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M&A is now vital to pharma - but it's vital to get it right

M&A

Numbers speak louder than words when it comes to explaining why the concept of mergers and acquisitions (M&A) is newly significant for the pharma industry. The value of deals that took place in just the first half of last year exceeded that for the entirety of 2014, before reaching a record-breaking US$395bn by the end of 2015.

A number of factors have driven this increased activity, including a tougher competitive landscape exerting pressure on margins, increased constraints on market access, reductions in R&D budgets and the unsustainability of the blockbuster model.

This variety of forces driving increased M&A would indicate that 2015 was no anomaly but indicative of things to come. Research suggests the same - a global study of senior executives at life sciences companies conducted at the end of last year by law firm Reed Smith found 94% were planning an acquisition in the next year.

This increase in M&A activity necessitates a commensurate rise in the skills that can enable deals to be successful. A greater number of senior executives will be required to engage with their teams more frequently, to skillfully merge differing company cultures and to prioritise sustainable results over headline-grabbing short-term success.

Such achievements don't come easily - our Barometer on Change 2015 research showed less than a third of UK organisations (29%) undergoing M&A have realised the anticipated benefits of their deals. Senior leaders will need to ensure agility in their operating models so that they can anticipate and respond to challenges ahead.

Crucially, efforts to plan and execute deals and communicate across the organisation must be redoubled if pharma businesses are to increase market share, access new markets and generate additional value for shareholders through the power of M&A.

Plan to succeed
Every aspect of a major deal should be scrutinised from the outset. Even the basics - such as why are we doing this deal? - require significant consideration from all involved. This will allow participants to truly establish whether a proposed merger helps advance long-term strategic aims or is simply an attempt to climb aboard the M&A bandwagon.

Once the hard thinking has been done, it's necessary to gain buy-in from key stakeholders. The volume of work required - from identifying the strategic purpose to creating a clear roadmap for delivery - should be acknowledged, rather than forgotten in the excitement of the deal. This should feed in to a true end-to-end plan, which should extend to the delivery of the deal's anticipated benefits and not end with the operational integration.

Even the best preparation and execution will only achieve so much without clear and honest communication

Plan for execution
Thorough preparatory work plays a key role in the successful execution of deals. For instance, establishing the deal's purpose and expected benefits allows for the creation of guiding principles that can be used to steer the deal in the right direction.

Agility will also be vital, meaning those organisations that are prepared to rapidly embrace new technologies and ways of working - led more by what works than what has been done previously - will be far better positioned when it comes to executing the deal.

Best practice deal execution also involves collating and applying insights gleaned during the process - data about people, perceptions and drivers - to create a smoother integration process once the deal is completed. Done properly, this can also provide a blueprint for future M&A activity.

Plan for people management
Even the best preparation and execution will only achieve so much without clear and honest communication across the organisation, detailing the nature of the deal, how the benefits will be realised and what everyone affected by it can expect.

This means setting an example at the very top, with senior leaders active in motivating and informing teams. This cannot be delegated to a communications department - hands-on involvement from business leaders is vital to demonstrating that employees are truly valued and will be supported throughout the integration process.

That's not to say that strong leadership will only be required at the top - it should exist throughout the organisation. But leaders must also be equipped so that they know what to expect and they are able to communicate effectively.

They say that nature abhors a vacuum and an organisation going through a merger or acquisition should too. The deal process can be an unsettling time for employees throughout the business and communication from management needs to be regular to ensure that employees don't believe external media coverage - which won't necessarily be positive - over what is being communicated internally. People will seek to fill a news void but consistent updates can prevent a void from existing in the first place.

The pace of change in the pharma sector shows little sign of abating. Organisations that pay close attention to the planning, execution, benefits delivery and people aspects of M&A - and that strive to continually learn and improve with each deal - will be one step ahead of the competition.

Article by
Stephen Vinall

is a partner at the business transformation consultancy Moorhouse

10th March 2016

Article by
Stephen Vinall

is a partner at the business transformation consultancy Moorhouse

10th March 2016

From: Sales

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