After the pharmaceutical industry’s muted mergers and acquisitions (M&A) landscape in 2024—deal count remained flat while deal value was down 41% year-over-year—Nick Petschek, EMEA MD at Kotter International suggests many expect M&A to pick back up in 2025.
Kotter International
A large part of that expectation is fuelled in part by upcoming patent expirations and the subsequent need to accelerate innovation. For pharma businesses with an eye on growth or expansion, a reinvigorated dealmaking environment could bring a wave of opportunities—but making the most of them will require leaders to think beyond the deal itself.
Even the most advantageous transaction can be hamstrung by an integration process that fails to strike a balance between shareholder returns and sustainable growth. For pharma companies, the risk is even greater. In an industry characterised by lengthy timelines—where assets can face numerous hurdles before they generate value—getting the balance wrong at the outset can have lasting effects.
In other words, a favourable deal is a good starting point, but ultimate success is governed by what happens after. Therefore, as they develop their post-M&A integration strategies this year, pharma leaders should maintain focus on the assets that underpin all others - the people who make up their teams and the culture that allows them to thrive.
Adding up
M&A can open the door to myriad financial and operational benefits. The challenge before pharma leaders is to build a culture in the newly combined entity that allows them and their teams to access those benefits. Among other factors, pharma companies undergoing M&A will need to assess and prepare for new regulatory requirements, retool processes to account for new capabilities and resources, and align the merging entities’ R&D pipelines. Accomplishing these goals necessitates purposefully integrating two distinct corporate cultures—not just slotting different pieces of the business together.
A poorly planned or executed integration strategy can, for example, create inefficiencies, reduce buy-in, and lead to talent loss, all of which can erode the business’s ability to innovate and serve its stakeholders. To avoid this, deal managers and executive teams should view integration as synonymous with enhancement. It is an opportunity to take an additive approach, combining the best parts of each entity to create something that is more than the sum of its parts. This can be as targeted as creating buy-in from top talent through engagement and input amid the integration, to as broad as a cross-organisation review of existing and incoming standard operating procedures to find or create the best fit for the new organisation. A proactive, additive approach will in turn have an additive effect, enabling companies to build cultural value, retain talent and institutional knowledge, and ultimately create lasting value for patients.
Cultural value
Cultural value is an essential, but often overlooked, component of the M&A process. It may not be a line item on a balance sheet, but cultural value has the potential to add to or detract from the overall value of a deal. Failure to focus on cultural value can lead to friction between teams, slow down decision-making, and undermine progress toward shared goals. Given the longer asset development timelines inherent to pharma companies, these additional headwinds can cause lasting impact and greatly subtract from the on-paper value of a deal.
For example, if teams at one company are accustomed to a hierarchical decision-making culture, while the other company operates with a flatter organisational structure that encourages autonomy, these differences can lead to miscommunications or a lack of unified direction. A passive approach to integration won’t be enough to overcome such a distinction. Deal managers and executive teams should make a deliberate effort not just to combine and reconcile these approaches, but to identify ways in which their strengths can be added together.
Pharma leaders should consider conducting a cultural audit early in the integration process to identify potential pain points and potential opportunities. They can use these insights to help inform a shared vision for the company, engaging key influencers along the way to foster buy-in across their teams and help reach key integration milestones. In so doing, leaders can convert culture from a possible liability into a core strength.
Retaining talent and institutional knowledge
M&A deals have the potential to create a sense of uncertainty within the merging entities, as employees will inevitably have questions about how their roles and responsibilities will be affected. If their questions aren’t answered—or are answered unsatisfactorily—talent loss could follow. For pharma companies, the loss of top talent and key institutional knowledge could threaten operational continuity and harm R&D efforts. Employee retention is critical.
In times of uncertainty, employees will often enter “survive mode” as they deal with their anxieties around the change. Leadership’s goal should be to enable employees to enter “thrive mode,” where they can do their best work and focus on the opportunities ahead of them, rather than the unknowns.
Leaders should communicate early, often, and clearly about integration plans, offering incentives like retention bonuses or new professional development opportunities where applicable to signal their commitment to employees. Efforts to build cultural value will also aid with retention, as culture mismatches or clashes can be another factor that leads employees to adopt a “survive” mentality. Here, too, a shared purpose can help employees regain a feeling that they are working toward something—toward improving patient outcomes, for example—rather than just treading water and “surviving.”
Centring long-term patient value
Successful integration will focus on sustainable, long-term value for the stakeholders who matter most: patients. Improving patient outcomes is the goal of pharma innovation, and M&A is an opportunity for pharma companies to amplify their impact.
When pharma leaders foster a more collaborative and cooperative culture; when they invest in their talent and provide an environment in which those individuals can thrive; when they unify the best and strongest attributes of two merging entities, they contribute to a more efficient and impactful healthcare system. When integration strategies are outcome-driven, pharma companies both fulfil their ethical responsibilities and strengthen their long-term market position.
A holistic approach to integration requires pharma leaders to think beyond the immediate transactional goals of a deal. It requires them to prioritise their commitment to people—both their own employees and the populations they serve—and ask themselves how they can create an environment where their teams can thrive so their patients can, too.