CRO - Contract Research Organization How Drug Research Is Evolving How Drug Research Is Evolving (Jakob Miera)

Jakob Miera
CRO – Contract Research

Organization
How Drug Research is Evolving
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CRO – Contract Research Organization: How Drug Research is Evolving : How Drug Research is Evolving, Diplomica Verlag, 2014. ProQuest Ebook Central,
Miera, Jakob: CRO – Contract Research Organization: How Drug Research is Evolving.
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Index
Index V
LIST OF FIGURES ...................................................................................................................................... VII
LIST OF TABLES ..................................................................................................................................... VIII
LIST OF ABBREVIATIONS ...................................................................................................................... IX
INTRODUCTION ........................................................................................................................................11
METHODOLOGY ........................................................................................................................................12
1. MERGER & ACQUISITIONS FUNDAMENTALS.............................................................................13

ͳǤͳ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͳ͵
ͳǤʹ Ƭ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͳͶ
ͳǤ͵ƬǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͳͺ
2. CONTRACT RESEARCH ORGANIZATION INDUSTRY ................................................................20

ʹǤͳ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤʹͲ
ʹǤʹ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤʹ͵
ʹǤ͵ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤʹͷ
2.3.1 Macro environment – PESTEL ............................................................................................................ 25
2.3.2Microenvironment - Porter.................................................................................................................... 27
ʹǤͶ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͵Ͳ
2.4.1 Structural Changes in the CRO Industry ......................................................................................... 30
2.4.2 Growth Strategies..................................................................................................................................... 32
2.4.3 Mergers & Acquisitions in the CRO Industry ................................................................................. 33
3. EXPLANATORY APPROACHES AND MOTIVES FOR M&A ........................................................35

͵Ǥͳ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͵͸
3.1.1 Synergy ......................................................................................................................................................... 36
3.1.2 Market Power............................................................................................................................................. 37
3.1.3 Portfolio Hypotheses / Diversification............................................................................................. 38
͵Ǥʹ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͵ͺ

3.2.1 Valuation Theory ...................................................................................................................................... 39
3.2.2 Tax Hypothesis........................................................................................................................................... 39
͵Ǥ͵ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͶͲ
3.3.1 Hubris ............................................................................................................................................................ 40
3.3.2 Agency Hypothesis ................................................................................................................................... 40
4. SUCCESS FACTORS FOR THE MERGER & ACQUISITIONS PROCESS.....................................42
ͶǤͳ Ƭ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͶʹ
4.1.1 The Planning Phase ................................................................................................................................. 43
4.1.2 The Execution Phase ............................................................................................................................... 44
4.1.3 The Integration Phase ............................................................................................................................ 46
ͶǤʹ ƬǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͶͺ
4.2.1 Potential Success Factors in the Strategic Planning Phase .................................................... 48
4.2.2 Potential Success Factors in the Execution Phase ...................................................................... 51
4.2.3 Potential Success Factors in the Integration Phase ................................................................... 53
5. CASE STUDY: MERGER & ACQUISITIONS IN THE CRO INDUSTRY ......................................56

ͷǤͳƬ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͷ͸
ͷǤʹ Ƭ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͷ͹
ͷǤ͵ Ƭ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤͷͻ
5.3.1 Strategic Planning Phase ...................................................................................................................... 59
5.3.2 Execution Phase ........................................................................................................................................ 61
5.3.3 Integration Phase ..................................................................................................................................... 62
ͷǤͶ Ƭ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͸Ͷ
ͷǤͷ ƬǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͸ͷ
6. CONCLUSION AND RECOMMENDATIONS.....................................................................................68
APPENDIX ...................................................................................................................................................61
BIBLIOGRAPHY .........................................................................................................................................73
VI
List of Figures
Figure I-I Structure of the book
Figure 1-1 Concept of M&A definition
Figure 1-2 Merger Waves in the US Industry
Figure 1-3 Merger Waves in Europe and Asia Pacific (total numbers of deals)
Figure 1-4 Recent world-wide Mergers & Acquisitions
Figure 2-1 The drug development process
Figure 2-2 CRO revenue growth 1992 – 2013E
Figure 2-3 The CRO scope of operations
Figure 2-4 The ten largest CRO corporations by revenue
Figure 2-5 Clinical Trial Management Systems
Figure 2-6 Revenue growth for the CRO industry
Figure 2-7 Worldwide distribution of clinical trials
Figure 2-8 EBITDA multiple 2007 – 2012
Figure 3-1 Possible synergy benefits
Figure 3-2 Diversification Strategy
Figure 4-1 The development of the M&A process
Figure 4-2 The planning phase and its first three steps
Figure 4-3 The execution phase with steps 4 – 6
Figure 4-4 Valuation approaches
Figure 4-5 The integration phase with its three last steps
Figure 4-6 Stages for a successful screening process
Figure 5-1 Sent and completed surveys and analysis in which kind of M&A the
participants were involved
VII
List of Tables
Table 2-1 Selected takeovers in the CRO industry
Table 3-1 Potential reasons for Merger & Acquisitions
Table 4-1 Potential success factors of the strategic planning phase
Table 4-2 Potential success factors in the execution phase
Table 4-3 Potential success factors in the strategic integration phase
Table 5-1 Summary of the potential reasons for M&A in the CRO industry
Table 5-2 Potential success factors in the strategic planning phase
Table 5-3 Potential success factors in the execution phase
Table 5-4 Potential success factors in the integration phase
Table 5-5 Summary of potential reasons for M&A in the CRO industry
Table 5-6 Determinants and evaluation of success after an M&A

