The research reagent sector is growing at a competitive rate of circa 5% year on year. Part of this growth is the commercialisation of great ideas into great businesses. Our industry is experiencing a significant turning point as immunotherapy becomes mainstream or as new and innovative ways of testing become the norm, a case in point is the ever growing recombinant antibody market.
It is therefore no surprise to see companies realising it is time to buy or time to sell. Mergers and Acquisitions are growing at an exceptional rate driven by this market consolidation and by the changing needs of manufacturers and distributors. Manufacturers wanting to vertically integrate into distribution or extend their product range by acquiring other manufacturers. Distributors scaling up both in market and across country or even moving into manufacturing.
There are many reasons behind the decision to buy or the decision to sell, both of a personal and business nature. The critical path however is to ensure these needs are clear and more importantly relevant. So many deals fail because there is not clarity of purpose or because sellers and buyers do not have common objectives or requirements.
There are many ‘potholes’ that companies fall into throughout the process; deal structure, deal funding, integration to name but a few and this highlights the need to follow a process. If the benefits of selling or buying are to be realised, then ensuring you build strong foundations is a must. Therefore, preparation is key:
Pre- sell preparation
Firstly, companies must have a finance plan (short and long term), a strategy plan (5-year horizon) and a business plan (for the trading year) in place as these will provide a top line view of where the company is going and how it’s going to get there. These plans underpin valuations and are often sought as part of due diligence. A feasibility study is undertaken to assess the chances of success and provide indicative company valuations.
Secondly, understanding a company’s attractiveness to potential buyers or sellers is partly driven by the P&L and balance sheet. Companies that are growing both top line and bottom line or with solid foundations attracts high valuations. It does not mean one cannot derive incremental value from less well performing businesses, just that the needs and expectations of buyers or sellers will be different.
Finding prospective buyers or companies or equally companies for sale is not any easy task. For logical reasons making yourself available for sale can impact trading, likewise if it becomes known you’re in the market to buy this can often push up price. It is not uncommon to use third parties to facilitate or help companies navigate this step. The key is to ensure credible and funded buyers are those that can proceed to due diligence.
Pivotal Scientific originally established its M&A practice because of the number of requests for introductions and over time we have built up a significant base of customers who are active in M&A.
A significant contribution to this base has come from the PSL Alliance. Members who have worked closely with Pivotal Scientific.
As a Recommended Distributor CliniSciences approached us with the aim of increasing their geographical distribution range.
Pivotal Scientific were able to make the below acquisitions happen:
Due diligence is the time to really understand in detail the ‘nuts and bolts’ of the company, the opportunity to test assumptions, business cases, customer segments, channels or that the financial submissions are consistent with expectation.
This process can be laborious and very time consuming. It is also the time to ensure what is being presented or reviewed is fact not fiction. The quality of data provided often correlates to the detail warranties buyers need in a sales agreement.
Finishing the deal and company integration
Deal structure and funding typically form the major part of a sales agreement along with warranties and liabilities. Of course deals can be for the shares in a company or its assets. Nevertheless, it is at this stage that it is important to have active involvement from specialist areas including accountants and lawyers.
Integration is often seen as an afterthought yet it will determine how successful an acquisition becomes. In many cases there is vested interest by both the seller and buyer to make this work. To align the processes that the two companies have will be complicated. The gained benefits, such as combined sales force, marketing department and enlarged R&D operations will only be harvested if the integration of the two companies is well managed.
Pivotal Scientific services extend end to end including ‘across deal close’ and implementation though we normally always recommend integration is customer led. Part of our role is to ‘keep the ball rolling’ and chase any outstanding parties on your behalf. Pivotal Scientific would also facilitate ‘Change Management’.
What Stops Mergers & Acquisitions?
Pivotal Scientific believe the primary reason for a merger or acquisition not going ahead is due to a difference in opinion, which in most cases takes form in different expectations of what the company is worth, including different revenue expectation. Due to the time Pivotal Scientific has spent in the field we have built up an a vast range of industry insights and knowledge base which we would use to determine how much your company is worth and provide a realistic forecast of what the company’s revenue could be.
An Example of Pivotal Scientific’s Merger & Acquisition work to date:
- Pivotal Scientific has been involved in M&A since 2011
- We have worked with eight successful acquisitions during that time
- We have links with venture capital, private finance and companies who are all looking for exciting life science acquisitions
- We are currently working on the following projects: