Keeping It Together: Summit Roundtable Examines How Acquiring Companies Integrate Alliance Portfolio
Posted By Jon Lavietes, Friday, September 4, 2020
M&A has been a hot topic recently, which is why a good portion of the 2020 ASAP Global Alliance Summit agenda was dedicated to it. One roundtable discussed broadly what alliance managers need to be aware of if they want to dip their toes in the M&A waters. Another took the conversation to a more granular level. In “Big Pharma M&A Alliance Portfolios,” Adam Kornetsky, consultant for Vantage Partners, moderated a discussion between senior alliance professionals employed by household names in the industry about what to do with alliance portfolios in the run-up to and immediate aftermath of an acquisition, both from the acquirer’s and the acquired company’s perspectives.
Definition of Success: You Know It Don’t Come Easy
Before getting into the specifics, Kornetsky asked the panel to outline what a successful acquisition and integration looks like. Chris Urban, head of alliance and integration management at Amgen, asserted that success is defined differently with each transaction. Sometimes the principal goal is to drive top-line revenues; in other instances it’s for bottom-line savings that result from synergies between the acquirer and acquiree. In some cases, the motivation behind a transaction is to meet a specific safety, regulatory, compliance, or other type of functional requirement.
“It is the most critical thing to define the measures of success and it’s not as easy as it sounds. It may sound easy in the beginning, but you quickly find after the announcement that each of the functions starts to view their own vision of what’s important through their own lens,” he said. He gave the example of a top-line-growth-focused Amgen acquisition in which the company had to stress to the alliance team that “synergies weren’t a part of the deal.”
A more immediate measure of success is the seamless transition of activities to the appropriate business owners by the integration team. Jeff Hurley, CA-AM, global alliance management lead at Takeda, stressed the importance of introducing the alliance portfolio very early on in the acquisition discussions. The more complex the integration, the higher the risk of alliances veering off course. It is important to actively manage partner assets and capabilities so that the value of collaborations is preserved (i.e., they continue to produce intended outcomes) throughout the transition.
“Alliances aren’t necessarily the driver of one of these types of transactions, but they are a key consideration in terms of how well the integration goes,” he said.
Set Goals, Work the Phones, and Tie Up Loose Ends
What sorts of things should alliance managers working in the soon-to-be-acquired company prioritize prior to deal closing? First and foremost, according to Hurley, is to understand the acquiring company’s strategic rationale for the transaction. From there, alliance managers must prepare a wealth of information for incoming senior leadership from the buyer organization. They must provide a 30,000-foot overview of the portfolio and how it might sit within the new organization, as well as a detailed breakdown of the individual partnerships themselves. They should also address enterprise-, function-, and asset-level questions; proactively identify and manage risks specific to the acquisition; and calculate the effort it will take to transition the partnerships through the integration process and beyond.
Mark Coflin, CSAP, vice president and head of global alliance management at Takeda, counseled listeners to provide a two- to three-year outlook for each alliance and specify the goals and expected outcomes at the end of years 1, 2, and 3. In the short term, expect concerned, if not panicked, phone calls and emails from partners wanting to know what is going on. Contact direct alliance counterparts and senior leaders directly—by phone or videoconference rather than email or text, if possible—and communicate all shareable details. Second, tie up important loose ends that don’t require input from the new company.
“Internally, as best you can, think about what the key decisions are—any key, critical, stage-gate decisions that are required—and do your best to try and take care of those decisions, if you can, in advance of the close,” he said.
Cloudy Forecast Around the New Home?
Similarly, the acquiring company has plenty of work to do before close. It must review the contracts for each partnership, especially if a data room is involved, in order to identify antitrust and other legal risks and determine if there is flexibility to make changes to these collaborations if some are desired by the new company, according to Dana Hughes, vice president of integration management and alliance management at Pfizer. The new owner also has to figure out where each partnership fits within its organization, a trickier proposition for a large organization like Pfizer that counts 200 relationships in its portfolio. Will it fall under commercial, business development, regulatory, R&D, or another part of the company?
“Finding that right home is actually part of our deal model because that’s how we know we’re going to be effective in actually rolling out the changes we want to implement to create that full opportunity for patients,” said Hughes, who deals with commercial alliances at Pfizer.
