Mergers & acquisitions
Mergers & acquisitions – it’s all about collaboration, says Mike Straw, Achieve Breakthrough. He argues that deals are all about people as well as the numbers, and it’s the collaboration that will make a deal truly work.
The amount of M&A and deal activity in the pharmaceutical and biotech sectors in recent months has been remarkable: more than $460bn of deals since the beginning of 2014, the highest amount in such a timeframe on record.
This is partly being driven by the fierce competition in the industry, the simple need to get ahead. So pharmas are looking to buy in R&D if they can’t do something in-house.
It is also, perhaps, being driven by today’s ‘cheap money’ environment. This recently led Sir Andrew Witty, CEO of GSK, to query the wisdom of some deals. Speaking to the FT, he questioned “stretched” valuations and wondered whether some “poor choices” were being made.
Regardless of the wisdom or otherwise of some of the deals that are being hatched, the fact is that they are happening – and so the pressure to make them work will be all the greater.
But how can companies maximise the chances of their deal delivering all that it promises?
As with so many things in life, I believe that it all comes down to people.
Doing the DD
Of course, no one goes into a deal lightly. Extensive due diligence will be performed, the financials will be scrutinised, balance sheets analysed, forecasts of efficiencies and synergies will be made. Promises will be made to the City, and these will then have to be met.
But what will really make the difference as to whether the deal will work and targets will be reached is not the cold numbers, but the people involved.
Bringing together two organisations, whether an acquisition or a merger or a JV, means that you are instantly setting up a complex people dynamic that needs very careful and skilful handling.
The aim of course in any deal is to increase value. You are looking for 1 + 1 to equal at least 3, hopefully more. The last thing you want is for value to be lost so that 1 + 1 equals 1.5.
The reason why, in some deals, value is lost is because all too often you have the scenario of one company or culture taking over, consuming, the other. One organisation wins and the other loses. But the reason for the deal in the first place was surely that both organisations were successful and winning. The last thing you want to do is remove the magic of winning from one side.
The denial trap
A frequent danger is that you end up with what we call the ‘denial trap’. The acquirer calls the deal an ‘acquisition’ while the acquired calls it a ‘merger’. They are coming at it from different perspectives, separately, and don’t have any kind of shared vision.
The paradigm for the deal becomes about ‘power and control’ — all driven by the need to create efficiencies in order to meet the targets that have been communicated to the City. And so, for the people involved, the mindset becomes not ‘how do we all do things better?’ but quite simply ‘how do I survive?’
People fear for their futures and focus on short term wins. There is no real sense of being part of a new and stronger whole.
Collaboration to make it come alive
In my experience, the key to the most successful deals is collaboration. This means both sides standing in each other’s shoes, seeing the other’s perspective. It means creating an environment where people can innovate, create and get the best out of each other.
Too often when deals happen the focus is simply on cooperation or coordination. But that is quite different from collaboration. Cooperation and coordination are about working with what you’ve already got, making things work operationally. But collaboration is about getting the best from yourselves so that you can increase what you have, reach new levels of output and productivity.
There are some great examples of collaboration and the innovation it can drive. Think of Apple and its network for example.
It’s much harder to do than it sounds. It requires management at every level to be fully bought in and in some cases upskilled to create the environment to allow it to happen.
But if pharmas doing deals can create that forum for collaboration they may just find that, like a great reaction in a petri dish, something remarkable happens in front of them and they can achieve and exceed the goals they were hoping for.