Improving the odds for aquisitions and joint ventures Part II
SummaryIn the first article on acquisitions and joint ventures, we saw how despite the odds on an acquisition adding value for shareholders being only one in three, companies like Johnson & Johnson, Pfizer, Sosei and Amphion Innovations are still racing ahead. Now we take a glimpse at the similarly challenging world of joint ventures – and then look at how companies can increase the odds with a little forward planning.
Improving the odds for acquisitions and joint ventures
In the first article on acquisitions and joint ventures, we saw how despite the odds on an acquisition adding value for shareholders being only one in three, companies like Johnson & Johnson, Pfizer, Sosei and Amphion Innovations are still racing ahead. Now we take a glimpse at the similarly challenging world of joint ventures – and then look at how companies can increase the odds with a little forward planning.
Like acquisitions and takeovers, joint ventures and strategic alliances are becoming common in the life science arena and are a special case. They are almost by definition created to develop new products, processes or markets. The evidence for allowing them to develop as business units in their own right with their own values is overwhelming. Yet the joint venture management team will often be drawn from the shareholders and bring with them all that baggage. Secondment to the new operation may be seen more as exile than career progress. Financial objectives may be confused by a preference for taking profit within the shareholder organisations, while leaving the risk in the joint venture.
There is a particular skill in managing joint ventures and many managers will not have had the chance to learn it. Shareholder representatives must act as genuine shareholders and facilitators, not as a parallel team to second-guess the joint venture management. Business strategy development, financial targets, monitoring and controls need to involve the joint venture management team in their development and be seen as fair and timely. Shareholders must recognise and benefit from the melting pot of cultural and often national differences that will characterise the joint venture.
Facing the challenge
In the heady atmosphere of making an acquisition or creating a joint venture, there is a common preoccupation on closing the deal, often at the expense of preparing for the post-deal period.
Immediately following an acquisition, for example, talented people can become preoccupied with politics or leave, while the integration of functions like IT, operations and HR can get in the way of the overview that is needed to deliver the synergies and opportunities envisaged. The list of integration problems is well researched, however, and solutions are to hand.
Peter Wolfe is an experienced acquirer and now consults and provides interim management on post-integration issues. He believes there are three keystones to success for companies involved in acquisitions and joint ventures – People, Communications and Planning.
People issues are often addressed too late. The new culture must be assessed and differences with the new shareholder(s) either openly accepted or urgently evolved. When companies have paid a premium for a formula that probably works in its sector, it is foolish to destroy value for the sake of convergence. New teams need to be formed quickly and made effective by being part of evolving the new strategy and hence having ownership of it.
Communications need to be direct and timely. If customers, suppliers and especially staff are hearing about the change through the media or industry rumour mill then it’s too late. The tone of communications is also as important as the message – people need to feel involved in the process, not alien to it.
Planning needs to be cross-functional and companies have to ensure that proper resources are in place to get the job done. Time is not an ally here. The first 100 days will set the tone for the future and will either see the damage done or a new motivated team creating value. One of the biggest problems is senior managers becoming overloaded with the change agenda and forgetting the need for business as usual.
Bringing experience on board
Many companies will benefit from extra management firepower to guide the business through the integration and make their acquisition or joint venture successful. It is an ideal use of Interims, who have the additional benefit of having no political stakes in the game. Interims can also take some of the operational load off key executives, to allow them to give early intensive attention to the acquisition.
To sum up, proper investment in integration will always yield good returns. Any acquisition or joint venture will have expectations of higher performance, and history tells us that it is integration management that will make the difference between winning the gamble and joining the crowd of losing punters on the long road home.
Written by Peter Wolfe and Carolyn Douthwaite
Peter Wolfe is a consultant and interim manager with over 25 years’ experience of business development and acquisition/JV management, as a consultant, CEO and Director.
Carolyn Douthwaite is co-founder and Managing Director of the PiR Group, which specialises in search, selection and interim management for established and emerging Life Science businesses.