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Strategy for U.S. acquisitions are innately different than those for global acquisitions. Medtech firms should ask these five questions when doing overseas acquisitions, writes Jim Prutow of PricewaterhouseCoopers.
August 20, 2014
4 Min Read
As we found in our 17th Annual Global CEO survey, CEOs everywhere are facing unprecedented challenges, including more diverse and demanding customer segments across multiple markets and, increasingly, intense competition in a global world.
Medical device companies can no longer expect the same level of success by focusing solely on U.S. acquisitions given that growth opportunities lie more and more elsewhere, especially in emerging markets. Leaders in the medical device sector recognize that to stay competitive, they must have a strong Outside the U.S. (OUS) strategy to build out the global capabilities necessary for success in today’s New Health Economy.
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Jim Prutow, Principal, PwC Pharmaceutical and Life Sciences Sector |
The shift toward global acquisitions can be seen in the recent M&A activity in this sector. PwC data shows that in the last 12 months there have been eight deals worth $7 billion in this sector, with five deals pending worth an additional $44.6 billion. OUS growth is an important element in each of the transactions.
Global acquisitions allow medical device firms the ability to more quickly offer products that are designed for the new market, which might have different clinical needs from the U.S. For instance, more robust products that can withstand a wider operating temperature range.
In addition, such transactions provide the parent company with an established local commercial infrastructure enabling them to quickly start increasing sales in a given geography.
While the benefits are numerous, it is important to recognize that acquisition strategies for global and emerging markets differ from U.S. acquisition strategies in some fundamental ways.
Within the U.S., medical device firms focus on three key areas as they evaluate acquisition targets:
Do they have innovative technology and product development capabilities?
Are there immediate revenue opportunities and cost synergies?
Are there innovative new products to provide longer term revenue opportunities?
However, for OUS acquisitions, less emphasis is placed on a company’s current revenue and more focus is directed toward the long-term growth opportunities. In that context, these are five questions that medtech firms evaluating emerging market acquisition candidates need to ask.
What is the company's market commercial capability in that region?
The acquiring/parent company is looking for a candidate that has strong commercial sales capability in that market.Does the company possess product development capability for products in that region?
The parent company needs to think this through from a product development angle. Slapping a foreign label on a U.S. product will not bring sales success, but rather developing products that are suitable for that particular market.Does the acquisition target have the ability to grow in the new region where a U.S. firm is less strong?
Acquiring firms are less concerned about cost synergies and more interested in market synergies and revenue upsideDoes the executive leadership within the target firm have knowledge of the global economy that might be lacking in the U.S. parent company?
As we highlighted in our recent article, “What Does It Take to Get Hired In the Medical Device Industry These Days?” global skills are key to success in today's market.What is the state of the manufacturing, quality, and regulatory environment?
In the U.S., acquiring companies are primarily looking to pull the target's manufacturing into their own operations because of cost considerations. But OUS, it is less likely that the manufacturing operations will be folded into the parent company. Acquiring companies will want to leverage the target's OUS manufacturing into OUS markets so that they will not have to ship products from their existing manufacturing operations.
With regard assessing and monitoring quality and regulatory issues, acquiring companies will typically be required to do more diligence activity for OUS acquisitions.
As we found in our Annual Global CEO survey, the search for growth in the medtech sector is getting more complicated as opportunities in both developed and emerging economies become more nuanced.
While CEOs’ confidence in the global economy is strong, a robust OUS strategy is key to ensuring that this growth will translate into better prospects for their own companies.
[Image Credit: iStockphoto.com user Mikey_Man and PwC]
-- By Jim Prutow, Principal, PwC Pharmaceutical and Life Sciences Sector
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