VIII
List of Abbreviations
CAGR Compound Annual Growth Rate
CRO Contract Research Organization
et. al. et alii (and others)
f. folio (following page)
ff. folios (following pages)
FDA Food and Drug Administration
HTS High Throughput Screening
ibid. ibidem (the same place)
IND Investigational New Drug
IPO Initial Public Offering
LBO Leveraged Buy-Out
M&A Merger and Acquisitions
MBO Management-Buy-Out
NDA New Drug Application
op. cit. opere citato (in the worked cited)
p. page
pp. pages
PLC Product Life Cycle
PPD Pharmaceutical Product Development
PPP Public Private Partnerships

R&D Research & Development
IX
Introduction
This book deals in general with mergers & acquisitions in the CRO industry, and more
specifically with reasons for M&A, success factors during the M&A process, and why M&A
can fail in the Contract Research Organization industry.
The pharmaceutical industry faces increasing obstacles in respect to the development and
introduction of new medications. That has to do with stricter requirements for admission and
sharper controls by authorities. Today, the research and development of a new drug can easily
consume more than $800 million and lasting between 10 and 15 years. Due to these admis-
sion, money and time pressures, pharmaceutical companies are looking for an alternative in
the drug development process. A very popular alternative is the outsourcing or in-house
working with Contract Research Organizations (CRO). Contract Research Organizations are
specialized in coordination and monitoring of drug development activities. Due to their focus
they often offer a more sophisticated and faster process.
Demographic changes, chronic diseases like cancer and diabetes, and completely new cluster
of symptoms demand new therapeutically treatments. The size of the CRO market in 2012
was around $32 billion and had an estimated market growth of around 9 – 12% for 2013.
Increased outsourcing and allocation of R&D money towards CRO reflects a driving force for
prospective growth. To benefit from the good industry outlooks CROs adjust their service
offerings and strengthen their competitive situation.
More and more Contract Research Organizations consider mergers & acquisitions as a vital
solution to achieve their objectives. Since couple of years we can observe an increased
number of deals. Large corporations can close the gaps in the internal service pipeline and
smaller firms can use mergers as a financial exit.
However, many M&A activities are considered as ineffective and contra-productive for the
shareholder value – either destroy or merely add. Depending on the study, the numbers of
M&A failures vary from 50% to even 80%. Possible reasons may be not enough integration
planning and unrealistic expectations on the cost and time. The reality shows that it is not that
easy to cut costs by simple combining two departments after a merger or acquisition. Addi-
tionally, we can see that mergers and acquisitions basically not succeed during the actual
process.
11
Methodology
Mergers and Acquisitions in the CRO industry are a relatively new field from the perspective
of academic research. When we have such a high number of M&A failures in general, is it
possible to identify and counteract the reasons. The purpose of this book is, whether the
possibility exists to workout specific factors in avoidance of failures for M&A.
In order to answer this question, the book is structured in the following way. After the
introduction, the fundamentals of Merger & Acquisitions will be described. The definition,
the history and what are recent trends for the M&A market.
The next chapter is to get acquainted with the Contract Research Organization industry.
After the description of the drug development process, the book presents the fundamentals of
the CRO business. The structural analysis consists of the PESTEL and Porter-5-Forces.
The third chapter is about explanatory approaches and motives for mergers and acquisi-
tions. It is divided in the parts of strategic, financial and managerial motives. The core of this
chapter is to assess key motives of each part from the theoretical point of view.
After the merger and acquisitions process is described in chapter four, the book examines
the potential success factors of the strategic planning, execution and integration phase. Similar
to the previous chapter the factors are based on academically research.
Finally, the fifth chapter is a case study where theoretical and practical aspects are com-
bined. The previous examined theoretical framework is evaluated on the basis of a survey.
The data is analyzed in tables and on the one side ranked according to the number of entries
and on the other side according to the average score.
Figure I-I: Structure of the book
12
1. Merger & Acquisitions Fundamentals
1.1 Definition and History
The conceptual word-pair Merger & Acquisition is used since the first merger wave in the
years 1895 till 1904 (for M&A history see Chapter 2.1.2).1
The word merger has a clear legal meaning. A merger occurs when two or more corpora-
tions are combined and only one legally ceases to exist.2 For instance, company A mergers
and disappears legally into company B. Shareholders of company A exchange their shares for
those of company B. Often the companies are about the same size. Generally, a merger differs
from a consolidation. Referring, to the above-mentioned example with company A and B, a
consolidation would generate an entire new company C.
An acquisition is the process where the shares or assets of one corporation come to be
owned by another corporation. The purchase may lead to the outcome that one company takes
a controlling interest of another company. Moreover, an acquisition occurs when one corpora-
tion acquires from another corporation an entire business operation and its assets.3
Additionally, the term Merger & Acquisitions has a series of different national and interna-
tional meanings4:
• Collaboration, Strategic Alliance and Joint Venture
• Spin off
• Management Buy-in and Buy-out (MBO)
• Private Equity involvement
• Public Private Partnerships (PPP)
• Initial Public Offering – IPO
• Transformation and Restructuring
• Outsourcing
However, in the following chapters the focus will be on a narrower definition of M&A (see
Figure 1-1). Besides the previous mentioned M&A definitions we are going to use the terms
strategic alliances and joint venture. Strategic alliances and joint ventures are increasingly
1
Wirtz, B., Mergers & Acquisitions Management, Gabler, Wiesbaden, 2003, p. 10.
2
Krug, J.A., Mergers & Acquisitions, Sage, London, 2008, p. 2 f.
3
Lucks, K. / Meckl, R., Internationale Mergers & Acquisitions, Springer, Berlin, 2002, p. 24f.
4
Achleitner, A., Handbuch Investment Banking, Gabler, Wiesbaden 2002, p. 141 f. and Copeland, T.E., et al.,
Financial Theory and corporate policy, Prentice Hall, Boston, 2005, p. 755 f. and Picot, G., Handbook Merger
& Acquisition, Schaeffer-Poeschel, Stuttgart, 2012, p. 29.
13
more important and common organizational vehicles for companies in the drug research and
development (R&D) business.5
Figure 1-1: Concept of M&A definition

