Acquisitions & Licensing

Transcription

1 Acquisitions & Licensing Key points to help ensure your woundcare deal is among the 40% which succeed, not the 60% which don t deliver. Author: Michael McNally, Andrew Adams

2 Introduction/Background M&A and other corporate partnering initiatives represent outstanding pathways for companies to drive growth and accelerate or augment their strategic business plan. However, M&A, Licensing (in and out) and other external collaborations are not without challenges. Historical performance suggest that less than half of all deals are successful, meaning that they have yielded the benefits and value creation as originally projected in the business case supporting the deal. More often than not results are disappointing in that the anticipated level of revenue or cost synergies are not achieved or integration may be more time consuming or costly than planned. Successful M&A and other partnering initiatives require rigorous planning, appropriate resourcing and organizational focus. Additionally, whether looking to buy, sell or out-license, the overall process of target/partner identification, assessment, due diligence and negotiation of a successful transaction often takes nine to twelve months and must be done with discipline and patience. Most growth companies and those with emerging technologies have utilized M&A/Licensing as an integral facet of their long term strategies. In the Wound Care space, there are larger global players who are constantly looking to acquire or license both technologies and smaller companies with novel, differentiated products and/or unique capabilities. In addition, there are literally hundreds of small wound care companies, many of whom will be looking to partner to achieve their development and commercialization goals. Wound Care has experienced, and will likely continue to have, a very high level of deal activity. The recent trend of consolidation among the larger players is anticipated to continue and the number of smaller companies who will be looking for investment and commercialization partners remains sizeable. Finding companies looking to partner (buy or sell) is easy; finding the appropriate partner to meet each business needs and objectives is not. Keys to Successful M&A Licensing Performance: 1. Strategic goals/objectives well defined, with alignment between management, the Board of Directors and investors 2. Strong leadership and excellent communication 3. Constant focus on the value drivers of the deal and the identified key risk areas Inparticular - the value of the technology to the Licensee s/acquirer s end (clinical) customers 4. M&A/Licensing processes are well documented and institutionalized 5. Rigorous analysis, planning and execution 6. Appropriate resources, both internal and or external, in place throughout the process

3 Process Overview Corporate Development M&A / Licensing Strategy Target ID & Assessment Due Diligence Negotiation & Transaction Execution Integration Corporate Development: M&A/Licensing (In & Out) Strategy Once a company s overall long term strategic business plan is in place, a corporate development or M&A/Licensing strategy can then be developed which provides a roadmap for external development efforts. The M&A/Licensing strategy will guide the decisions on which initiatives are pursued organically versus externally and provide a framework for evaluating candidates. Should a short to medium term exit be envisaged by a company, the planning for this eventual exit or out-licensing must be incorporated into the company s business plan. Specific goals and objectives for the planned exit should be well articulated: How do I create value or solve a problem for my targeted Licensees/ acquirers through their acquisition of my technology or business? For example: New or expanded market segments to compete in? Incremental market share desired? New technologies or products? What competitive advantage to my Licensee s customers will this acquisition offer? Leveraging company s current infrastructure? New and/or expanded geographic presence? New competencies or capabilities, especially for commercialization (salesforce, distribution)? Pre-empt the competition? Diversify risk of the current business? Should investment be required to pursue the M&A/Out-Licensing strategy, the investment level and where the funding will be generated from should also be incorporated early in the planning. Formal review and approval of this strategy will allow for alignment among the company s management team, its Board of Directors and investors. Target Identification & Assessment A well-defined strategy allows for the translation of external development needs into agreed target criteria and a prioritized list of target opportunities, whether potential acquirers/licensees or acquisition candidates. The hit rate of completing a transaction on any specific target is normally low; up to viable potential partners may need to be identified in order to consummate one transaction. A realistic pipeline of target opportunities is needed, with a clear process and criteria in place to assess and prioritize them. Assessments by Out-Licensors of market segments and of the competitiveness of their technologies/businesses should be from the acquirer s perspective. The market segment(s) in which the technology/business is positioned (e.g. NPWT, anti-microbials) should be analyzed in detail relative to the target partner s strategy and market position. Macro analyses of the market and of customers expectations are not sufficient.

4 Due Diligence The detailed review and assessment of the opportunity may often seem overwhelming due to the sheer volume of information requested about the company and their respective industry or market segment. A seller or licensor must be prepared to conduct Due Diligence on the intended Licensee as well as be prepared for the due diligence demands regarding themselves which will be required by the Licensee. It is critical that during due diligence focus be placed on the primary drivers of value being created and the key areas of risk which have been identified. The following key value drivers are often missed in due diligence by the Licensee and therefore should be well articulated by the Out-Licensor seeking to commercialize their technology through licensing: The competitive advantage of the product in-vivo to the clinicians actually using it The relevance of the product s benefits to clinicians and patients in their usual working environment The fit of the product to the wound care protocols and organizations of the Licensee s territories The reimbursability of the product if it is to be used in a community care setting The cost and ease of manufacture - what economies of production and of scale does the product offer the Licensee? The level of due diligence will be a function of the type, size and complexity of the company or technology being sold or licensed. Having the appropriate resources in place to execute the due diligence, especially in the areas of commercialization, finance/accounting, tax and legal/compliance is imperative. Comprehensive due diligence checklists are commonly available. These checklists may be tailored to fit the specific transaction contemplated. Negotiation / Transaction Execution Deal structures can be quite varied and need to fit or reflect the type and size of transaction. Strong legal support is critical during deal structure discussions, contractual negotiations and valuation decisions. Successful negotiations are normally achieved when both the structure and valuation (deal price) are viewed as reasonably fair by both parties. Unrealistic expectations regarding revenue projections and the corresponding proposed price of the deal are areas that are often the most contentious and can lead to challenging negotiations. Start-up companies need to be extremely realistic about the potential market penetration of their technologies, the fit of their technologies within the acquirers strategies and organizations and the investment required and timing to achieve that potential market share. Caution must be exercised on both sides in falling too much in love with a potential transaction. If the price, deal structure, value creation and risk profile are all not acceptable to you it is better to walk away. Some of the best decisions made in M&A/ Licensing are to not move forward with the transaction under consideration.

