Inarticulate ramblings of a management consultant

the day to day experiences of a consultant operating in weird and wonderful client situations

The cost of capital is less than the cost of innovation…a remarkable shift in the world of M&A

The attached article from the FT provides a good insight into a remarkable change in the levels of activity in M&A, particularly in pharmaceuticals ($468 billion of transactions announced in 2015, an almost unprecedented rise and certainly the most significant increase since before the global financial crisis).

A frenzy of activity therefore, some of which may be driven by not wishing to be left out rather than a solid business case. Some of the more hostile bids suggest an element of desperation rather than calm planned strategic decision making.

But it’s the drivers for this activity which I’m most interested in. As I see it, we seem to have reached a remarkable change in the business of value creation. There are two elements:

A proactive push:

  •  Capital is available in abundance and the sector is extremely attractive for investors with its characteristics of protected and profitable cash flows arising from relatively risk free products as a result of the rigorous testing regimes in Europe and the USA.

And a reactive pull:

  • Creating new products in an existing environment requires greater time, effort, potentially cultural and behavioural change (specifically proactivity)…and these are conditions which are beyond the management capability of many organisations in the sector, certainly in any kind of acceptable commercial timeframe.

Leading to a conclusion:

  • Buying smaller, single purpose vehicles with new and innovative products is the most sustainable way forward.

I’ve no doubt that the situation is not as straightforward as this and that there are indeed large pharmaceutical companies who have very healthy R&D functions that are developing innovative solutions.

At the same time however, the key challenge for them and for other sectors is that moving beyond ‘incremental’ innovation is risky (financially and in terms of reputation) and uncertain in terms of the outcome. Better then to ‘outsource’ this to the new entrants in the market and pay a premium when there is a proven product available to acquire.

I was talking about this phenomenon to a colleague and friend from the technology sector yesterday and he surprised me with a comment that with a few exceptions, this is also the approach that the largest technology producers take. There is almost a sense, from his perception, that product innovation is no longer part of the remit for the largest companies in the sector. The main drivers for improving performance for these companies therefore is more around operational efficiency and distribution rather NPD.

A final couple of observations. Firstly, many of you may remember that until relatively recently, investors actively shunned (which is remarkable in itself) capital raisings whose purpose was for acquisitions….an extraordinary change therefore.

Secondly, if I’m a new graduate interested in getting involved in innovation and disruptive change, where should I be aiming in terms of a fulfilling career? Maybe the changing nature / strategy of these large (and desirable therefore) employers is driving the diminution in employee engagement as they become focused on the advantages of scale in terms of production and distribution, rather than market leadership and innovation.

Categories: Consulting, Defying gravity, Disruptive Innovation, Economics, Implementation, Intellectual property, Mergers & acquisitions, Pharmaceuticals, Post merger integration, Strategy, Transformation

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3 replies


  1. Innovation – can it continue to co-exist with the conflicting demands of the corporate world or has it become the playground of the individual? | Inarticulate ramblings of a management consultant
  2. A new breed / identity of buyer from Asia – leading to a different result? | Inarticulate ramblings of a management consultant
  3. The latent energy of innovation…transactional or transformational? | Inarticulate ramblings of a management consultant

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