Own representation based on Grünert (2006)6
Strategic alliances are contracts between legally distinct corporations or other organizations.7
These corporations usually implement a strategy together, share resources and pursue a
specific, mutually beneficial goal.8
Another form of strategic relationships is a joint venture. A joint venture is a common
subsidiary between two or more legally independent corporations. All involved parties share
mutually in the profits and losses.9
1.2 Types and history of Merger & Acquisitions
The academic literature discovered that mergers & acquisitions phases usually come in
waves.10 Thus far, five completed waves have been examined - those of early 1900s, the
5
Robinson, D.T. / Stuart, T., Financial Contracting in Biotech Strategic Alliances, Journal of Law and
Economics, 50, (2007): p. 560f.
6
Grüner, T., Mergers und Acquisitions in Unternehmungskrisen, Dissertation University of Gießen, Gabler,
Wiesbaden, 2006, p. 27.
7
Underhill, T., Strategic Alliances, Penn-Well, South Sheridan, 1996, p. 1.
8
Robinson, D.T., Strategic Alliances and the Boundaries of the Firm, Review of Financial Studies, 21 (2), 2008,
p. 650f.
9
Gutterman, A., A short course in International Joint Ventures, World Trade Press, Novato, 2002, p. 1.
10
Gaughan, P.A, Merger, Acquisitions, and Corporate Restructering, Wiley & Sons, Hoboken, 2007, p. 27 and
Martynova, M. / Renneboog, L., A century of corporate Takeovers, Journal of Banking and Finance, 32 (10),
2008, p. 2153, and Eckbo, E., Handbook of Empirical Corporate Finance, Elsevier, Berlin, 2008, p. 295
14
1920s, the 1960s, the 1980s, and the late 1990s, followed by periods with significantly lower
activity.11 These periods mostly characterize the US M&A market, whereas the European and
Asian market had a significantly lower transaction value until the 1990s. Specific types of
merger and acquisitions characterize each wave. Typically, the formation of a wave goes
along with political, economical, and regulatory changes.
Figure 1-2: Merger Waves in the US Industry

