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Pharma M&A versus alliances and its underlying value drivers

Are M&A or alliances the right therapy for an ailing pharmaceutical industry?- A capital market perspective


Heiko Schön

From a capital market perspective, the author analyzes Merger and Acquisitions transactions (M&A) and in-licensings in the pharmaceutical industry between 1998 and 2012. Utilizing the event study methodology, the volume shows that M&A experiences significant, negative cumulative average abnormal returns whereas in-licensings are able to create value. But what are the underlying value drivers which make a deal a success or a failure story? The author derives significant innovative determinants of success for both strategies.
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II. The Pharmaceutical Industry and Mergers & Acquisitions


II.1 M&A Deal Rationales

In the foregone chapter we revealed the paradigm shift with its four strategic challenges hitting pharmaceutical companies’ top line and bottom line: the patent cliffs, the increasing price pressures, the R&D productivity crisis and the underexposure to the Pharmerging Markets. While the launch of bold restructuring programs can be an internal part of the answer and external alliances always complementary, the unique mixture of the challenges makes M&A a preferred strategic path, too.

Relatively few M&A studies analyze the key strategic motivation behind a firm’s M&A decision making, so those may be inclusive from scratch: Andrade et al. (2001) underline that if M&A could be distinguished by their underlying dominant strategic deal rationale, it may be those which are pursued for “good reasons” are value accretive for the acquirers, i.e. knowing the strategic motivation can provide a fruitful path for identifying how value through M&A is created or destroyed (see also Morck et al., 1990 and Grabowski and Kyle, 2008).

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