Inarticulate ramblings of a management consultant

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

Revenue synergies – the last great hope in the justification of paying too much for too little

The announcement this morning of the acquisition of Baxalta by Shire suggests that the wave of pharmaceutical acquisitions is still ongoing. The current market fluctuation may help others to continue their quest in what is probably the largest sector consolidation we’ve seen in a decade or two.
The Shire share price reaction is also interesting…a fall of 8% suggests that investors are increasingly concerned that for this specific deal, and perhaps for the sector as a whole, the proof of the pudding ‘in the eating’ is rather bitter (to thoroughly mix my metaphors!)
A couple of things that stand out from the recent press:

  • The rather dramatic shift in the synergies target…from a comment from Ludwig Handsen, CEO of Baxalta last August, where he bluntly rejected the possibility of any significant synergies on the basis that there was little operational or product overlap with Shire’s business to the current situation where the firm has magically found USD500m of annual synergies, representing 40% of Baxalta’s entire operational / support service spend!

    Even allowing for the natural tendency from an acquired CEO to suggest that operational efficiencies are limited (as that would reflect badly on their own stewardship), this seems a target which is, to copy the FT typically understated expression, ‘exuberant’.

  • The form of these synergies is going to be found in pushing Shire’s product portfolio through the sales infrastructure of Baxalta…remember that infrastructure which is also going to yield significant savings!

Let me try to deal with this latter point in a very direct manner…for a moment imagine that you’re a highly specialist pharmaceuticals sales person:

  • You’ve spent 5-15 years in the sector and certainly 5 years in the company, diligently learning about the product portfolio so that you have credibility in front of a potential client.
  • You work in a sector where technical understanding is an absolutely critical dimension in any sales process.
  • No-one wants to meet the R&D function, they’re too busy, well paid and couldn’t sell water to someone dying of thirst. They speak a language which is frankly incomprehensible to ordinary folk…it’s your responsibility to translate the incredible complexity of your products capability in words that make sense to your clients.
  • You’re personally engaged by this highly specialist activity…perhaps you’ve some scientific training but certainly from a ‘vocational’ perspective, you value your work highly in terms of the impact on humankind.
  • Your interactions with your clients are regular…they trust your technical expertise, they value your longevity and genuine concern and focus on their particular challenges.

Your business has just been acquired and a critical part of the business case is represented by you and your colleagues’ ability to access new markets and new customers. A few wrinkles:

  • The acquirer operates in an entirely separate part of the sector, dealing with different treatments, intermediaries, different customers. You’ve no knowledge and perhaps no interest in this area…it might as well be cement!
  • There is some hostility in the deal…no one likes to lose their independence and from the comments of your CEO, the rationale for the deal is unfounded and doesn’t work.
  • You’re concerned that your job is on the line…despite this expectation of cross selling, the prospect of massive cost reductions is playing on your mind.


A simple question:

What is the likelihood that you’re going to spend any time damaging your credibility by selling something you don’t know anything about to a set of buyers whom you’ve never met before, working towards a target which you had no input into creating, based on the expectations of a leadership team with whom you have no relationship?

Categories: Complex transformation, Hostile takeovers, Mergers & acquisitions, post acquisition integration, Post merger integration, research and development, Selling, Value Preservation

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