Own representation based on: Müller-Stewens (2010)12
The first wave (1897-1904) was characterized by horizontal consolidations (about 80% of all
M&As) in the heavy manufacturing industry, like fabricated metal products, petroleum
products, chemicals, and machinery.13 A horizontal consolidation generally occurs, when two
competitors from the same industry combine. This kind of consolidations often led to monop-
olistic market structures.14 Approximately 42 important industries were controlled by compa-
nies with at least 70% market share.15 The wave finally ended up due to economical reasons
and the stock market crash. Additionally, the Supreme Court introduced the Northern Securi-
ties Decision and the Sherman Act, which was used to attack anticompetitive structures.16
The second takeover wave emerged in the late 1916s and continued through the 1920s. The
wave was strongly characterized by vertical mergers and the monopolistic markets structures
changed to oligopolies with two or more commanding corporations.17 A vertical merger is the
combination of two companies in the same production process but at different value chain
11
ibid.
12
Müller-Stewens, G., M&A als Wellen-Phänomen, Schäffer-Poeschel, Stuttgart, 2010, p. 16.
13
cf, Gaughan, P.A., Merger, loc.cit., p. 30 and Fligstein, N., The transformation of Corporate Control, Harvard
University Press, Cambridge,1993, p. 72.
14
ibid.
15
Sudarsanam, S., Creating Value from Mergers and Acquisitions, Pearson Education, Harlow, 2003, p. 15
16
Gaughan, P.A., Merger, op. cit., p. 36
17
DePamphilis, D.M., Merger, Acquisitions, and other restructuring activities, Elsevier, Burlington, 2011, p.
16.
15
stages.18 Consequently two basic forms exist: the backward integration, a corporation acquires
a supplier, and the forward integration, where a corporation buys its customer. The stock
markets crash of 1929 and as the consequence thereof Great Depression marked the end of the
second wave.19
Regulatory changes in the anti competitive law led to the third takeover wave (1965-1969).
This was mainly characterized by diversifying takeovers that led to the development of
conglomerates.20 Pure conglomerate mergers occur between companies in largely unrelated
markets that are not competitors and do not have a customer-supplier relationship.21 Academ-
ic literature and studies show that many merger & acquisitions were followed by poor
financial performance – more than 60% of cross-industry acquisitions that occurred during the
period were sold or divested.22 A recent example for a conglomerate merger is the fusion
between Berkshire Hathaway and Burlington Northern Santa Fe.23
The emerge of new financial instruments and markets (e.g. Junk Bond market24) together with
significant changes in antitrust law (deregulation) introduced the fourth M&A phase (1981-
1989). During this period the market was strongly characterized by going-private transactions
like Leveraged Buy-Outs (LBO) and Management-Buy-Outs (MBO). Through this instru-
ments listed companies were acquired and subsequently delisted.25 Both transactions are
characterized by the way of financing where a great amount of money is borrowed. The LBO
is usually undertaken by company outsiders (private equity investors), whereas a MBO is
realized by the company’s management team.26
In 2011, one of the largest publicly held CRO companies PPD was acquired via a lever-
aged buy out (LBO) by the Carlyle Group and Hellman & Friedman for approximately $3.9
billion.27
18
Megginson, W.L. / Smart, S.B., Introduction to Corporate Finance, Cengage Learning, Mason, 2008, p. 855
19
Gaughan, P.A., Merger, op. cit., p. 36
20
Martynova, M. / Renneboog, L., A century of corporate Takeovers, Journal of Banking and Finance, 32 (10),
2008, p. 2145 f.
21
French, R., et al., Organizational behaviour, Wiley & Sons, Hoboken, 2011, p. 319.
22
ibid.
23
Pride, W.M., et al., Business, Cengage Learning, Mason, 2012, p. 126.
24
Junk Bonds are publically traded debt obligations. They are rated as noninvestment grade by the independent
rating agencies (Standard & Poor’s lower than BBB- and Moody’s lower than Baa3); see Altman, E.I. /
Nammmacher, S.A., Inside the high yield debt market, Beard books, New York, 2003, p. 1.
25
Renneboog, L. / Simons, T., Public-to-private transactions: LBOs, MBOs, MBIs and IBOs, Discussion Paper,
Tilburg University, 2005, p. 2f.
26
ibid.
27
Online Sources: “http://www.contractpharma.com/contents/view_expert-opinions/2011-12-14/ppd-goes-
private-whats-next/” and “http://www.pharmatimes.com/article/11-10-
06/PPD_goes_to_private_equity_for_US_3_9_billion.aspx”, Accessed: 21.03.13)
16
Increasing globalization and technological innovation together with the economic and
financial bull markets led to the fifth M&A phase between 1992 and 2001. According to the
volume of transactions this wave was the first one with a real international nature with the
transnational Mega-Deals. For the first time the deals in Europe were almost as large as the
deals of the US market.28 Particularly, German, British and French firms were very active as
acquires, but also popular takeover targets.29 Companies start to move toward core businesses
or specializations with divestitures or other forms of restructuring.30 Divestitures can occur as
a spin-off, sell-off, and equity carve out or can take the form of sales of corporate assets and
resources.31
For instance, ICI demerged via a divestiture into ICI and Zeneca, which merge with Astra
to form the second largest UK pharmaceutical company AstraZeneca.32 Additionally, five out
of the ten largest M&A deals occurred during this wave, e.g. the acquisition of SmithKline
Beecham by Glaxo Wellcome in the year 2000 for $76 billion to form another pharmaceutical
big player GlaxoSmithKline.33
Figure 1-3: Merger Waves in Europe and Asia Pacific (total Number of deals)
Source: Thomson Reuters Financial Securities Data
28
McCarthy, K.J., Understanding success failures in mergers and acquisitions, Dissertation, University of