5 Integration Integration is likely the most important and challenging of all the steps in the process. Extracting the appropriate value from a transaction requires early and rigorous planning, laser focus on the value drivers, appropriate resourcing of the integration team and strong active support/alignment with management. Successful integration is critical in delivering the projected value, the timely attainment of anticipated synergies - both revenues and costs, and risk mitigation. Underestimating the cost and time to hit key milestones and achieve synergies is a common mistake on many deals. Ideally, a dedicated integration lead, along with key functional representatives from both parties, should be assigned. Integration planning should commence well in advance of executing the transaction. Out - Licensing: Further Considerations This pathway is often chosen by emerging or smaller companies who are in the pre-commercialization stage and do not have the infrastructure or investment for sales force/distribution. Advantages to out-licensing may include acceleration of product development and launch timelines, enhanced geographic expansion, leveraging of Licensee s capabilities and reducing the Licensor s investment and risk while retaining a good share of the profitability. Obviously, it is critical to partner with a Licensee who has the right capabilities, financial capacity and strategic focus going forward supporting the licensed asset. Successful out-licensing may also take 6-12 months to accomplish If a commercialization partner will be needed, exploration of potential candidates should be initiated well in advance of targeted launch dates. Key Deal Terms Topics: Short vs. Long - term agreement and corresponding mix of upfront payments and royalties Exclusive vs. non-exclusive rights Field of use and geographic territory Rights to future enhancements to the asset (technology) Ability by the Licensee to sublicense Share rewards/risks through a combination of milestone and royalty payments Joint-Ventures, Strategic Alliances and Distribution Agreements are other strategic alternatives to out-licensing which provide many of the same benefits of investment/ risk sharing, leveraging each partner s capabilities and speed to (or accelerated penetration of) the market. Divestiture is another option which may provide for the monetization of assets or businesses which are non-strategic or may be more valuable under ownership with another company. Summary M&A, licensing (in and out) and other external collaborations represent key strategies which can be utilized to accelerate and augment a company s overall business plan and provide superior shareholder value. The benefits in terms of revenue growth, cost and infrastructure leveraging and risk sharing can be tremendous. However, transactions often do not yield their projected value for a variety of reasons. A well planned strategy, developed early in the business life cycle and combined with a disciplined business

6 development process through integration and robust resource management will help to ensure the successful implementation of external development initiatives. Coming to an objective assessment of the technology or business is obviously essential, both for acquirer and seller, but too often, rigorous due diligence on the acceptability of a product to wound care clinicians and reimbursement authorities is replaced by macro analyses of the market, a reliance on the science of the technology and the momentum of the deal. We have an international team of highly experienced individuals with the expertise to provide your company with support and guidance throughout an external development or partnering process, from strategy formulation and target identification through to transaction execution and integration. No matter how early or late in the stage of your thinking on business development, contact us for an initial discussion on how we can add value to your ultimate deal. Wound Management Consulting provides objective and comprehensive analyses of the competitiveness of technologies and businesses through original customized market research, Licensee profiling and marketing and clinical due diligence. WMC COMPETENCIES Clinical Evidence Services Delivering the clinical evidence for your technologies. Market Development Improving the success rate of selecting and entering new markets, both clinical and geographical. Designing clinical programmes relevant to your objectives, accessible to your sales and marketing and credible to your customers and exit partners. Project managing clinical studies and publication programmes. Our local presence delivers fast direct contact with commercial and clinical partners and realistic assessments of market opportunities. Business Development Creating strong cases for investment. Identifying exit strategies and partners. Conducting commercial due diligence.

7 WOUND MARKET CONSULTING Acquisitions & Licensing Michael McNally, MBA Mike McNally has more than 30 years experience providing leadership in Business Development (Mergers & Acquisitions, Licensing, Divestitures), Operational Finance and Strategic Planning in the global medical device industry, with focus on wound care, ostomy and continence care. He has an extensive and highly successful track record in all phases of corporate deal making including framing strategic direction, opportunity identification and screening, financial modeling and valuation, due diligence, deal structure and negotiations, and integration planning and execution. His previous roles included VP, Business Development at ConvaTec and a number of financial leadership positions at ConvaTec, Bristol-Myers Squibb and Unisys. Mike holds an undergraduate degree in Mathematical Economics from Colgate University and an MBA from Seton Hall University.

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