When David Acquires Goliath
In a merger gamble made steeper by the credit crunch, a biotech powerhouse emergesDOWNLOAD
David, the buyer, was riding an excellent string of consecutive quarters of growth, coming off an earlier wave of failed acquisitions and contemplating a life-event transaction. Goliath, the target, was a good operational fit with a depressed share price – but was far larger. Deloitte provided strategic, technical and cultural services and guidance to David in support of their efforts to acquire Goliath. We helped them integrate the multi-billion-dollar company and give birth to a global biotech company that is outperforming analysts’ expectations.
Combining a company with one of their suppliers would ordinarily constitute a natural move toward vertical integration. However, this life event transcended the normal risks of effective acquisitions. The global footprint and large workforce of the combined entity made this a very large deal while the target’s operational complexities and market position presented unique challenges. Investors and industry analysts alike viewed this transaction with skepticism. Making this transaction successful would require rigorous strategic planning and execution along multiple dimensions including strategy, people, processes, communications and technology spanning the globe.
In parallel, making the deal accretive would require almost $200 million in annual cost and revenue synergies, more than a third of which were expected in year one. This imperative ran squarely into the turbulent economic environment, which complicated the task of debt financing and ultimately deal feasibility. The buyer was no stranger to M&A, but this acquisition pushed it into uncharted territory.
Deloitte approached this challenge with a wealth of industry knowledge and transactional experience that carried from strategy through to technical and cultural aspects, and was a requisite part of the formula to help the buyer in its efforts to find value, feel confident and ultimately proceed with the deal. Tactically, this required taking cost and revenue analysis to a level far deeper than the company had done previously – not just conducting the value analysis, but also spelling out how to make it happen. In addition, Deloitte helped them identify areas of risk, outline strategies for mitigation and structure communications to provide a clear path to the intended outcome. This provided company leaders the confidence that they could recapture the multi-billion dollar debt while weathering a potential shareholder revolt.
Over more than a year, our team advised and supported pre-deal due diligence and pre- and post-close integration activities for U.S. and international locations, and helped the buyer in their efforts to achieve integration performance that exceeded stakeholder expectations. Our methods and our practitioners’ focus included support to these key activities:
The company successfully navigated the most challenging event in its history. The combined entity emerged with almost no disruption, galvanized joint innovation to capitalize on market demand and consistently beat expectations. Continued strong financial returns have brought favor from market analysts and shareholders, a degree of confidence that is manifest in the company’s stock price.
Perhaps even more important, the combined company is now seen as a world-class acquirer with deep integration competency. As an acquirer of choice, it has greater access to capital and new avenues for growth.
Through this complex and difficult deal, the company has remained focused on the expectations of various stakeholders and has created the foundation for a high performance culture. It has maintained a brand strategy for its products, minimized disruptions for its customers and successfully retained key employees. First-year cost and revenue synergies are nearly double the initial target, and shareholders and Wall Street have expressed confidence in the trajectory of the company.