Value of deals overrated: KPMG

Doing deals is one of the cornerstones of biotechnology, and can cover a myriad of activities from obtaining private or public equity, to collaborations and joint ventures, and in- and out-licensing of technology and products. But while transactions can increase the value of a company, too often the deal itself can lead to a decline in shareholder value.

Speaking at the recent AusBiotech investment roadshow "Emerging life science companies - tools to attract investors," Andrew Thompson, from KPMG Transaction Services, said that only 30 per cent of deals had a positive impact on shareholder value.

"KPMG's global research indicates around 70 per cent of transactions do nothing or even destroy shareholder value," he the 50 attendees at the Melbourne event.

Biotechnology companies with strong management, lead products in clinical trials or sold to pharmaceutical companies for further development, a well-balanced pipeline and strong links to academia were more likely to be successful, according to Thompson.

But companies with inexperienced management and poor business skills, poor communications with analysts and the media, an unbalanced pipeline, too narrow a focus or technology platform or limited funding had an increased risk of failure. These companies may benefit from making appropriate transactions to bring in lacking skills or technology, he said.

"Companies need to think at least two years ahead," Thompson told Australian Biotechnology News. "If you haven't got those success characteristics, consider if a deal would help you get them."

A number of essential elements are required to drive transaction success, said Thompson, including evaluating the synergies of the deal, planning integration and due diligence. But along with these measurable activities, it's important to make sure that more intangible elements are also taken care of, including selecting an appropriate management team, resolving cultural issues and communicating the process to stakeholders.

"When people do deals, a lot of the time they focus on things they can measure, but much of the evidence points to a critical need to get the 'soft' stuff right," Thompson said.

In practice, he said, there are a number of actions that can be taken to maximise the value of deals, including taking early action, performing a pre-deal assessment of the value of the deal, and making sure that the transaction is appropriately managed.

There are also a number of common obstacles that Australian biotechnology companies should be aware of before going into deals. For example, companies should ensure their financial and corporate records are in order, and no lawsuits or unfavourable contracts are hanging over the company. Ownership of intellectual property is another common stumbling block in biotechnology deals.

"Many deals fall apart because of simple obstacles, things that should have been done," said Thompson. "Make sure your side of the deal is as ready as it can be."