Groningen, 2011, p. 15.
29
Martynova, M. / Renneboog L., Mergers and Acquisitions in Europe, Discussion Paper, Tilburg University,
2006, p. 10.
30
Bhagat, S., et al., Hostile takeovers in the 1980s: The return to corporate specialization, Brookings Papers on
Economic Activity,1990, p. 1 ff.
31
Brauer, M.F. / Wiersema, M.F., Industry Divestiture Waves, Academy of Management Journal, Vol. 55 (6),
2012, p. 1472.
32
Sudarsanam, S., Creating, op. cit., p. 25.
33
ThomsonReuters
17
As mentioned above M&A waves go along with political, economical, and regulatory
changes and typically occur during periods of high economic growth. Often the end of a wave
was due to stricter legal rules or stock market crashes - similar to the first two takeover phases
the third and fourth ended with a stock market crash and economic slowdown, the fifth was
also negatively influenced by the 9/11 terrorist attacks.34
1.3 Recent M&A Trends
Recent studies have examined that merger waves increased in intensity and frequency.35 The
waves have larger volumes and are following more rapidly. After the fifth wave ended the
total transaction value dropped by 55% in 2001 and 39% in 2002.36
The sixth merger wave started in 2003, with a total transaction value increase of approxi-
mately 30% and climax in 2006, before it significantly dropped in 2008.37 Low interest rates
after the stock market crash in 2001 led to excessive lending and high liquidity. Also cost-
cutting programs, which were introduced by the corporations after the crisis, generate large
cash pools. As a consequence thereof the financing patterns changed to be more cash than
equity intensive – the portion of equity in deals decreased by nearly 30%.38
Summarizing, mergers and acquisitions play more and more important role in the business
world. A successively increasing number of company fates depend on the evolution. The
number of transactions increased over the year and will rise together with the amplitudes over
the next years.
34
McCarthy, K.J., Understanding success, op. cit., p. 40.
35
Dong, et al., Does investor misevaluation drive the takeover market, Journal of Finance, No. 61, 2006, pp.
725 – 762 and Moeller, S.B., et al., Wealth destruction on a massive scale. Journal of Finance, No. 60, 2005, pp.
757 – 782.
36
Alexandridis, G., et al., How have the M&As changed? Evidence from the sixth merger wave, European
Journal of Finance, No. 18 (8), 2011, p. 669.
37
ibid.
38
The fifth merger wave was dominated by stock financing (around 70% of all deals include stock compensa-
tion). .Rhodes-Kropf, M. / Viswanathan, S., Market valuation and Merger Waves, Journal of Finance, 59 (6),
2004, pp. 2685 - 2718 and Andrade, G., et al., New evidence and perspectives on mergers, Journal of Economic
Perspectives, No. 15, 2001, pp. 103 – 120.
18
Figure 1-4: Recent world wide Mergers & Acquisitions
Source: Thomson Reuters Financial Securities Data, Institute of Mergers, Acquisitions and
Alliances (IMMAA)
19
2. Contract Research Organization Industry
2.1 The Drug Development Process
The history of the Contract Research Organization industries can be traced back to the
Contergan- and thalidomide scandal in the 1950s. Contergan was a drug based on the ingredi-
ent thalidomide. It was developed and introduced by the German pharmacy company Chemie
Grünenthal. The purpose of the drug was to help woman against morning sickness in the early
period of pregnancy and to help against headaches and colds.39 Despite the low quality of
scientific and clinical research the drug was introduced in 1957 in Germany and latterly on at
a global scale.40 The outcomes were tragically as side effects of thalidomide led to teratogenic
(causing malformations) effect on human foetal development.41
Since this huge thalidomide scandal the process of drug approval has completely changed.42
The FDA43 (Food and Drug Administration) regulation became much more stringent.44 One
major shift was the Kefauver-Harris Amendment in 1962. The act required important changes
from the pharmacy and cosmetic companies:
• Effectiveness and safety of all new drugs
• Regulatory Controls on the entire clinical research process
• Disclosure of side effects on drug marketing and labelling45
The FDA approach became the global standard of pharmaceutical drug trials. First of all,
because the volume and size of the US market but later on due to the harmonization process
of regulatory requirements in Europe and Japan.46
The drug development process is very complex and can easily take up several years. Accord-
ing to a PhRMA research study the development of a new drug consume on an average $800
39
Reichl, F. / Schwenk, M., Regulatorische Toxikologie, Springer, Berlin, 2004, p. 433.
40
White, A., Thalidomide and the FDA, Health Care Law & Policy, No. 12, 2001, p. 4ff.
41
ibid.
42
Drews, J., Die verspielte Zukunft, Birkhäuser-Verlag, Basel, 1998, p. 160.
43
The FDA is the central U.S. department of Health and Human Services. The core functions are Medical
Products and Tobacco, Foods, Global Regulatory Operations and Policy, and Operations. Particularly, the FDA
is responsible for protecting the public health by assuring the safety, effectiveness, and security of human and
veterinary drugs. The European equivalent is the EMA (European Medicine Agency) where the FDA is also very
active due to its extensive regulatory cooperation. (Source:
http://www.fda.gov/AboutFDA/Transparency/Basics/ucm192695.htm, Accessed: 21.04.2013)
44
Grabowski, H.G. / Vernon, M., Consumer protection in ethical drugs, American Economic Review, 67 (1),
1977, p. 359 f.
45
ibid.
46
Getz, K. / de Bruin, A., Breaking the development speed barrier, Drug Information Journal, No. 34, 2000, p.
732
20
million - $1 billionn and lastingg between 10 and 15 yeears.47 Geneerally, the FDA-manda
F ated drug
developpment process consistts of four main stagees: drug diiscovery, preclinical research,
r
clinical trials, and Regulatory
R Approval (see Figure 22-1).48
Figure 2-1: The drrug develop pment proccess

