Key Elements for Success in Pharma M&A Integration

Michael Abrams

In some industries, mergers and acquisitions (M&A) are relatively infrequent, single events. Not so in the pharmaceutical world, however. The relationship between Big Pharma and the smaller companies that populate the pharma ecosystem is synergistic. With the pace of technological development increasing and the need for new products a constant driver of investment, M&A in the sector is a routine and essential part of the business.

Smaller pharma companies have an outsized impact on drug development, reportedly accounting for 63% of all new prescription drug approvals over the past five years. These nimbler companies bring and shape the seminal concept and conduct early-stage R&D, but lack the resources to take their products further in the drug development/regulatory process. Typically, these organizations partner with Big Pharma companies that benefit from de-risked technologies, and which have the deep pockets and global presence to effectively market the end product.

Still, many ventures are unsuccessful, and a lot of money, resources, and potential health benefits are on the line. It’s critical that buyers take a disciplined approach to M&A integration that sets the stage for maximizing the value of every acquisition.

Ahead, we will discuss the key elements of successful M&As.

Vision

For a deal to be done well, buyers need to understand the value of the asset in question and have a broad vision of how the asset integrates into their operation. Once the transaction is completed, buyers must build out the larger, market-based vision of why they are making the purchase, how the new operation will fit into the current organization, and what that will mean for other parts of the business. This vision should include not only the financial or operational benefits, but also how the acquisition will strategically position the company in the market, enhance its product portfolio, and address unmet customer needs.

Communication

Once senior management has aligned on what the vision is, they need to put to paper the elements of their plan for integration by communicating both the vision and the plan to the organization in a way that creates excitement and enthusiasm. What’s critical here is building a value narrative and having key leaders talk about the acquisition transparently—a subject that, up to the signing of the deal, was off-limits. Targeted communications to different levels of the organization can help ensure everyone is on the same page. Clear communication should also extend to external stakeholders, including customers, partners, investors, and regulators, who may need reassurance about the cost and value of the acquisition.

Identifying best-in-class leadership and process

Along with articulating and disseminating the narrative behind the acquisition and the plan for bringing that vision to life, a key element for success involves identifying best-in-class individuals and processes that were part of the acquired organization. While most acquiring companies make an effort to identify people in the acquired organization that are key to realizing the new asset’s potential, it’s rare that a determined effort to identify individuals who really are standouts in their area of responsibility takes place—and it’s even more unusual for acquirers to evaluate key processes evolved by the acquired organization. Too often, the assumption is made that “big is better,” which short circuits any idea of finding individuals and practices that could offer competitive advantage. But if maximum value is to be realized from an acquisition, this step should be part of your plan.

Making changes in structure and reporting relationships

In bringing together two separate companies, M&A usually results in a changed organizational structure. This can involve merging departments, eliminating redundancies, moving teams and restructuring manager/employee relationships. Leadership must decide how value and efficiency can be maximized. Here, too, forthright communication is key. This helps avoid confusion, maintains productivity, and ensures everyone knows who they report to, who their new team consists of, and how decisions will be made moving forward.

Adjusting processes and ways of working

Aligning the processes and ways of working between the two companies is essential to minimize friction in operations. This involves assessing existing workflows, identifying overlaps or inefficiencies, and establishing new processes that incorporate the strengths of both organizations. Teams may need to adopt new methods of decision-making, internal processing, collaboration methods, or project management approaches. This often includes integrating technical systems, such as internal communication tools, tracking software, data platforms, etc. Ongoing communication and support strategies that reinforce new procedures help make these changes stick.

Reinforcing new cultural norms

Cultural alignment is an essential and challenging part of M&A. Merging companies often have different approaches to communication, decision-making, process, and a myriad of other things. Leaders must articulate the desired culture, model it themselves, and put in place mechanisms that integrate the new culture at all levels. This might involve taking the best of what worked at both companies to create something new or transitioning the new acquisition into the culture of the purchasing company.

Size matters

The size of an acquisition often determines how challenging its integration will be and what strategies a company should employ. A smaller acquisition might be absorbed easily, without significant restructuring. A larger deal, on the other hand, may require months of careful planning and significant changes to processes, protocols, and organizational structures. Larger acquisitions tend to involve more people, making alignment across teams more of a challenge and maintaining consistent communication even more critical to success. Whatever the size of an M&A deal, having a clear strategy and staying flexible in execution are key to ensuring long-term value and a smooth transition.

M&As are essential components of the pharmaceutical market. Long-term success as a business in this sector often means effectively navigating these changes. Successful M&A operations depend on strong leadership, disciplined planning, and clear communication. By aligning vision, culture, and processes across both organizations, companies can maximize their acquisitions, bringing value to company personnel, shareholders, and ultimately, customers.

About the Author

Michael Abrams is a managing partner at Numerof & Associates.