Optimizing Integration Following Mergers & Acquisitions: Process and Best Practices

James F. Grabowski, Ph.D. MBA: Director, Mergers & Acquisitions, AMRI

March 10, 2016

Overview

2

M&A Trends Continue to Grow

The ABCs of Communication During Integrations

Focused Integration for Company Benefit

Outcomes of Good Integration

Entering a New Growth Era as Outsourcing Trends Increase• Global pharma simplifying to core

competencies• Reducing internal resources• Generic competition • Divesting assets; Reducing fixed

cost structures• Vendor consolidation programs

benefitting integrated providers

• Early to mid-stage companies accessing outsourcing• VCs / Academia / Virtual pharma

• Increased funding fueling increase in early discovery and development

• Industry consolidation triggering interest in larger outsourcing partners

3

Service I

Service II

Service III

Service IV

CMO B

Pharma Co. 2

CMO A

CMO B

CMO C

CMO D

CMO E

CMO F

Merger DynamicsGrowth & Vendor Consolidation

4

As Pharma customers grow and merge, they will have to consolidate their vendors (Fig. 1) and work with larger CMOs that offer the capacity and breadth to handle their work (Fig. 2)

Pharma Co. 1

CMO A

CMO B

CMO C

CMO D

CMO E

CMO F

Service IService IIService IIIService IVCMO A

Figure 1

Figure 2

Pharma companies desire to work with fewer CMOs that they will need to visit, maintain relationships with and perform quality audits on

Pharma Co. 2

Pharma Co. 1

Pharma M&A Trends Effecting CRO/CMOs

5

SIZE OF CMO AVERAGEEBITDA-MARGIN

Source: IMAP research.

< US$ 50m

US$ 50m – US$ 100m

US$ 100m – US$ 250m

US$ 250m – US$ 1bn

> US$ 1bn

11%

12%

9%

16%

18%

Source: IMAP research /PharmSource, based on 194 leading CMOs globally.

100,0%

90,0%

80,0%

70,0%

60,0%

50,0%

40,0%

30,0%

20,0%

10,0%

0,0%

Number of CMOs

Size of CMO by sales

US$ < 25m

US$ 25m – 49m

US$ 50m - 99m

US$ 100m – 249m

US$ 250m – 499m

US$ 500m

Cum

ulat

ive

Sale

s of

all

lead

ing

CM

Os

(n=1

94)

FRAGMENTATION OF THE CMO MARKET

92

42

27

20

8

5

The ABCs of Integration Communications Keys to Communications During Integrations

6

Issue an announcement about the merger or acquisitionA.

Have meetings with customers or those affected by changes

B.

Provide informative communications throughout integration period

C.

What to Communicate and When

7

What to Communicate

& When

Formal talks between the company and customers; a good starting point for managing supplier & customer relationship

The company should keep an open dialogue internally and externally to allay concerns as soon as they arise

External and internal notification regarding the M&A as soon as they are allowed to legally:

• Joint statement by both companies involved in deal, or from acquired or acquiring business

• Company follows up the message with meeting requests to key stakeholders

AMRI Acquires Gadea Pharmaceutical GroupTimely and Targeted Communications

8

• AMRI Press Release distributed at 7 a.m. EST (1 p.m. Spain)

• AMRI and Gadea employees notified at 7 a.m. EST (1 p.m. Spain)• Translated materials sent to non-English-speaking employees

• Customer memo issued to AMRI Customers

Focused Integration for Company BenefitOverarching Goals

9

• The business acquiring and acquired must be unaffected throughout the integration process.

• The combined, post-merger business must be stronger than either of the companies prior to the acquisition.

• There is no “one-size-fits-all” approach to onboarding an acquisition.

How to Approach Integration Planning

10

M&A integrations have two broad goals:

• Firstly, the business must run as customers have come to expect from the companies throughout the integration process.

• Secondly, the combined, post-merger CMO must be stronger than either of the companies prior to the acquisition.

Integration Team Best Practices

11

• Rigorous integration planning is needed, but a “one-size-fits-all” approach to onboarding an acquisition does not exist

• Companies should empower their leaders at the acquired and acquiring company to shape a unique, tailored plan

• The first stage of the integration process, therefore entails learning about each other. The Team will be in a better position to draft a joint plan (example on next slide)

Enterprise Resource Planning (ERP) SystemsEvaluating Strengths & Synergies

12

Using ERP systems as an example, IT experts from each organization analyze respective strengths and decide how to proceed. • In one scenario, the larger company may move the acquired onto its ERP. • In another, there might be aspect of ERP that the acquired business does well and

move to incorporate it into the broader company. • Such discussions play out across IT, HR, sales, operations, and other units.

IT Acquiring Company

ITAcquired Company

Examples of SynergiesAMRI Case Studies

13

Analytical

Analytical

Analytical

Analytical

Now Provides Services Internally

AnalyticalAnalyticalAnalyticalAnalytical

AMRI

AMRI Acquires OsoBio

Realized Cost Savings

Greater Security for Customer

OsoBio

Gadea

Process 1

Process 2

Process 3

Process 4

Leverages SSCI and Analytical Department in Albany to Improve Manufacturing Processes, Related to Polymorph Stability

AMRI Acquires Gadea

Realized Cost Savings

AMRI

SSCI

AMRI initiated projects at SSCI to optimize the crystallization and create a process that has greater control

Example of an Integration Team

14

Executive Sponsor

Integration Lead

Sales and Marketing

Finance

Quality

Operations

IT

HR

Business Acquired

Integration Lead

Sales and Marketing

Finance

Quality

Operations

IT

HR

Acquirer

Operations

IT

Operations

IT

• Fears of supply chain disruption or price structure changes are the main concerns customers have when a service provider that they work with is acquired or makes a major purchase

• The company is responsible for allaying these fears and in ensuring they have no effect on the smooth running of the customers’ businesses

• Establishing an effective change management process can eliminate a lot of the uncertainties faced by internal teams in the weeks after an acquisition.

• In doing so, it reduces the likelihood that the business will be negatively affected during the integration.

• Change management ensures that a plan is formulated and executed as quickly as possible.

Why Change Management is Vital

15

How to Best Handle Change Management

16

• At AMRI, the goal is to have made and communicated decisions within two months of starting the integration process.

• By doing this, the integration team removes uncertainties by providing direction and answers quickly.

• The Team must keep the broader organization abreast of its progress, or lack thereof.

• Staff can become frustrated when the integration appears to be overlooking their area of the business.

• It is vital that staff understand why changes are happening

Outcomes of Good Integrations

17

The business comes first

Establish the must-have for a business vs. the nice-to-have

A more effective and efficient business

Process improvements

Benefits of Good Integrations

18

Acquisitions can deliver significant benefits to customers, for example:

I. Working with one company instead of three yields obvious efficiencies

II. A large company with a breadth of services can solve problems faster

Synergies that M&A can achieve for

companies and their customers make it an essential addition to

organic growth

Realization of such synergies is far from

assured when an acquisition deal is

first struck

At top-tier companies, a lot time/energy

ensures that, whatever happens, clients are

insulated from negative effects of integration

Placing business success at center of

decisions is key, while maintaining

clear lines of communication

However, There are Key Points to Remember