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Life sciences transformation powered by external innovation
Using technology acquisitions to thrive in a time of convergence and disruption
As the volume and strategic importance of innovative technology acquisitions by life sciences companies continue to rise, corporate leaders need to determine the best strategies for integrating these smaller technology- and capability-focused companies.
Small technology acquisitions in life sciences
Small tech acquisitions in life sciences have become more prominent as technological innovation outside the lab and clinic are becoming a competitive advantage. For example, many life sciences companies are considering the use of artificial intelligence to augment research and development, digital biomarkers to validate clinical efficacy, and virtual patient engagement tools as foundations for patient-centered health care delivery.1
Consequently, many business leaders are eagerly searching for ways to turn this new environment from a cause for concern to a way to reshape their business model. In fact, in a survey of strategic drivers, a cross-industry panel of senior executives cited technology acquisitions as the most important.2
In response, companies are increasingly acquiring small technology companies to obtain the technological experience, talent, and products needed to harness the potential in the high-growth corners of the industry. Globally, buyers from different industries spent around $877 billion from 2015–2018 on advanced technology and cross-capability deals; one-third of these deals fell in the $50 million–$1 billion range.3 Hence, mergers and acquisitions (M&A) and alternative deal structures (such as strategic alliances and ecosystem investments) can provide a fast track for life sciences companies to drive growth, create value, and disrupt the market.
Business model shifts, along with life sciences and health care technological innovation, driving small deal activity.
When executing these small entrepreneurial technology deals, even companies with historically strong M&A experience can face novel and unprecedented challenges. From the initial deal strategy through integration, unique strategic, operational, human capital, and technology stumbling blocks can hinder performance and reduce the deal’s return on investment. Through our experience, Deloitte has observed several recurring patterns across deal integration strategies that can be useful for M&A leaders when exploring integration strategies.
Integration strategies for small technology acquisitions
When considering recent market deal activity and trends, the revenue stage of the target and degree of alignment between the buyer’s and target’s businesses appear to be the most prominent factors influencing the chosen integration strategy. Integration strategies and challenges associated with these strategies include:
Choosing the right integration strategy
We appreciate that there is no one-size-fits-all strategy for any acquisition, let alone the diverse set of small technology acquisitions that life sciences companies are undertaking. What is clear is that these acquisitions require unique integration strategies and approaches, different from what many experienced M&A and corporate development teams may be used to. Deloitte previously published perspectives outlining several challenges and leading practices related to small technology acquisitions, including:
- Deloitte, “Preserving the secret sauce of a tech startup through integration,” 2019.
- Deloitte, “Acquiring for growth: Small integrations, big challenges,” 2018.
- Deloitte, “Cyber risk in M&A due diligence,” CIO Journal for Wall Street Journal, 2017.
For life sciences companies planning or actively pursuing small technology transactions, they should consider posing the following questions early in the deal life cycle:
- What additional due diligence topics do we need to consider when evaluating a small technology target? Do we need to adjust our due diligence approach?
- What does the buyer’s experience demonstrate? What are our reference points for the success or lack thereof for various approaches?
- How do we identify, prioritize, and amplify the value drivers? Do they receive equal weight for
- What is realistic for retention? And how do we price in the cost of retention and the cost of turnover?
- What variations from our standards are acceptable for integration (e.g., policies, processes, systems)?
1 Sriram Prakash and Haranath Sriyapureddy, “The beginning of a new M&A season: Future of the deal,” Deloitte, 2018.
2 Deloitte, “2019 Global life sciences outlook: Focus and transform | Accelerating change in life sciences,” 2019
3 Deloitte, “The state of the deal: M&A trends 2019,” 2018
4 “Illumina [press release], “Illumina acquires Edico Genome to accelerate genomic data analysis,” May 15, 2018.
5 Bio-IT World, “Illumina announces acquisition of Edico Genome,” May 16, 2018.
6 ResMed [press release], “ResMed to acquire Brightree for $800 million,” February 22, 2016.
7 BusinessWire,“Life Technologies announces agreement to acquire Ion Torrent,” August 17, 2010.