Own reppresentationn based on PhRMA
P stuudy (2007) aand Mirowsski (2005)499
T primaryy drug research is a

The enttire developpment proceess starts wiith the drugg research. The
model of
o cooperattion betweeen many different partticipants. Private organnizations liike huge
pharmaccy corporattions or sm
maller speciaalized comppanies are usually thee primary so
ource of
researchh findings.50 Public insstitutions liike medicall schools, universities,
u and other research
facilities also play a very signnificant rolee in the disscovery proocess.51 In both
b approaaches the
scientistts will set up
u a researcch project too understannd and find a way to cuure a diseasse. After
the grouups have enough
e matterials to fully
fu undersstand the ddisease pattern the poiint is to
identifyy a moleculee or lead coompound thaat could curre the diseaase.52 Sincee the 1990s the high
throughhput screeniing (HTS) iis a dominaant approachh for identiifying lead compoundss.53 With
47
PhRM MA, Drug disccovery and development, Phharmaceutical Research andd Manufacturees of Americaa,
Washingtton, 2007.
48
Mirowwski, P. / Van Horn, R., Thee contract reseearch organizzation and the commercializzation of scien ntific
research,, Social Studiees of Service, Vol. 35 (4), 2005,
2 p. 509
49
PhRM MA, Drug discoovery, op. cit., p. 2 f., and Mirowski,
M R., The contracct, op. cit., p. 509
P. / Van Horn, R 5 f.
50
PhRM MA, Drug discoovery, op. cit., p. 3 f.
51
ibid.
52
Hubbaard, R., Structuure-Based druug discovery, RSC Publishiing, Cambridgge, 2006, p. 4 and PhRMA, Drug
discoveryy, op. cit., p. 3 f.
53
Rankoovic, Z. / Morpphy, R., Lead generation appproaches in ddrug discovery
ry, John Wileyy & Sons, Hob boken,
2010, p. 22.
2
21
this method we can screen hundreds of thousands potential successful lead compounds, which
may cure the disease.54
After the screen of thousand of possible lead compounds the scientists choose the ones, which
are particularly promising and relatively safe. These lead compounds are used in the preclini-
cal phase on animal material, typically mice and rats. If the therapy shows successful out-
comes, the research facility will fill out the Investigational New Drug (IND) application to
receive the preliminary approval for the next stage.55
The clinical trial phase is divided in three different parts (trial phase 1 – 3, see Figure 2-1),
each with an increasing number of patients. The drug is used for the first time on volunteer
human candidates und must undergo excessive studies to asses the safety and efficiency.56
1. Phase (20 – 100 healthy candidates)

• Pharmacokinetics: Absorption and metabolism of the drug
• Pharmacodynamics: Estimation of desired and adverse effects
• Determination of dosing range
• => Overall drug safety
2. Phase (100 – 500 patients with this special disease)
• Is the drug working in a proper way and improve the patients conditions
• Interactions with other drugs
• Adverse effects
3. Phase (1.000 – 5.000 patients to provide statistically significant data)
• Benefit-Risk relationship of the drug
• Final determination of drug safety and effectiveness
If the scientists can show that the tested drug is both safe and effective they submit the New
Drug Application (NDA), which can have more than 100.000 pages. The NDA is the formal
process to obtain the permission to sale and to marketing a new drug. Additionally to the
above-mentioned points the regulating authority assess if the labelling is appropriate and if
manufacturing methods are adequate.57 The final step (after the drug was already approved) in
54
ibid.
55
Mirowski, P. / Van Horn, R., The contract, op. cit., p. 509.
56
Meinert, C., Clinical trials: Design, conduct, and analysis, Oxford University Press, New York, 2012, p. 4,
and PhRMA, Drug discovery, op. cit., p. 3 ff.
57
Online Source:
http://www.fda.gov/Drugs/DevelopmentApprovalProcess/HowDrugsareDevelopedandApproved/ApprovalAppli
cations/NewDrugApplicationNDA/ (Accessed: 30.04.2013)
22
the drug development process is phase four trial (Post-Marketing Surveillance). The regulat-
ing authority demands subsequent monitoring under more real-life conditions. In this phase
scientists can focus on different drug doses and demographic groups with different ethnical
background.58
2.2 Fundamentals of Contract Research Organizations
As we have seen the drug development process is one of the most extensive and expensive
activities conducted by any private industry segment in the world. It is also stringently
regulated and monitored. Following the identification of a promising new drug candidate, a
drug developer (sponsor) must demonstrate safety and efficacy through a series of prescribed
laboratory experiments and tests in both animals and humans. The above-mentioned data for
study of drug development reinforces the long-standing observation that developing a drug
typically takes twelve to fifteen years and costs can easily excess $1 billion. Derived from
these data the importance of an effective and efficient Contract Research Organization (CRO)
is evident.
According to academically researches pharmacy corporations start to outsource or work in-
house with specialized CROs in the 1980s. As we determined earlier the process of drug
development is very lengthy and costly and pharmaceutical corporations are seeking for
opportunities to cut costs. Outsourcing could shorten the drug development process and bring
the desired cost benefits. Estimations expose that a drug delay may even cost $4 million to $5
million per day in lost revenues.59 Therefore, the management of clinical trials has become a
business of its own.60 Pharmaceutical companies are able to turn their fix costs into variable
costs. Usually, Contract Research Organizations coordinate and monitor the clinical trial
phase I – III. This phases stand for approximately 70% of the complete research & develop-
ment cost of a drug.61 Additionally to the core business CRO corporations conduct pre-
clinical studies, phase IV marketing surveillance and maintain their own central laboratories.
58
Chin, R. / Lee, B., Principles and practivces of clinical trial medicine, Elsevier, London, 2008, p.39.
59
Pope, D., Do it right…the first time, Applied clinical trials journal, March 2013, p. 50.
60
Jonvallen, P., Compliance revisited: pharmaceutical drug trials in the era of the contract research organiza-
tion, Journal of Nursing Inquiry, No. 16, 2009, p. 1.
61
Huijstee, M. / Homedes, N., Putting contract research organizations on the radar, Journal of International
Psychiatry, Vol. 9 (2), 2012, p.32.
23
he emerge of the Con
Since th ntract Reseaarch Organiizations theeir industry faces succcessively
growing
g revenues (see Figuree 2-2). Betw
ween the yeears 1997 annd 2007 thee compound
d annual
growth rate (CAGR
R) was apprroximately 34%
3 and for the years 22008 to 201
13E 15%.
Figure 2-2: CRO rrevenue Grrowth 19922 – 2013E

