The Swiss Pharmaceuticals sector produced four USD1 billion+ deals in the first half of 2018. This is not surprising given the efforts by Pharmaceuticals and Life Sciences businesses to push new boundaries and continuously innovate. But when it comes to corporate development, Life Sciences – like many industries – is overly dependent on traditional M&A strategies. There is a growing need to use transactions to improve operations and deliver synergies. Asset swaps can be an attractive alternative transaction model that can help to achieve the objective.
Rising R&D expenses, pricing pressures and the growing cost of regulatory compliance: all result in the need for efficiency. And for Life Sciences in particular, to optimize portfolios in order to achieve category leadership in fewer, selected segments. In this regard, asset swaps can be a cost-effective way of reinforcing focus and strengthening your core business. Also to deliver synergies by exchanging complementary assets that can be swiftly integrated into existing operations.
I have seen first-hand the advantages of asset swaps over other forms of M&A:
To be truly effective, an asset swap needs the relevant expertise, of course. In particular, a professional approach to integrating and separating the assets in question. In my experience, there are five key success factors:
Novartis and GSK’s asset swap a few years ago remains one of the highest profile involving Switzerland. At a deal value of around USD20 billion, it involved Novartis buying GSK’s Oncology unit while selling to GSK its Vaccines business and creating a world-leading consumer health business through a joint venture between Novartis OTC and GSK Consumer Healthcare. By doing so, Novartis primed itself for further growth and reinforced its leadership in cancer medicines, while GSK became number one in vaccines and consumer health. Neither party was compelled to purchase assets they didn’t want, or to spend resources divesting such in the short term. To achieve this, Novartis excluded the flu business from the Vaccines divestment and initiated a separate sales process. It was a clear example of two groups bolstering growth and generating operational synergies in businesses in which they sought leadership, while exiting segments in which they were weaker.
An asset swap requires appropriate post-deal integration. This is where I see many transactions fail to deliver on their promises. Clear goals and a smooth execution must be followed up by a plan that allows the assets to become productive from day one under new ownership and start delivering the expected synergies. By doing so, asset swaps have the potential to become more commonplace – not only in the fast-moving, innovative Swiss Life Sciences sector.