As it is often necessary to structure creative deals with deferred and/or ongoing value delivered to the seller, an important but frequently overlooked component of the deal process is to position your company as the ideal partner for the acquired asset.
Recently, the Locust Walk team has written a number of blog posts on strategies for optimizing success when pursuing portfolio expansion, particularly for smaller companies with limited resources to do a deal. At Locust Walk Institute’s free upcoming webinar, we will discuss in-depth buy-side strategy, delving into this critical component of the dealmaking process.
Identifying assets that match the strategic goals of a growing company have attractive revenue potential and are potentially available and affordable to the buyer can be a tall order. Many companies have been transformed by adding the right strategic asset to their portfolio, and many more seek to imitate these successful examples.
Indeed, Locust Walk advises an “asset-first” approach to buy-side processes, first identifying the asset you want and then deciding on the deal structure as a tool to access it. The structure should follow the requirements of both parties, not fit the parties to a deal structure (like M&A).
Once an asset of interest has been identified and some preliminary due diligence has been conducted, the logical next step is to approach the owner about a potential deal. Depending on the relative financial situations of the buyer and seller, as well as the strategic importance of the asset to the current owner, it may make sense to pursue a deal structure other than simple acquisition of the asset or company. It’s in these instances that convincing the seller of the value you will add to the asset becomes critical.
When engaged in conversations and preparing a “sell deck”, some examples of important attributes to highlight would include:
- Therapeutic area specialty: The most obvious source of value is an established (or burgeoning) commercial presence in key therapeutic areas or call points. This can especially be leveraged when a drug has secondary, non-core indications that can be the basis for a co-promotion. Development expertise in an area should also be a focal point.
- Geographical presence: Besides licensing non-core geographies, buyers with an established presence in particular geographies could consider a territory swap, trading, for example, US rights of one drug for EU rights of another.
- Specialty / orphan capabilities: Companies who do not have experience navigating the hurdles or commercializing a drug for a small population may need help from companies who know how to overcome those challenges.
- Management experience: Even when a company does not have an established commercial presence as an entity, the experience of a seasoned and previously successful management team can often be an important selling point.
- Well planned strategy: Aside from touting current capabilities and past successes, it is important to share with the seller a specific development and commercial plan for success clinically, gaining approval (if necessary) and maximizing an asset’s commercial potential. Most buyers loathe to share this information but Locust Walk’s experience has shown this to be a confidence builder and key point for success.
- Willingness to prioritize: An often overlooked but important attribute of smaller buyers with a limited portfolio is the willingness to prioritize the asset. As opposed to larger players who may place a purchased asset behind more important priorities in their pipeline or a sales rep’s bag, smaller companies must prioritize the success of the asset to grow the company and survive. By making their willingness to prioritize the asset a selling point, smaller buyers can often beat out larger ones even when they are not able to write the biggest check.
While identifying strategic opportunities is often an important focus of a buy-side process, a key to successful execution is to sell the capabilities of the buyer to the asset’s owner. This approach often opens new opportunities for portfolio growth by enabling creative deal structures with deferred value delivered to the seller, and creates a potential win-win scenario when clinical and commercial success is achieved.
The Locust Walk team has deep experience positioning our buy-side clients strongly during deal discussions, and selling our client’s capabilities is a core part of any buy-side engagement we undertake. For more discussion of buy-side strategies, check out our upcoming Locust Walk Institute webinar, or contact firstname.lastname@example.org to discuss how we can help you directly.
Written by Nick DeLong, PhD