Own reppresentation
n based on Mirowski
M (2 uity62
2005), IMS Health, Heealthcare Inssider, Clinu
To sum
m it up we caan abstract that
t Contracct Researchh Organizatiions work in
n the interseection of
three most
m importaant points: G
Global regu
ulations, whhich are the basic fram
mework for conduct-
c
ing any
y kind of drrug developpment, Busiiness (Monney), withouut this any corporation
ns would
invest the
t amount of money and time to
t find a neew drug, an
nd human life,
l every research
should be
b conducteed under thee premise off optimal leevel of safetty.
Figure 2-3: Th
he CRO scoope of operratio
62
Mirowski, P. / Van Horn,
H R., The contract, op. cit., p. 508, IM
MS Health, Healthcare Insider, Clinuity
24
2.3 Strategic Analysis of the Drug Development Market
The strategic analysis of the CRO business is very important for understanding the manifold
influencing factors. For the macro environmental screening I use the PESTEL analysis
(PESTEL: Political, Economic, Social, Technology, Environmental, Legal). The microenvi-
ronment is analyzed with Porters-5-Forces. Both analyses PESTEL and Porter-5-Forces are
based on academic research of literature and conducted interviews with managers in the CRO
industry.
2.3.1 Macro environment – PESTEL
Political:
Politics have a quite high influence on the CRO industry. A very important issue where the
government intervenes is the Regulatory Approval process. As mentioned in chapter 2.1 the
regulatory approval is the permission to conduct the study in a specific country, for instance,
in respect to ethical correctness. Most studies require a multi-country background, what
therefore demand an approval process in every country. A new law in the EU, referred as the
Voluntary Harmonization Procedure (VHP) might reduce the workload and particularly the
costs for this process.63
Additionally, the relations between countries play a significant role. For example, it is hard
for US (currently the biggest market for pharmaceutical and CRO corporations) companies to
conduct clinical trials in former Eastern bloc countries – countries that do not belong the
European Union. Wars between countries and the border relations have also significant
political influences for the CRO industry. The corruption of political institutions can ease or
hamper the work for Clinical Research Organizations.
Moreover, the healthcare system is a very important indicator for the effectiveness of con-
ducting clinical trials in a specific country. Generally speaking, managers in the industry
suggest, that the better the healthcare system and medical care is the less successful are
clinical trials in that country. When we are facing a weak healthcare system people can get
easier access to modern treatment and better medical care through clinical trials and therefore
take part in it.
63
EU clinical trials directive 2001/20 EC.
25
Economic:
From the economical point of view, exchange rates play a significant role. Studies usually
take a long time – in average around twelve years to fifteen years. Additionally, they are
based in different sites and different countries. The investigators and local partners are usually
paid in their local currency. Contracts between a pharmaceutical corporations and CRO are
done in Euro or Dollar. Therefore, high volatility in exchange rates can have an adverse effect
on CROs financial results. As mentioned, studies take a long time and the CRO are paid
gradual to it. Generally, contract prices include a yearly inflation rate of 4% but a rapidly
increasing inflation rate can also affect the CRO negatively.
The infrastructure and with it the logistical ability of a country have also an influence on
the business. Many samples or other medical equipment must be send quite fast and safety.
So, it is better and cheaper to offshore it in countries with a good infrastructure. Moreover, the
consumer drug price has an economic effect. It is easier to conduct trials and recruit patients
where drug prices are relatively high. Here apply the same reasons as mentioned as political
factors – the poorer the general healthcare system the easier the recruitment of new patients.
Social:
Factors like health consciousness, age distribution or emphasis on safety have an influence on
the CRO industry. An on average older population have a higher demand for medical supply.
Unhealthy nutrition habits und stressful life can increase the number of new diseases, like
burnouts or depression.
Emphasis on safety and health consciousness may have effects in recruitment process for
patients. In the recent, most of the trials were conducted in high income countries but moving
today more and more in less wealthy countries due less obstacles – e.g. better profit margins,
easier patient recruitment.64 In countries where the doctor is perceived as a very high respect
person, he or she can easier influence people for new treatment methods or drugs in the
clinical trials phase.
Moreover, the perception of clinical trials depends on media and the coverage about the
industry. Furthermore, this can also familiarize people with new therapies.
The attitude towards confidentially materials and intellectual property may affect the in-
dustry in the way that companies are tend to choose countries where this values are more
important.
64
Osei, A., Challenges of clinical trials in low- and middle-income countries, International Psychiatry Vol. 9
(2), 2012, p. 30.
26
Technological:
Technology has a huge effect on the CRO industry. Continues R&D (e.g. High-Throughput
Screening) lead to better medical research results. CROs depend on an ongoing development
and new findings in the genetic research. New technologies revolutionize and open the way
for new scientific achievements and treatments. An important future business area might be
the personalized medicine, which is becoming increasingly important in terms of new
markets. Each patient can get a specialized treatment according to his or her individual
conditions.
Environmental:
In the future the influence of environmental aspects will steadily increase for the CRO
industry. Climate change and particularly pollution have a huge influence on the health of
people worldwide. These changes cater for totally new disease patterns. This new disease
patterns require new medical treatments.
Furthermore, the standardized process of food production with the increasing usage of
chemicals and pesticides can have an adverse effect on the people’s health.
Legal:
Legal aspects like health and safety law are very important for the approval process. Particu-
larly, clinical trials, which depend on the involvement of people, have to go along with all
country specific legal aspects. New developments show, that FDA (US Food and Drug
Administration) require that specific clinical trials have to be outsourced, because CROs are
better specialized for them. Meaning that pharmacy companies cannot conduct them in-house.
Additionally, some countries like Russia demand that if you want to sell drugs in their
country you have to conduct also clinical trials there. Both aspects increase business opportu-
nities for CROs.
2.3.2Microenvironment - Porter
Competitors:
The industry is characterized by a relatively high number of competitors (over 1.100),
however the biggest 10 firms have approximately 50% of the market share (see Figure 2-4).
The growth of the industry is with 10-15% relatively high, which allows that firms are able to
improve revenues due to the expanding market. The top players are inter alia Quintiles,
Covance, PPD, inVentiv, ICON and Parexel. The largest CROs are capable of providing the
27
full service range for pharmaceutical sponsor and even outsource non-core capabilities to
(low-profitability) to smaller CROs. But the market is becoming more crowded by companies
that can call themselves large, global, and full-service.65 That development additionally
increases the rivalry.
Competitors have no high fixed costs (except salaries for the workforce) and exit barriers
are relatively low – CROs maintain knowledge and relationship with clients and have no
bigger and cost-intensive facilities. Often pharmaceutical and biotech companies are interest-
ed in a long-term partnership. Nevertheless, switching costs are relatively low. Due to these
facts, the CRO industry is facing high intensity among its competitors.
Figure 2-4: The ten largest CRO corporations in revenues66
Customers:
The main customers of CROs are pharmaceutical and biotech companies. In the 1980, CROs
were very small and did projects nobody else wanted in the pharmaceutical industry. But the
industries went through profound changes, including outsourcing tasks and jobs to drive
growth. The drug development strategies are shifting. Today, CRO scientists are engaged at
every stage of the R&D process.
Over the longer term, strategic alliances will become a major driver of growth. Pharmaceu-
tical and biotechnology companies are continuously looking for the right CRO relationship
model. A report of Booz & Company names four different future relationship types emerging:
Qualified Talent Supplier, Preferred Capacity Partner, Preferred Capability Partner and
65
Olson, K., What to know about CROs, Journal of Applied Clinical Trials Supplement, May 2012, p. 20
66
The corporations PPD, inVentiv, ICON, INC and PRA went private between 2010 and 2011. Therefore, the
last official financial data was published for these accounting periods. According to online announcements and
previous growth rates of the corporations I derived the revenues for the accounting year 2012 (own estimations)
28
Strategic Partner.67 By partnering CRO companies can profit of future development. A
pharmaceutical sponsor wants a relationship model that is unique and fitted to their manage-
ment practices and systems. Regardless of the relationship model pharmaceutical and bio-
technological companies put pressure on CRO to provide preferential pricings.68 Taking into
account that more and more top-pharmaceutical players are looking for only one strategic
partner the bargaining power of them is strong.
Potential Entrants:
The potential entry barriers for new competitors might be the proprietary knowledge and even
more important contacts with potential customers. Most new CROs are founded by former
pharmaceutical-industry employees and have wide knowledge and the client contact (e.g.
former senior-management). Three of the largest firms (Quintiles, PPD and Parexel) have still
their founders as CEOs. Additionally, mergers between small and relatively unknown CROs
can form large CROs capable to challenge the big ones. The risk of potential entrants is
medium too high.
Product/ Services Substitutes:

