M&A In the Research Reagents Market
The market in research reagents and diagnostics has been very active in the latter part of 2018 and early 2019 with a large number of M&A transactions undertaken. Most of these appear to have been by private equity expanding their platform approach either in specific product groups or across geographies.
Trade sales however remain stable especially where sellers and buyers are realistic about price and terms.
The ongoing debate is the business rationale:
There are many reasons to buy rather than build especially true when the business being acquired provides a better guarantee of success than attempting to build it organically. This is especially true when businesses are considering selling across markets (countries) where there is often a difference in the sales process, difference in the ways of doing business and difference in language and culture. The rationale of a geographic acquisition remains highly compelling and our learnings to date strongly suggest this is a highly effective route to growing.
Buying companies, because of sellers unique or hard to replicate technology is also well established but much more challenging when the technology being acquired is untested and not fully commercial. This space remains heavily invested in by venture capital businesses and success is not always a function of a great idea. Our industry, which is at the cutting edge of developing new products, new ways of testing or new ideas on improving outcomes for clinical deployments is notoriously ‘conservative’ when it comes to change, be it the raw materials that we use to make products or the process we use to test. Just look at the ongoing lifespan of ELISA. However, when new products and services start to succeed in terms of sales, the rewards are often so much higher. The conclusion is buying technology is a risk, but when it works the returns are always significant.
Buying in capability, is we believe, the most underestimated asset and opportunity. We define capability as the ability to commercialise products and services through effective and efficient marketing and systematic sales activity. It is increasingly common for deals that come with a fully working commercial team being executed so much more quickly than those without. Recruiting in some folks is not the same thing. Commercialisation is not just about talent but about execution. This is becoming one of the most visible trends in M&A, a good idea is attractive but a good idea and proof of success is the single biggest driver of ‘value’.
Pivotal Scientific has undertaken 4 transactions in 2019 and there are some common traits that apply to all deals:
- A seller strategy that aligns to a buyer aspiration – most buyers seek going concerns and the “lift and shift” principle is crucial if value is to be retained post sale
- Customers and suppliers have documented relationships – Too many cases have shown the churning of customer after a company has been sold and this is an increased risk for buyers and needs to be recognised
- The good, bad and ugly is visible to all – We regularly advise to be open and transparent and no company is perfect. No buyer expects everything to be 100% right but knowing what is 90% or 80% helps them build a plan to fix going forward.
At PSL we believe our value is not only in managing clients through the M&A process but being open and honest on how to navigate this complex process. There is nothing more rewarding that the seller selling at the price they hoped for in a transaction they are happy with. This normally works when the buyer feels the same way.
Pivotal Scientific is a marketing and M&A consultancy and supports customers across the lifecycle from setting up a commercial activity, expanding it and helping them sell when it’s time to move on. We focus our efforts in M&A on being ‘fit for sale’. This includes feasibility , exit strategies, the actual process of selling and integration.
Written by Stevan Hoyle – M&A and Strategy