Innovative initiatives to refocus portfolios and build category leadership continue to be high on the C-suite agenda. With deal volumes expected to rebound throughout 2018 and beyond, could asset swaps make a resurgence? While executing these deals is not without significant challenge, the benefits achievable can be sizeable.
Life sciences companies face rising R&D costs, downward pricing pressure, and increasing regulations, along with geopolitical events like US tax reform. As they rationalise portfolios and focus on fewer segments, there has been a rise in M&A - but is now the right time to reconsider asset swaps as a viable alternative?
In this paper we argue that asset swaps can help swiftly and efficiently build leadership in specific therapeutic categories, looking at the main challenges of this type of transaction and examining how best to execute these deals successfully.
Asset swaps have a number of potential advantages over traditional M&A:
Asset swaps can boost growth in core businesses and offload unwanted assets to improve ROI. They also provide very high deal precision, as they only include products or business units that each party specifically selects.
Through simultaneously acquiring and divesting, asset swaps let both parties build critical mass swiftly in line with their business strategies and product portfolios.
In traditional M&A, companies are under pressure to invest divestment funds to generate shareholder value - which can lead to hasty decisions. In asset swaps, however, new businesses are acquired instantly and contribute immediately to revenue and earnings. And with similar priced entities being exchanged, there is less need to either use company cash or seek additional funding from capital markets.
With an asset swap, there is no requirement to acquire superfluous resources from the selling company, minimizing historic liabilities like tax treatment.
Asset swaps should be especially beneficial to companies with a clear strategy of category leadership. It is important to find a partner with mutual goals, and to build trust and reciprocity, putting aside traditional competitive rivalries to ensure a free information flow and agreed asset valuation.
By focusing on capturing post-deal value, both parties can coordinate integration with separation to transition the new assets into each other's businesses.