September 2023 • PharmaTimes Magazine • 20-22
// MERGERS //
The human league
M&As, pharma and the conundrum of people
Across pharma, mergers and acquisitions (M&A) are not so much unicorn as more bang-average pony. Indeed, since 1985 the Institute for Mergers, Acquisitions and Alliances has clocked more than 11,500 deals in the industry.
Most of these deals fail. You know the stats – anywhere from 50-90% are said to fail to close or fail to reach the expected value for the acquirer (or both parties in a merger).
Personally, I’m not sure a deal that fails to close is necessarily a failure – if due diligence uncovers something unattractive, that’s a good reason not to proceed. Or if the non-progression is down to the actions of one egomaniac, that saves another organisation from his/her damage. No matter how many times I see the data though, I am still taken aback – it truly is Einstein’s definition of insanity.
While it is certainly not exclusively the case, studies (such as Godfred Koi-Akrofi’s 2016 publication in the International Journal of Innovation and Applied Sciences) have found ‘the integration stage of the whole merger and acquisition process was the most problematic area which contributes to M&A failure, and that the problem in the integration stage has to do with the human factor’.
This should come as no surprise to anyone who has ever worked in an organisation – the ‘human factor’ is behind 99% of all organisational joy and misery.
Calling on my own experience and recent interviews with senior industry leaders, here is what I have learnt about how companies work with the human factors to harmoniously bring organisations together.
Making your PowerPoint obsessively
M&As often involve a lot of money, lots of external eyes, big personal impact (from triggered stock options creating overnight millionaires, to mass redundancies), and big risk. A common reaction is to try to control the uncertainty (I value the late Ralph Stacey’s work on behaviour in complexity and uncertainty).
So, in comes the Programme Management Office (PMO). Typically staffed by a mix of internal corporate strategy folk and big firm consultants who together crank up the big PowerPoint machine, which quickly gets into the comforting rhythm of churning out 5,000 slides per day.
There can be myriad details that need to be managed during an integration – everything from issuing new access cards to thousands of new employees, to changing the ownership of special purpose vehicle companies.
In Stacey’s language these are ‘simple’ or ‘complicated’ problems, and they are served really well by highly structured processes and systems because the problems are predictable, and the solutions are known.
When it comes to ‘human factors’ i.e. the individual journey that everyone impacted by an integration goes through, a highly programmatic approach doesn’t tend to work. That’s because humans are not predictable and rational, so when you put two people in the exact same situation their reactions are likely to be different.
The Stacey descriptors for organisational integrations would be ‘complex’ if not ‘chaotic’. This means that you cannot know in advance what those impacted by an integration, or any major upheaval, will need, when, and for how long – it emerges gradually. If you want to spook a PMO, talk about ‘emergence’.
Emotions, developments and changes are not linear, and they will not all be wrapped up nicely in time for the end of the 18-month integration programme – they unfold in unpredictable ways.
As Jon Bell, Senior Director, Alliance and Integration Management at AstraZeneca puts it “You can’t capture on a Gantt chart how people feel about going through major changes in working environment or personal circumstances.” The question then becomes, how to allow for and support personal change, at scale, throughout an integration?
‘Even when the focus is medicines or other assets, employees hold the key knowledge, experience and historic understanding’
Long road, bumpy ride
It’s not exactly revolutionary to advocate for leaders building trust in their organisations, not least during times of major change. But when and how?
When Björn Berglund, who was leading the Nordic business for Baxalta, got the news they were to be acquired by Shire, he made his assessment and decided it was something he would get behind. “If you think balloons and cake will do the job to integrate people – it won’t” was his starting philosophy.
Instead, he fully committed to the leadership workshops, translating the communications for his affiliate, and helping Shire to understand the Baxalta story. He did that with honesty, stating publicly that it would be a bumpy road, what his own anxieties were and that he was there to support the company through it.
Equally, some people may choose not to stick around, and that should also feel okay. Shire wanted Baxalta for its haematology and immunology business, and being honest about your intentions as an acquirer is important because people will smell a rat and if they can, they’ll leave rather than be lied to.
The importance of honesty was echoed by AstraZeneca. When it sold its small molecule antibiotics business unit to Pfizer in 2017, the leaders of the business took a proactive approach to communicating with the teams in the business unit, ensuring that those impacted were engaged, that the strategic rationale was understood along with the role of the individuals in the transition.
By standing up and saying ‘we recognise the difficulty and the personal impact, but we’re going to do a great job in handing the business over as professionally as we can’ they gave their team purpose and a sense of pride at a difficult time.
Trust and psychological safety need to permeate organisations. Amy Edmonson for one, has demonstrated this clearly. So, while teams need to be able to trust their leaders, they need to be trusted by their executives.
Martin Bergman, Head of Commercial Nordics at CSL Vifor says you shouldn’t wait for a major event before you start: “It’s important to create a climate of safety in the organisation. The better your current working environment, the better you will transform (people are equipped to deal with change, leaders are confident in making decisions and guiding teams etc). The pre-work is super important – good relationships make things easier. And then when it’s deal time, you’ll feel confident to trust your country or local leads and involve them early on.”
People matter in any transaction
People will always be the greatest asset in any acquisition, regardless of the motivation for the deal. Even when the focus is medicines or other assets, employees hold the key knowledge, experience and historic understanding of those assets, which is crucial to a smooth integration.
AstraZeneca bought CinCor earlier this year for up to $1.8bn (contingent payments are outstanding), it put a huge focus on the people anyway, even though the driver was access to the medicine under development.
Emma Barton, Senior Director, Alliance & Integration Management at AstraZeneca, who oversaw the integration: “It was important to ensure that we were clear and open with the CinCor team from the start on what would happen and the timing for that. As soon as the deal closed, I went with HR and the leader of the team that would receive the assets, to the CinCor offices.
“We spent time with the team, seeking to understand them as individuals; and we talked about how important the medicine they had developed was, its strategic fit in our portfolio, and their critical value during transition. We then sat with them in their open-plan offices for two days to answer any questions.
“To support the employees who would follow the assets for a limited term, we set up a buddy system and leader check-ins, which also meant we could be responsive to their feedback. For those interested in joining AstraZeneca permanently there was additional support and prioritised access to the internal jobs board”.
If you are hoping to integrate employees post-transaction, Björn Berglund, who is now GM for Sobi Nordics and Baltics says his number one piece of advice is to be humble, especially as an acquiring company. Make it clear that you are taking the best of both organisations, not forcing one operating model or one culture on the other company. As well as raising the performance of the new entity, it can appease some of the fear.
Fear like the acquired teams being better (there was a reason to pay all that money, right?) and fear that the acquirer will only impose its way on the target company. There’s often a lot of emphasis on taking care of the people that are joining an organisation and those leaving. Remember to pay equal attention to the ones staying – they’ll also be taking a change journey.
Start early and don’t let up
There is sadly no magic wand for getting people integration right, it takes sustained hard work. You can make it easier though by starting today, even if you don’t have an M&A in sight – a transaction could come around very quickly, particularly as a target company.
Or, in the case of Baxalta whose integration with Shire wasn’t complete when Takeda bought it and started that integration. Build the principles of an integration playbook, so you have something to guide you when the heat is on, then listen religiously and iterate as you go. You cannot be overprepared. Doing a big deal, it takes a lot of time and effort just to do the basics like making sure phone bills get paid. Spend just as long, if not longer, on the people.” Is Berglund’s advice. Oh, and never stop! Bergman concludes: “Integration is never really done. You must continue to build and work with the new culture.”
Harry Malcolm is Principal Consultant at Rubica Change & Analytics.
Go to rubica.co.uk
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