In the business press, discussions of mergers or acquisitions (M&A) invariably highlight the high percentages of deals that fail to realize their expected value creation. With failure rates ranging from 60-80 percent, the numbers are alarmingly high. This suggests that many companies proceed with medical device or pharmaceutical deals without fully understanding their risks. Often, the root cause of these failures lies in a due diligence process that is too high-level or superficial.
When a life sciences company considers a merger or acquisition, the due diligence team typically focuses on regulatory compliance issues such as 483s, Warning Letters, notified body findings, and product recalls—indicators of potential problems with the FDA. While these factors are crucial, they represent only a part of the picture. A narrow focus on these elements can lead to overlooking deeper, more significant risks that can derail the deal’s success.
The real causes of value erosion in M&A transactions are often strategic, cultural, or technical. Strategically, companies might misjudge market opportunities, competitive dynamics, or the alignment of the acquired company’s portfolio with their own. Culturally, differences in corporate values, leadership styles, and employee expectations can create friction and disrupt integration efforts. Technically, issues such as incompatible IT systems, unmet regulatory requirements, or underestimated R&D challenges can pose substantial barriers.
A comprehensive due diligence process must go beyond the surface-level checks to include in-depth evaluations of these strategic, cultural, and technical dimensions. This involves engaging experts to assess market potential, conducting cultural compatibility studies, and performing detailed technical audits. By identifying and addressing these deeper issues early in the process, companies can better manage risks and increase the likelihood of achieving the anticipated value from the deal.
For life sciences companies, understanding the full spectrum of risks and conducting thorough due diligence is essential for successful M&A transactions. This holistic approach helps ensure that mergers and acquisitions contribute positively to the company’s growth and strategic goals, rather than becoming costly mistakes.