Your pharmaceutical services company will likely attract significant attention from acquisition firms and larger pharma companies trying to expand their markets, customers, technology, and products. In order to leverage this, knowing what makes your company attractive to buyers, the challenges you may face, and how a company like Objective can guide you through the complex M&A process are key.
Why M&A in Pharma is Thriving
Pharmaceutical companies hold a unique allure for acquirers because of their potential for growth and predictable demand. The predictable demand is relatively protected by other macro factors, as well. For example, pharmaceutical spending remains relatively stable regardless of economic fluctuations, which is untrue for many other industries. The pharma industry also continuously invests in innovation, making it less volatile than many other markets.
In any M&A environment, the future growth potential of the industry in which a business operates is one important consideration when determining a purchase price for the business. In the pharma space in particular, the demand for pharmaceutical products and services fosters a stream of money and innovation, providing stability and predictability that is highly attractive to investors and acquirers.
There are a wide variety of additional unique attributes companies within this space may hold, depending on the specific type of consumers they serve, as well. For example, companies that address the health concerns related to aging, in particular, hold strong growth potential as the number of Americans over age 65 continues to climb, thus making them more attractive to buyers. Depending on the unique concentration, customer demographics, or a variety of other factors, the valuation of a pharma company may be driven higher.
Increasing Your Pharma Company’s Valuation
Pharma companies leverage their valuation based on multiples of Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA).
Here are the four most effective strategies for increasing your EBITDA and pharma company valuation:
- Long-Term Client and Supplier Contracts: To enhance your company’s valuation, prioritize long-term, locked-in contracts rather than one-off transactions to create a stable revenue stream that investors find attractive. These agreements provide sales predictability and contribute to stable costs and margins, reducing risk and making your business more appealing to potential investors. This steady revenue can be accomplished by subscriptions for products, long-term contracts for your services, or a combination of the two.
- High Customer Satisfaction: The predictability and stability of your revenue base are critical factors in increasing your pharma company’s valuation. High satisfaction rates among customers, strategic partners, employees, and suppliers show prospective buyers that you’ve built a solid company that is likely to continue performing well after the sale.
- Profitable Growth: To raise your pharma company’s valuation, focus on growth that increases profitability rather than escalating costs that offset new revenue. Watch your margins closely to ensure new revenue does not decrease profits or your company’s value. The most impactful growth focuses on new services or products that create profits shortly after rollout.
- Synergy Capture: Identifying synergies between your company and prospective buyers looking for market consolidation can increase your valuation. Objective’s extensive knowledge of this industry can help you identify post-M&A cost reductions, increased revenue, and the establishment of new market presence and product offerings. Synergy capture won’t increase your pre-sale EBITDA, but it will help buyers see the potential for immediate positive financial impact of acquiring your company.
M&A in Pharma: Objective Client Case Studies
Pharma M&A Example #1:
This client of Objective specializes in CRM data management for pharma companies, with expertise in navigating complex regulations. Their unique and highly specialized knowledge of the pharma industry’s regulatory aspects made them highly attractive to buyers.
Their business model includes:
- Consulting with a client about their data storage needs.
- Building a new data warehouse to meet the complex regulations of the industry.
- Securing long-term contracts to manage the data storage system.
- Providing analytics to help clients evaluate their performance and potential improvements.
Our advisors did a deep dive into this client’s analytics to understand their customer base and position in the market. This data-based evaluation allowed us to create a clear picture of the growth opportunities for prospective buyers.
The result was a stable, highly predictable customer relationship that spanned several years and a high renewal rate. Objective’s advisors leveraged this client’s multifaceted M&A pharma strategy, significant multiple of EBITDA, synergy capture, and premium valuation to negotiate a successful sale.
Pharma M&A Example #2:
This Objective client is a prominent clinical research site specializing in neurological disorders and clinical trials. Their impressive track record of maintaining decade-long relationships with key customers underscored their predictable revenue, stable growth, and value proposition.
Objective worked closely with the client to focus prospective buyers’ attention on the client’s specialized expertise in neurological disorders, clinical trials, and scalable growth potential. Through a carefully curated marketing strategy and targeted outreach efforts, they attracted the attention of a strategic acquirer who recognized the immense value of market consolidation, ultimately leading to a successful sale at a high multiple of EBITDA.
Unique Challenges in Pharma Services Selling
The pharmaceutical services sector is not without its challenges. Managing the strict requirements of federal regulations, data privacy laws, and complex clinical research requirements is formidable.
When preparing for M&A negotiations, it’s important to anticipate a lengthy due diligence process while the buyer assesses your regulatory compliance. Objective’s experienced pharma M&A advisors understand the selling challenges of regulations and help you prepare for a successful sale by evaluating your company’s compliance before valuation.
How Objective Helps You Navigate M&A in Pharma
Objective’s advisors offer specific experience in M&A pharma and life sciences transactions. We strategically showcase your business’s unique story and navigate the complex world of life sciences M&A. By streamlining operational processes, integrating reliable solutions, and simplifying complex tasks, we can help you strengthen your value proposition.
Our reputation for trustworthiness and established relationships with prospective buyers opens doors that would otherwise remain firmly closed. Our team of experts can guide you through this intricate journey, from understanding your company’s unique appeal, evaluating your regulatory compliance, increasing your EBITDA, determining synergy capture, and contacting our network of prospective buyers.
Reach out today to schedule a call with Objective.
Managing Director, Investment Banking
Channing brings more than 25 years of experience with investment banking and business valuation to our clients. Mr. Hamlet is active in numerous groups including the Association for Corporate Growth where he serves on the Membership Committee for the Los Angeles area. He holds FINRA Series 7, 63 and 79 licenses and is a Registered Representative of BA Securities LLC, Member FINRA SIPC.
The above testimonials may not be representative of the experience of other customers and past performance is not a guarantee of future performance or success.
This news release is for informational purposes only and does not constitute an offer, invitation or recommendation to buy, sell, subscribe for or issue any securities. While the information provided herein is believed to be accurate and reliable, Objective Capital Partners and BA Securities, LLC make no representations or warranties, expressed or implied, as to the accuracy or completeness of such information. All information contained herein is preliminary, limited and subject to completion, correction or amendment. It should not be construed as investment, legal, or tax advice and may not be reproduced or distributed to any person. Securities and investment banking services are offered through BA Securities, LLC Member FINRA, SIPC. Principals of Objective Capital are Registered Representatives of BA Securities. Objective Capital Partners and BA Securities are separate and unaffiliated entities.