M&A processes, pitfalls and keys to success

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M&A processes, pitfalls and keys to success
M&A can help revitalize firms but failure to properly integrate the companies can create an inefficient, demoralized business. In this article, Viq Pervaaz, senior vice president at Aon Consulting, takes a look at M&A processes, pitfalls and keys to success.

For various reasons, pharma, biotech, and contract research and manufacturing organizations (CRO/CMO) have been experiencing significant merger and acquisition (M&A) activity and this trend is expected to continue over the next 12 to 18 months.

M&A plans should be tailored to each company but there are some fundamental considerations that must be taken into account for a successful transition and to create and maintain a competitive advantage.

From a basic standpoint, the endeavour can be divided into three elements: strategy, organizational design, and talent.

Strategy

Any deal, however small, will result in a new, different company and consequently a diligent reassessment of strategy is required to shape and direct the post-takeover business.

This thought process must begin before the deal has closed to establish the framework that will be used to guide subsequent decisions about organizational design and talent.

The changing nature of the biopharm industry, which is moving away from heavy R&D and towards more in-licensing and outsourcing, makes developing the right strategy particularly important.

Undertaking this process periodically, particularly in an industry that is experiencing high M&A activity, is important to maintain a competitive advantage even if the company itself is not going through an M&A transaction.

Organizational design

Once the deal is closed and the strategy clearly identified, the process of establishing the new organizational design can progress. This needs to be carefully linked to the new​ corporate strategy so the company has the correct infrastructure needed to execute its plans over the next five years.

For example, an organizational design structure that is heavily focused on R&D may need to be re-evaluated based on a new strategic direction of in-licensing compounds. This would require a shift in organizational considerations from R&D towards disciplines such as alliance management to manage the partner relationships.

Failure to perform these steps properly can cause several problems. In the worst-case scenario, there can be effectively two companies operating under the same umbrella. This creates inefficiencies and can disengage the workforce.

When considering the talent factor, engagement of talent as well as assessment against the required core competencies are both critical towards the success of the organization.

Talent assessment

Once the organizational design is identified with the core competency requirements, the talent assessment process can be addressed. The human capital aspects of any such transaction are critical but often overlooked and can have a tremendous impact on the success of the new organization.

Talent should be evaluated against the specific core competencies required for key roles and not shifted through the organization based on perception, positioning, or even solely based on performance in a previous role with different required core competencies. This can set both the individual as well as the organization up for failure during a critical period.

External expertise is required to perform the talent evaluation because people intimately involved with the company and M&A process may find it difficult to objectively view the transaction and required needs.

In addition, external expertise will provide the added benefit of providing an inter- and intra-industry perspective as well as lessons learned which can enhance the process and in turn the new organization.

Employee engagement

The other key component is managing employees through this process, which can create disillusionment if executed poorly. To ensure employee engagement, a structured and effective communication process must be developed and incorporated into the M&A process to manage internal as well as external stakeholders.

Implementing these measures gives staff ownership of the process which, in turn, boosts morale and increases the likelihood that the company will retain key employees.

Retaining staff and objectively reviewing their talents against the identified core competencies of the required organizational structure matched to corporate strategy, provides an organization a structured and objective process by which to fill key roles.

In summary, an organization that is involved in M&A activity or is part of an industry (e.g. biopharm) that is experiencing significant activity requires that a deliberate, structured, and objective review of key variables such as strategy, organizational design, and talent assessment are conducted to secure a competitive advantage, gain efficiencies, and realize the full potential of the organization.

Viq Pervaaz is senior vice president, corporate transactions at Aon Consulting​.

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