Last week saw the announcement of an attempted bid for Valeant, the serial acquirer masquerading as a pharmaceuticals company at a rather opportunistic time when the firestorm of media attention, debt levels, alleged pricing scandals and CEO ill health threatened to unhinge the business entirely.
It’s not a first combination of this type…the acquisition of Boots by Alliance Unichem was financed largely by KKR in a similar sharing of interests. Nor indeed is the concept of acquisition followed swiftly by separation and sale where acquirers combine to buy businesses whose component parts represent greater value than the combined whole. Many rightfully attribute RBS’s downfall to the acquisition of ABN Amro, a business which was under water in the market as a result of a muddled strategy and perhaps the perception of lethargic leadership. Some of you may remember the critical role that Santander played in the deal, providing some of the funding but more importantly separating out Antonveneta and flipping it within a month or so for a very handsome profit.
So it’s not a new approach. From a strategic level, the combination looks inspired: An acquisitive but reasonably traditional sector specialist with deep subject matter expertise partners with a highly successful PE house with a strong presence in Asia, excellent financial engineering experience, and within certain sectors, good operational improvement skills.
The issues arise as ever at an implementation level and I suspect, many of them did not feature in the fevered set of meetings which enabled the syndicate to make a bid. Let me set them out as I see them in a process of idle speculation:
Speed of decision making:
Whilst Takeda is a relatively international Japanese business with successful acquisitions in the US, Europe and the UK, and through its global expansion has adjusted to the expectations of multinational leadership, the differences between it, a business founded on strong R&D foundations with a scientific, fact based approach to making decisions, contrasts rather dramatically with those at TPG, where robust and heavily debated business cases are matched by swift and decisive action.
Getting a bid together was one thing…agreeing on the actual details of split, distribution of assets, timeframes for separation and sale, are entirely another. Given the strategic scale of this deal, this would not have been conducted at some sub-committee level!
Governance – the consensual versus the autocratic
…which leads to the next challenge around how governance works in both organisations. A large part of the reason for the pace of decision making is the very real requirement to reach consensus at an operational level. This is an important part of the culture of large Japanese corporates. In contrast, the investment committee of a firm like TPG operates somewhat differently.
A different view of risk
For Takeda, the potential risk for a transaction of this nature goes way beyond the financial and into the reputational. Much of the woes of Valeant can be attributed to the perception that they were in some ways not acting in the best interests of their customers, particularly from a pricing perspective. For TPG, this represents a distraction.