- Factor 3: There is an ongoing innovation renaissance in the life sciences sector, including advances in cell and gene therapies, mRNA, digital technologies and data analytics. This offers companies potential access to products that can secure their future growth.
- Factor 4: Following the market corrections of 2021-22, the valuation drop in the sector will increase the incentives to acquire, as a “buyer’s market” takes shape.
- Factor 5: Smaller life sciences companies also have reduced access to public markets as IPO and SPAC funding becomes more challenging, narrowing the options for smaller companies. The need for financing will drive smaller companies toward M&A.
Moreover, life sciences companies may face competition from acquirers from outside the sector, and risk missing growth opportunities if they fail to make a move. For example, private equity funds have Firepower to deploy, and analysts have suggested that PE may increasingly take over from traditional life sciences companies in funding drug development and other areas of R&D.
How to make dealmaking work
It is imperative that companies give serious strategic thought to how to identify and execute the most effective M&A moves possible. We see three main areas where companies can seek to gain the maximum value from deals:
- Attempt to de-risk deals as far as possible
- Analyze what kinds of deals have worked successfully in the past
- Have good processes in place to integrate new acquisitions
Successful M&A depends not only on completing the deal efficiently and cost-effectively, but on having the right teams and processes in place to achieve rapid and effective integration of the companies and teams being brought together. In general, companies should follow this five-point plan for M&A success:
- Clearly identify and define the value drivers and guiding principles of the deal to ensure alignment throughout the process.
- Establish an end-to-end plan to guide the company through each phase of the M&A process, with governance and integration leaders and teams to take responsibility for each stage of the process.
- Focus upfront on successful cultural collaboration between the companies and finding the right level of integration versus independence: some acquisitions may suit full integration, others will add more value if they preserve their own research culture as far as possible.
- Make optimal use of tools and technology to manage timelines, monitor work streams, and identify and deliver synergy value.
- Focus on change management and communication to achieve buy-in to a common purpose and vision, help align the broader organizations and reduce the risk of workforce uncertainty and demotivation.
The life sciences industry has got the resources, the incentives and the opportunities to lean into making major, transformation M&A moves again in 2023. But companies must not lose sight of the fact that finding and acquiring the right target is only the first step — the process of M&A must be optimized end-to-end if it is to deliver the long-term results companies are seeking.