[Reporter’s View] M&A storm blows through industry

At a dinner party with a second-generation owner in his 40s, I asked what the company’s goal is for the second half of the year.

 

It was sort of an icebreaker question to warm up the party atmosphere.

 

What I expected was a routine response, such as 'we will be building growth engines by investing in R&D or facilities', ‘we will promptly develop new products into blockbusters’, 'We will maximize profitability by reducing costs', or 'We will increase efficiency in management through the integration of the organization and personnel relocation.’ But the response he gave was completely unexpected.

 

“We plan to prepare for an M&A.” The simple response indicated how the industry has changed over the years.

 

The perception of M&As in the pharmaceutical industry has changed in line with the generation shift in its management, which has been passed on from the founder to second or third generation owners.

 

The plan was also specific.

 

The owner knew the characteristics of the business structure, the stake of the largest shareholder, and the market cap of the companies he was eyeing.

 

He said, “There are many old pharmaceutical companies with weak governance structures.

 

If they can create synergy with our company, there is no reason not to consider an M&A.

 

We are considering several candidates.

 

Our company has a lot of cash, so we can buy companies whose largest shareholder's stake is around 10-15%.

 

The era of selling generics to grow the company is now in the past.

 

Instead of paying commissions for CSO sales, M&A is more cost-effective.” ' I also asked another second-generation owner in his mid-50s whether he had plans for M&As as well.

 

‘Of course’ was the answer.

 

He said, "If the need for M&A was recognized in the past, this is now the time to act on it." Citing the case of GC Pharma and Ildong Pharmaceutical, he emphasized that being tied to past relationships will only hinder efficient business management.

 

“Whether the owner can lead his/her employees well is a core competency required for owners.

 

You may miss opportunities if you give up M&As because you have known each other for a long time.

 

If GC Pharma and Ildong Pharmaceutical's big deal had occurred, it would have been another milestone for the pharmaceutical industry.

 

At that time, the deal was criticized as a hostile takeover, but the view on M&As has now changed.

 

It has now become one of the pillars of business management." To collect a more collective opinion of the industry, I continued to ask the same question to second and third generation owners on their opinion of M&As.

 

Most of the owners had a positive attitude towards M&As.

 

Some also hinted at specific plans, such as a specific pharmaceutical company and accompanying financing plans.

 

However, a conservative mindset regarding M&As remains in the industry still.

 

There are cases where companies acquire bioventures, cosmetics, and functional health food companies as a means of business diversification, but large-scale M&As between pharmaceutical companies are rare.

 

PharmaResearch and CTC Bio, which have been fighting over shares, is the M&A possibility that currently exists in the field.

 

The change is palpable.

 

Following the attitude of its second and third generation owners, the companies’ attitude towards M&A has changed to take on a more pro-M&A stance.

 

Times have changed, and things that seemed impossible in the past are now being taken for granted.

 

In this context, could it be that an M&A storm is blowing through the industry?

 

At least, the second and third generation owners' perspectives are more pro-M&A for sure.

 

Although M&As are not the answer for everything, if it can be considered as a means of business management and used wisely, it has ample potential to bring another boom in the pharmaceutical industry.