
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SOME THOUGHTS ON DRIVERS OF SUCCESS FOR
INTEGRATING LEGAL FUNCTIONS
Key issues and considerations
Implications for integration approach
Many key legal issues require instant
stabilization and control during merger period,
hence legal function highly involved with
merger
Ensure clear separation of ‘platform team’
(focused on integration) from ‘function team’
(focused on nature of post-merger legal
function)
Legal staff from each company may have
unique knowledge and/or expertise in vital areas
(e.g., patents)
Factor unique knowledge into decisions
regarding personnel retention. Longer term,
work to ensure knowledge is codified for ease
of transfer
Legal functions from each company may have
different litigation strategies and tolerance for
risk, depending on company culture
Specific attorney team set up to harmonize
litigation strategies and approach to risk
Legal advice may be charged differently by each
company (e.g., central cost center versus
charge-backs)
Harmonize charging policy in accordance with
input from finance function and corporate
function heads
Each company may have different philosophies
on sourcing, and different sets of external
vendors
Rationalize sourcing and vendors in accordance
with new company philosophy, taking existing
commitments into account
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WHERE YOU WANT TO BE WHEN IT’S DONE
Signs of Success
The synergies estimated during the pre-acquisition planning were
confirmed or exceeded
The new organization is fully implemented without the loss of key talent
The process has been perceived as fair and objective
The combined company is operating efficiently
There are no major problems with the stakeholders: employees,
customers, suppliers etc
The process has not lasted longer than expected
There are no substantial issues still pending
The motivation of employees is even higher than before the acquisition
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QUESTIONS?
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