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Insight & Intelligence : Aug 11, 2009
Mergers and Acquisitions—The New IPO
Tips for a strong communication strategy that will lure shareholders and investors over to your side.!--h2>
In the past, repeated rounds of fundraising were the norm for emerging biotech companies to finance drug development. In today’s challenging economy, however, it’s no secret that few will be able to access the capital markets. Even fewer will be able to do it at terms that are anything less than onerous. Additionally, it should probably go without saying—but we’ll say it just to be clear—that only the most elite (not to be confused with the delusional) private companies would consider attempting an IPO in these markets.
So what are the options to fund developing companies when cash is running out and big pharma fails to knock on the door with attractive partnering offers or shareholders demand a liquidity event?
Mergers and acquisitions (M&A) is certainly one answer that is heard with increasing frequency. At last activity in the sector is beginning to support the long-held thesis that the biotechnology industry is ripe for consolidation. While finding the right fit and negotiating favorable transaction terms are difficult tasks, the importance of selling the deal to the shareholders and the overall marketplace cannot be overlooked or underestimated.
One significant factor in the long-term progress of any M&A event is communicating the value and likelihood of success for the combined company. This involves careful preparation and execution of certain tactics to not only ensure a successful shareholder vote but to also best position the new firm for its future.
Nail Down the Story
Most importantly, be diligent in focusing the story. Too often as companies seek to convey the rationale for the merger, everything but the kitchen sink gets thrown into the mix as currency. Let the real milestones guide you. If it is not going to bring potential value to your shareholders in the next 12 to 18 months and if it does not relate directly to the strategy, then table it for now.
Invest the Time to Fully Prepare the Team
In the end none of these documents will truly help you sell the deal unless both parties stick to the core message, which requires in-depth practice sessions. Even though it can be awkward, the new team must rehearse as a group, repeatedly reviewing the tough questions. Not only does this leave you better prepared but also helps ensure that everyone delivers a consistent message. Shareholders and reporters will go to spokespeople from both teams; if your messages do not agree, you’ve severely handicapped yourself right out of the gate.
Rebrand if Necessary
Hire an objective third party to conduct an investor audit and determine what issues need to be addressed and optimal timing. Then as a team determine the best path forward to creating a fresh, positive identity.
Proactively Reach Out To Shareholders
After you’ve announced the potential transaction, realize that you will likely spend the next few months on the road meeting with shareholders, key sell-side analysts, and potential new investors. Be sure to leverage the banks—to whom you presumably just paid a significant fee—to put you in front of their sales team and to take you on the road.
Talk to everyone who will listen. Regardless of whether the transaction is a merger or an acquisition, the best team for these meetings may include leadership from both parties. They should be able to address why the transaction is the right one for their respective company and shareholders as well as answer more detailed scientific questions about their individual pipeline contributions. Hire a proxy company and proactively monitor progress.
Get Ready to Rumble
This requires a “what if” crisis communication strategy session well before the deal becomes public. Think about potential scenarios and discuss appropriate responses with your IR counsel and with your legal advisors. Do not ignore these shareholders. If you wait until events unfold to prepare your communication strategy for this audience, you will find yourself in a potentially crippling scenario when you should be out selling the new and beneficial transaction.
Obtain Third-Party Validation
Spend ample time with sell-side analysts. If they see the merits of the transaction, they can provide invaluable assistance in communicating the value of the transaction. They could issue favorable reports, provide positive comments to the media as well as their institutional clients, and take you on the road.
Acknowledge Any Warts and Clean Up What You Can
Above all, reduce your burn rate. Nothing scares away investors in a constrained-capital-market environment like a new entity that appears to be the sum of two companies with twice as many cash-burning assets under one new roof.
Today M&A provides more life science companies with the opportunity to realize their potential. The probability of long-term success, though, is greatly increased by investing time and effort in preparing your communication strategy keeping these tactics in mind.
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