Hughes also added that alliance managers should expect to rely on their experience working in a cloudy environment with scant available information.
“The lack of knowledge is kind of a normal condition for integration,” he warned.
Control what you can control by conducting as much research on the acquired asset’s partnerships and having extensive dialogue with counterpart alliance managers. Wherever possible, name the lead of each alliance team, prep those alliance heads, and build a team around them in advance, so that everyone can hit the ground running when the deal is finalized.
Urban urged acquirers to tier concerns and address high-priority matters first, such as potential conflicts or antitrust considerations that might require firewalling certain parts of the organization from an alliance’s affairs. Second, identify critical upcoming milestones and address them with “hyper care”; treat these matters with urgency and spare them from the lengthy onboarding process. Lastly, the buyer must recognize which of the acquired entity’s partnerships will be resource-intensive and take measures to ensure that these alliances don’t impede existing collaborations.
A Steady Dossier of Information Keeps Things from Going Sideways
Once the acquisition is complete, there is no excuse for failing to maintain continuity.
“Being acquired and closing an acquisition does not mean that everything starts going sideways,” said Coflin.
Coflin advised alliance managers at acquired entities to determine which senior leaders and alliance personnel need to be briefed on partnership affairs in consultation with the new parent company. Prepare a package on all alliances in the portfolio and rate them on a high-medium-low risk scale based on the number of critical decisions that need to be made and the financial stakes of the collaboration.
Again, focus on immediate priorities and make upcoming decisions. Hurley exhorted alliance pros to do whatever is necessary to make immediate deliverables, and associated action items, visible to relevant executives from the company taking over. He also seconded the comprehensive dossier on each alliance espoused by Coflin.
“It’s more than just an onboarding document. ‘Here’s all the key information that you need to know in order to step into this right away,’” he said.
Special Handling: The Hyper-Care 20 Percent
Hurley added that an internal and external communications strategy should be a primary focus. In particular, someone has to determine who is going to say what to the partner and when.
Coflin said that there are limits to what can be shared with partners before the deal is consummated. However, alliance leads had better be ready to answer immediate postdeal questions.
“This is the way it was. What has changed? What can you expect over the first 90 to 100 days as a typical period of time? How are we going to move through things, say, 100 days into the future?” he said.
From the acquirer’s perspective, Urban suggested that the Pareto principle normally applies in most acquisitions—80 percent “falls very, very naturally into the engine you have built.” The other 20 percent calls for delicate handling. Urban gave a number of examples. A company founder who personally managed an alliance with Amgen’s acquired asset was granted more senior-leadership access than might otherwise have been considered appropriate. The aforementioned partnerships with critical milestones on the horizon and alliances that present antitrust concerns also fall into this fifth of the portfolio requiring “hyper care.” Urban strongly advised stakeholders to overcommunicate plans for these collaborations to incumbent partners because “the partnerships they have with the company we may be acquiring [could be] existential for them.”
But First: Do No Harm
Hughes touched on the human and practical elements of integrating acquired assets postdeal.
“It might be as simple as something like, ‘First, do no harm,’” he said.
Wherever possible, protect ongoing operations and keep disruptions to existing processes to a minimum, to the extent that is possible. Understand how relationships work within individual alliances before making changes, and be transparent about why a decision was made to radically restructure an alliance. Clarity around goals and a carefully crafted process around replacing existing personnel are paramount. Some HR and retention issues are unavoidable.
“We had a habit of making sure things run just as it is for a while so we can observe and learn before we start replacing the individuals who might be involved,” said Hughes, before adding that you always have to be respectful of the new colleagues and the relationships—and trust—that they have built with the partners throughout the process. “[Retention issues] are always present when it comes to an integration situation, both before close when people start bailing out or after close or after their lockup has ended a couple of months later.”
The panelists shared more great wisdom, including an invaluable framework for merging portfolios during the first two months following an acquisition, throughout the roundtable. Summit registrants were able to view the roundtable and hear each expert’s parting thoughts, and discover the comparison Urban was making when he invoked the famous Mike Tyson quote, “Everyone has a plan until they get punched.” (And in case you missed it, for even more on M&A alliance integration check out our article “A Process, Not an Afterthought,” in the Q2 2020 Strategic Alliance Quarterly.)