Is your growth strategy a big deal?

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Whether M&A contributes to shareholder value creation has been an ongoing debate for decades. EY conducted research based on 278 life sciences transactions that closed between 2010 and 2017 to further evaluate this question. We investigated how transaction type (transformative, bolt-on or geographic expansion) affected total shareholder return (TSR) over several time frames. Our findings suggest that bolt-ons were the winner in getting to incremental value faster — impressively so.


The analysis started with a universe of 278 transactions in the life sciences space of more than US$1b in value that closed during the period of 2010 to 2017. We excluded deals that were done by financial buyers, affected less than 10k employees and sized less than US$4b. These criteria lowered the number of deals to 58. We then categorized these deals into three types: transformative, bolt-on and geographic expansion, and calculated total comparative shareholder value generation over one, three and five years post-close, normalized by the year of close.

EY - Choose your deal strategy wisely

Key learnings

  • Three-year TSR is a better measure of success for M&A as compared with one- or five-year TSR.
  • Avoid acquiring old growth businesses whose best days are over – if the top-line growth is weaker, bottom-line growth from cost cutting won’t deliver better TSR.
  • Good M&A may not fix underlying business model challenges.
  • Geographic expansion forays are inherently risky with operational levers that are difficult to control – too many moving parts often lead to too many missed investor expectations.
  • The most recent Life Sciences Capital Confidence Barometer reports that 18% of executives say moving into new geographies is a strategic driver for M&A showing the continued interest in geographic expansion to generate value.


  • Overall, life sciences companies engaged in any type of transaction in the period of 2010–17 had similar or higher returns than the S&P 500 in one-, three- and five year post-deal intervals.
  • Companies that executed a bolt-on transaction benefited from a higher total shareholder return when compared with other deal types.
  • Transformative transactions delivered value; however, it took longer — typically three to five years — to achieve results comparable to bolt-on transactions.
  • Geographic expansions, such as a large multinational life sciences company acquiring a local company in an emerging market, demonstrated some returns but not at the rates observed with bolt-ons or transformative transactions.
  • There were 21 bolt-on transactions that demonstrated meaningful value generation when compared with transformative deals and geographic expansions when measured 3 years post-close.
  • Bolt-on deals, despite the risks of patent expirations, negative clinical outcomes of a pipeline asset and unfavorable reimbursement decisions, showed a slight edge compared with transformative deals over a five-year period.

Choose your deal strategy wisely
In closing, observations from 58 transactions suggest that the C-suite and corporate M&A professionals should pursue sustained and disciplined transaction value generation. This is true for bolt ons, transformative deals and geographic extensions.

While bolt-ons can be compared to a powerful sprint with immediate, predictable shareholder value returns, those time-intensive transformative deals are more like marathons that require stamina and persistence. And geographic expansions should factor in culture and geopolitical risk for successful value creation over the very long term.

Word to the wise: No matter which of the three deal types you pursue, build in sufficient bandwidth of executive leadership, focus on the value drivers — and maintain discipline, after the transaction closes.


Transformative: these acquisitions are large, affecting more than 50% of either company's market capitalization or greater than US$10b in deal size, and strategically meaningful to “transform” the company into something different. They provide the opportunity to enter new markets, transform the way the company operates and have a cross-border component. They involve multiple business units and therapeutic areas, and they tackle complex issues with HR, IT, supply chain, finance and tax, among many others. Synergies are a meaningful portion of the value generating hypothesis including cost and revenue components.

Bolt-on: this is a small- to medium-size acquisition and most likely less than 25% of the buyer’s market capitalization in a new high-growth area, or an area adjacent to the core. It offers a means of diversifying while leveraging part of the same platform, infrastructure or skill set. It also helps expand a market offering, including beyond the pill solutions and platforms of care, while primarily focusing on revenue synergies.

Geographic expansion: this encompasses a collaboration, joint venture, direct investment or acquisition in another life sciences target in a different geography — not to be confused with cross-border transactions that are part of a larger transformative transaction.