Your deals should hold up – without being held back. See how life sciences businesses can successfully navigate the M&A life cycle.
Life sciences executives can find themselves facing crossroads that can fundamentally shift the paradigm of their business. From M&A and IPOs to facility construction, geographic expansion, and new commercial offerings, these transformative events can be critical junctures that affect a company’s success.
This series explores transformative events for companies in the life sciences industry and the challenges and opportunities that those events present. Whether a particular challenge is new or familiar, it is important to be aware of those challenges and related risks and to consider the need to engage the services of a third party to help fully address potentially wide-ranging impacts.
Transformative event: M&A
The M&A process is a multistage journey requiring collaboration among a range of stakeholders. Throughout each stage – including due diligence, strategic tax and transaction planning, integration and operational optimization, and postdeal technology and supply chain management – the deal process presents many potential hurdles for both first-time and experienced acquirers.
Following are key challenges and opportunities for two phases of the M&A process:
- Due diligence. While coordinating the efforts and priorities of multiple stakeholders can be demanding, due diligence also arms an acquirer with the knowledge needed to close out a deal with confidence and plan for a seamless integration.
- Strategic tax and transaction planning. M&A tax planning and transaction structuring can be daunting, as management will need to look at a wide range of tax law and regulatory considerations. However, strategic transaction structuring is a key component of the deal process and can help an acquirer realize maximum deal value.
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Financial due diligence
Challenge: Overlapping teams and obligations, tracking multiple compliance requirements
The due diligence process can present significant challenges for both public and private companies, due to the many stakeholders and obligations involved. With the potential involvement of multiple internal and external teams, it’s easy for things to become chaotic – and for management to potentially lose track of its many financial and regulatory compliance obligations.
Opportunity: Optimizing the deal through effective due diligence
A thorough and effective due diligence process can lay the groundwork for an effective and efficient integration process. This stage is critical to providing the vital information to finalize a deal and plan for a realistic integration – and proceed with confidence.
The depth and quality of due diligence efforts can unlock significant value, helping management to better mitigate risks and to uncover both potential liabilities and opportunities that might otherwise have been overlooked. It can be beneficial to work with an external firm that can help execute financial due diligence and bring on-demand expertise in operational and regulatory areas. An experienced and objective team also can help management perform a more reliable and thorough analysis – in turn allowing for better decision-making based on these assessments.
An effective team should focus on:
Quality of earnings analysis. Evaluate revenue reporting and historical and pro forma earnings adjustments to assess the quality of earnings and provide a clear picture of the potential risks.
Operations analysis. Bring a critical lens to analyze the trends and fluctuations of business drivers and key performance indicators of a target company, including revenue and profitability metrics and ongoing operating costs.
Quality of assets and net working capital analysis. Take a deep dive into an acquiree’s net working capital to analyze the quality of historical operating cash flows, assess a company’s cash cycles and burn rate, and work through details such as acquiree accounting, potential liabilities and write-offs, and other adjustments.
An experienced cross-functional external team can help life sciences leaders stay on top of communications and compliance requirements, provide support in multiple areas, or augment existing business development or finance teams, as needed.
Strategic tax and transaction planning
Challenge: Poor tax planning
Strategic tax considerations come to the forefront as a vital component of working through any transaction. Deal structure has a significant impact on the cash flows and the overall value of an acquisition, and a lack of attention to tax planning throughout the deal process can have negative downstream effects.
Tax planning and transaction structuring can be especially challenging in the life sciences arena, which is subject to specific tax regulations and considerations. The constant evolution of the tax and regulatory environment can add further complications, especially if an acquisition represents an expansion into a new sector or geographic area.
The process of understanding and inventorying these many considerations can be demanding and time intensive. It requires management to undertake a comprehensive analysis of an acquiree’s tax positions, potential tax benefits, and associated risks – and to understand how these factors will integrate into the acquirer’s existing tax framework.
Opportunity: Optimized deal structure and tax synergies
Proactive transaction structuring advice and tax planning can help leaders fully understand the tax implications and downstream impact of a transaction and construct an advantageous deal structure. By maintaining a long-term strategic view, acquirers can help ensure that the transaction structure aligns with overall companywide objectives and that the acquisition contributes to the realization of synergies and operational efficiencies.
By leveraging available tax incentives such as research and development and orphan drug credits, an acquirer can maximize the value of both its own and the acquiree’s exploratory efforts. Additionally, engaging in forward-looking tax planning from the onset can help acquirers manage additional factors and activities such as transfers of intellectual property and licensing agreements, ensuring operational efficiency.
Considering these benefits, management should keep strategic tax and transaction planning in mind throughout the deal process.
An effective team should focus on:
Tax planning and transaction structuring advice. Walk through the nuances of the deal structure – including potentially overlooked tax effects. Help navigate compliance with applicable tax laws.
Tax due diligence and M&A planning. Working within a due diligence plan, review an acquiree’s filings and internal procedures for compliance and help identify areas of risk and exposure.
R&D and orphan drug credits. Evaluate and integrate incentives into the broader tax strategy of the company as a whole.
Benefit from M&A strategy services
No matter what kind of deal you’re working on, we can help manage details and maximize value.
Crowe specialists deeply experienced in the M&A process can help by providing cross-functional support at every step of the deal cycle. Offering a comprehensive suite of services – including economic consulting and due diligence, integration and operations services, and technology and supply chain consulting – available at each stage of the deal cycle, we can help your organization navigate the intricacies of your specific transaction, foster a seamless integration, and maximize transaction value.
We’ve helped life sciences companies of all kinds navigate the unique challenges and pitfalls that can come with deals in this space. Contact our team to discuss ways we can work with your organization to manage M&A activity at any stage.
