Pain Relief for Healthcare M&A

A successful merger or acquisition requires the right strategy. We've been there.

First in a two-part series.

According to a study by the Harvard Business Review, 70 to 90 percent of mergers and acquisitions fail.

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There are practical, tactical strategies that can decisively impact the final outcome of an acquisition.

It’s a disconcertingly high rate – particularly when you consider that the cause cited for most failures wasn’t technological, financial or product-related. It was due to the process of the integration itself.

The success or failure of an acquisition lies in the nuts and bolts of integration. To foresee how integration will play out, we must be able to describe exactly what we are buying. [1]

As we’ve seen time and again, when a company is immersed in the realities of a large-scale restructuring, the mechanics of the integration and the integrity of the supply chain are seldom primary considerations. More often than not, they’re viewed as inevitable fall-outs of the restructuring.

It’s a phenomenon we see every day. Our core business involves helping companies manage change, so we’ve been through a wide range of mergers, acquisitions and divestitures – in healthcare and non-healthcare sectors alike. And as a global company ourselves, UPS acquired six companies in Europe in the last three years. So we appreciate the perils and pitfalls of the journey.

For companies in the healthcare sector, that process can be particularly fraught – given the nature of the products, the complexity of the supply chains and the stringent regulations involved.

Fortunately, there are practical, tactical strategies that can decisively impact the final outcome.

What’s more, in our experience, a major restructuring is an opportunity to create transformational change that significantly enhances the NewCo’s long-term competitiveness and performance.

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In this post, we will discuss the challenges of mergers and divestitures and how to overcome them.

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Mergers versus divestitures

For companies involved in a major restructuring, the kinds of challenges faced will depend mostly on whether the parties are engaged in an M&A or a divestiture.

For a company involved in a merger or acquisition, the main challenge is to integrate disparate companies, cultures and systems. This usually involves managing duplication and creating a single high-functioning supply chain that serves the new enterprise. Time is seldom the main pressure, as each party can afford to gradually phase out their old supply chain as a new one is brought online.

For a company being divested, time is usually a primary concern – as the company strives to create a viable supply chain against a ticking clock.

In either case, and regardless of the health sub-sector, the greatest determinant to success is the quality of the communication. That may seem counterintuitive – particularly for such technologically intensive industries. But the ability to communicate, share information and collaborate respectfully are defining traits of companies that successfully harmonize cultures – and they emerge the better for the undertaking.

Managing the Realities of a Merger or Acquisition

Screen Shot 2016-05-18 at 4.10.10 PM According to industry statistics, the leading driver for a merger or acquisition is a desire to access new products, patents or technology. The next most-common driver is access to new markets. [2] Logistics is seldom a lead consideration.

In both cases, duplication is the greatest challenge. There will be two of everything and everyone – from people, buildings and cultures to supply chains, service agreements and end-users.

In our experience, there are some actionable practices that can help alleviate much of the pain of the process.

From a human standpoint, managing duplication in the workforce can be difficult. Tales of personnel reapplying for their positions are common. The resulting job insecurity and workplace malaise will be disruptive at best, and disastrous at worst. Working with velocity and transparency creates the best outcome. Establishing and communicating a clear timeline and strategy moving forward is key.

From an asset and logistics standpoint, a great deal of long-term pain can be avoided with a comprehensive end-to-end audit of the entire supply chain of the merging entities. It’s a significant undertaking – but vital if an integration is to succeed.

Knowledge is power

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Like pulling off a Band-Aid, the faster it’s done, the sooner the healing can begin.

As the Harvard Business Review study highlights and UPS experience confirms, it’s impossible to successfully integrate two companies without fully understanding what you actually have to work with.

For a logistics manager preparing for a major integration, a comprehensive audit is the first step to building a business case for a successful strategy.

To be of value, the audit must capture all production and distribution facilities, cold-chain capabilities and requirements, supplier agreements, human resources, tenures of employees, lease terms and termination costs.

Similarly, developing end-to-end process maps of all supply chains is recommended. These maps will provide a clear snapshot of existing resources and procedures – both internally and for counterparts in the other merging company tasked with overseeing the integration.

For a seasoned logistics manager, these are common-sense practices. But they require time and resources often in short supply during a corporate restructuring. That said, their value can’t be overstated, particularly given the exigent demands of sectors such as biopharma and in vitro diagnostics.

[Also on Longitudes: Healthcare Hacks]

Screen Shot 2016-05-18 at 4.20.24 PMWorking with velocity and transparency

Pain is unavoidable, but suffering is optional – goes the familiar Buddhist saying. This could easily apply to a major integration.

Duplication of personnel is best managed with thoughtfulness and speed. Given the disruptive nature of the process, companies that can avoid getting mired by indecision will typically perform better over the long run.

From a tactical standpoint, that means establishing and adhering to a clear timetable for dealing with redundancies. Like pulling off a Band-Aid, the faster it’s done, the sooner the healing can begin.

The second critical component – one that’s often undervalued – is transparency. On a human level, job loss is always painful. But what’s worse is the long-term uncertainty that can precede it.

It’s damaging to the people and disruptive to the environment, productivity and overall performance.

In such situations, clearly communicating the strategy moving forward and timelines for managing workforce redundancies helps enormously. It signals a clear integration plan and allows people to prepare for the future and manage their own expectations.

In my next post, I will outline tactical solutions and strategies for a smooth integration. goldbrown2

[1] The Big Idea: The New M&A Playbook Harvard Business Review 2011

[2] PMG Report: Pharmaceuticals Executive Survey: Executives Seek M&A to Spur Growth 2011


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Peter Bromley is Director of Healthcare Logistics, UPS Europe

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