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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

Series:

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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III.6.8 M&A Experience

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Experience matters and we assume that this in particular holds true for the success of acquisition and post merger integration of other companies in the very complex pharmaceutical industry. The learning curve in M&A practice should reveal lessons learned and excellence both in the transaction phase –such as consequent objectivity in evaluation or negotiation- and in integration phase –such as aligned processes, reorganization practice etc. (Hayward, 2002). We face contradicting empirical results: Finkelstein and Haleblian (1999), Kaup and Schiereck (2008) or Metha and Schiereck (2012) proof that less experienced acquirers are significantly less successful than skilled ones whereas Fuller et al. (2002) claim the contrary. McGahan and Villalonga (2005) found that those experiences are significantly associated with the choice between M&A, divestitures or alliances.

Hypothesis: Learning curve in objectively evaluating and negotiating plus post-merger excellence should bring along rather positive returns for the acquirers.

We orient our definition of transaction experience by Fuller et al. and Kaup and Schiereck: sustainable M&A know-how comes with at least three deals with tangible volumes of above 50m USD (Fuller et al., 2002; Kaup and Schiereck, 2008). However, we are not narrowing down the analysis of transaction experience to our own sample given its limiting selection criteria (e.g. targets must be public or limited time frame etc.). Thus, we screened the entire Thomson One Banker M&A database per acquiring company. We found that for 140 transactions the acquirers had at...

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