The Life Science Sector Managing Risk in M&A

Transcription

1 October 20 th 2005 The Life Science Sector Managing Risk in M&A Alastair Burns - Private Equity and M&A Practice

2 Agenda M&A activity in the life science sector Why is risk management on the M&A agenda? The role of risk and insurance advice in M&A Managing risk throughout the dealcycle Pre-transaction Post-transaction Divestment Marsh 2

3 M&A Activity in the Life Science Sector Quarterly M&A Activity- Pharma, Biotech, Medical Volume Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Source: Mergermarket Quarter Ended Marsh 3

4 M&A Activity in the Life Science Sector Quarterly M&A Activity- Pharma, Biotech, Medical Value m 65,000 60,000 55,000 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Source: Mergermarket Quarter Ended Marsh 4

5 Why is risk management on the M&A agenda? 10 years ago, dealmakers spent little time considering risk or insurance. Flawed intelligence or questions over a deal at any stage can become a deal breaker. Corporates need robust strategies that leave no margin for error in company valuations, and maximise the value of an M&A in the long term. Marsh 5

6 Risk management does more than minimise risk Provide a truer picture of value of assets to be acquired or sold Enhance a bid or pricing of an acquisition or divestment Facilitate clean divestment Protect the value of an investment through the management of risk Marsh 6

7 What does a Deal look like? Seller s advisors - Financial - Legal - Risk & Insurance Seller Company being sold Bidder 1 Bidder 2 Bidder 3 Bidder 4 Bidder s advisors Bidder s advisors Bidder s advisors Bidder s advisors - Financial - Financial - Financial - Financial - Legal - Legal - Legal - Legal - Risk & Insurance - Risk & Insurance - Risk & Insurance - Risk & Insurance Marsh 7

8 Simple Deal Timeline What does it look like? Less than six weeks Decision to sell a company Additional advisors - Marsh (SDD or TR) Information Memorandums are sent out 1st Round FINAL BIDS Final Bid Sign SPA Key advisors are brought in: - Finance - Strategic Data room set-up: - Insurance information may be provided (SDD) Buyers begin looking at business with advisors: - Financial - Legal - Insurance (BDD) Exclusivity for best bid - further diligence Final Negotiations New Programme incepts/integration begins Marsh 8

9 Our Role in an M&A Transaction Improve the deal by: Identifying and reducing the cost of risk Highlighting risk early on (e.g. Director s Exposures) Highlight and overcome deal obstacles Timing Global Nature of M&A Transaction Marsh 9

10 Due Diligence: Qualitative & quantitative assessment of a business risk profile including benchmarking, and an assessment of accredited insurance markets Comprehensive reporting and recommendations for mitigating and managing risk and liability Highlight issues in due diligence reports which may impact the pricing strategy or SPA (Sale & Purchase Agreement). Marsh 10

11 Transactional Risk Solutions Why are they relevant? During an acquisition, tailored insurance solutions can be used to overcome deal-specific obstacles to: - Enhance a deal by transferring historical liabilities / potential risks to a securely rated insurance carrier - Enable bidders to sharpen their approach and win the deal - Enable price enhancements Solutions complement and enhance due diligence they don t replace it. Marsh 11

12 Risk Management What systems have you in place to keep investments / portfolio businesses on track? How do you intelligently manage operating risk and contain costs? How do you manage potential operating risks associated with a business or sector? How would you transfer potential or unforeseen costs to protect investment values ahead of realisation? How do you integrate the two business risk management practices and cultures? How do you harmonise the two business retention levels? Marsh 12

13 Summary - Life Sciences is an active sector with respect to M&A Y.T.D activity is already 20b. - Addressing risk and insurance in the M&A process can support the long term value of the business. - Whether buyer or seller, risk and insurance should be considered throughout the deal cycle. - The risk manager can add value to a company s M&A team. Marsh 13

14 Contact Details Alastair Burns Marsh Ltd Tower Place London EC3R 5BU +44 (0) Marsh 14

15 Who are we? Private Equity and M&A Practice of Marsh: 13-year operating history 13 countries 55 professionals Backgrounds: insurance, accountancy, actuarial, banking, law and private equity 1,000 deals Structured/executed 70% of all transactional risk solutions in 2004 Unrivalled model of accessing industry experts Marsh 15

16 Disclaimer The information contained in this [publication, presentation, etc.] provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation and should not be relied upon as such. Insureds should consult their insurance and legal advisors regarding specific coverage issues. This document or any portion of the information it contains may not be copied or reproduced in any form without the permission of Marsh Ltd, except that clients of Marsh Ltd need not obtain such permission when using this report for their internal purposes. Copyright 2004 [current year] Marsh Ltd All rights reserved Marsh is authorised and regulated by the Financial Services Authority. Marsh 16