Pharmaceutical M&A Like Gambling in Vegas

To be honest, a company’s odds might improve if it gambled in Las Vegas with the billions intended for merger and acquisition (M&A) and joint-venture (JV).

Despite unprecedented levels of planning and work, many M&A deals deliver mediocre results at best – or end as absolute failures. The record is slightly better for joint-venture JV agreements – more of these deliver at least some value over time. But far too often, these deals fail to capture the exceptional impact that comes from a true partnership, with too many JV deals breaking up in an ugly “divorce” full of recriminations, lawsuits and negative financial impact.

What can the leaders of those functions with a unique role and special “line of sight” across the company – groups like Compliance, Audit, Regulatory Affairs and Finance – do to insure a high and rapid Return on Investment (ROI) from M&A and JVs? The answer is “quite a lot”:

1. Leaders should use their unique position to keep the company’s “eyes” on the strategic prize: The transformation of their company’s future is the reason for the merger, not the integration of two organizations, or the management of a JV agreement.

2. Leaders should be sure to make their group a model for driving the success of these activities much more effectively. Creating exceptional high-performance and impact at all levels of the organization – and setting the standard for team work, cultural “fit” and success – will inspire and inform other parts of the company that need to do the same.

3. Leaders need to make major events into learning opportunities for the organization about “what it takes” to be successful. Too many companies repeat the same mistakes in deal after deal – with predictably poor results. Leaders should use their positions to ensure the regular assessment of strategic learning and the application of those learnings across the company in ways that drive an even stronger outcome “the next time”.

More on these three areas follows:

Keeping the company’s eyes on the transformational prize:
Functions like Compliance, Audit, Regulatory Affairs and Finance have always had a unique “horizontal” perspective – they see the breadth of a company’s activities in ways that come less naturally to many divisionally or regionally-focused leaders. They also often have stewardship for important aspects of the company’s strategic success that cut across the organization – areas such as: risk profile, balance sheet and capital management, regulatory compliance and quality assurance, and much more.

With this as background, perhaps the most important role a leader in one of these groups can play is to focus attention during all stages of the merger or of the JV on the strategic goal of the transformation of the company. The reason for these major investments is (or should be) to “turbo-charge” the organization – creating a more competitive, capable and successful company than could have been possible without this event.

From experience across dozens of mergers and JVs, unfortunately, many companies lose the “forest for the trees” once the deal is done. Amid the massive effort to deliver on the integration of a merger or the complexities of a JV, the focus of company leadership can shift to reviewing progress against a giant GANT chart of activities instead of toward the transformational objectives – for example to strengthen the company’s position in a key therapeutic area or geography.

In addition, without an “honest broker” keeping company leadership focused on the achievement of transformational objectives, it is easy to end up focusing on the wrong definition of success. For example, one pharmaceutical company audited its prior 30 acquisitions – all of which had originally been judged a “success” against a battery of internal metrics. But when the audit compared them against the company’s strategic and financial objectives, many of the 30 moved out of the “successful” category. As a result, the company was able to make significant shifts in its approach to integrating acquisitions as well as injecting much more realism into its internal assessments.

Make the group a model of success:
Driving real success in transforming the company requires leaders to take a much more active role as champions of value achievement. They must both demand progress on key strategic, commercial and operational goals – while facilitating the learning and adaptation required to realize them – throughout the integration. And they must support the development of a new culture, one that involves people working differently and breaking down previous silos, so the transformation can take place rapidly. Clarity about expectations, and steadfast commitment to their realization, will help to create the conditions where people learn how to collaborate to drive the transformation.

Central to such efforts is the use of focused, rapid action initiatives that spearhead the realization of intended benefits through cross-silo collaboration. At the heart of this approach is a focus on driving for significant results in rapid-paced waves of 100 days or less – better known as a Rapid Results Approach. More than 50 years of experience has shown this is the way companies break through long standing barriers to change and create exceptional levels of performance.

For example, J&J’s Regulatory Quality & Assurance group started its integration of two very different R&D Quality organizations by setting an aggressive goal to create common global processes for three core activities in 100 days. Previously, up to five different processes existed for each core activity across the two groups. These three Rapid Results teams had stretch goals to remove 25 percent or more of the effort from the processes, with all staff trained and working in the new way in all locations within the same 100 days. These efforts were not only highly successful; they ignited unprecedented levels of teamwork, excitement and innovation across the group. The success of this effort drove the further rapid transformation of all aspects of this organizations within just a few months – and served as a very visible demonstration to the rest of the company “how to” make the most of such challenging mergers.

Focus the broader organization on learning from these efforts:
JVs and M&A deals are becoming regular events in the lives of pharmaceutical companies. But far too often companies get so busy shaping these deals – and executing them – that they fail to learn from all the hard work and hard-work insights. Yet to paraphrase that famous quote by Spanish writer and philosopher George Santayana, “those who fail to learn from major deals are doomed to make the same mistakes on the next deal”.

Groups like Compliance, Audit, Regulatory Affairs and Finance are ideally positioned in their companies not only to capture the learning from these deals, but to make sure those teachings are embedded into the governance, management processes, and procedures of the organization “for the next time”. For example one company had a remarkably unprofitable track record from JVs – past deals tended to be driven by a desire to boost revenues and were based on overly optimistic targets for units sold, with the result that profits, to quote the previous Finance Director, were usually “negative profits”.

Under the impetus of a new Finance leader, the Finance team rolled up its collective sleeves to work with JV deal makers not only to review the lessons of prior deals but to ensure that the pricing and profitability of the next deal was done with those lessons learned built into the process. They continued to fine-tune the process through subsequent JVs so these became much more predictable – and successful – parts of the company’s strategic growth agenda.

Make no mistake about it – JVs and M&A deals are high risk efforts for any company. That stands to reason since these are also opportunities for delivering a high return. Using unique vantage point in the company to ensure these are driven as transformational efforts all along the way; driving a group to be models for exceptional success; and embedding the learning from these experiences into a company are three crucial – and do-able – ways leaders can lead the charge to make these all important efforts much more successful.

What have been your experiences leading the success of JVs and M&A deals? Share your stories of learning and impact.