As the main connection between sponsors and sites Clinical Research Organizations have
become a major force in the clinical trial landscape. Clinical trials have shifted more and more
from academic medical centres (AMC) – nowadays basically responsible for the fundamental
research - to community-based sites. This movement is also fostered by the fact that CROs
operate on a global scale. Community-based sites could be a single hospital or physician
groups. In the year 2002 the market share of AMCs was approximately 30%. Hence, we can
observe an ongoing decline. Therefore, the power of substitutes is relatively low.
67
Booz & Company, Nimble Partnerships in the Pharma Industry Well-designed CRO Relationship Enhance
Focus and Quality, 2011.
68
Getz, K.A., Outsourcing Landscape, Applied Clinical Trials Supplement, May 2012, p. 25.
29
Figure 2-5: Clinical trial Management systems
Own representation based on marketsandmarkets.com69
Suppliers:
The CRO industry has to different groups of suppliers. On the one side, typically suppliers
like IT services and logistic / courier firm. Due the relatively high competition in that indus-
tries the bargaining power of these are low. On the other side, we have sites, clinics or
laboratories. Depending on the pharmaceutical sponsor requirements – e.g. in respect to the
country – the CRO has to find and implement sometimes specific institutions. That can be due
to specialization or other reasons. Here the bargaining power may low too medium.
2.4 Growth Strategies in CRO Industry
2.4.1 Structural Changes in the CRO Industry
In respect to different market reports the Contract Research Industry faces a yearly market
growth between 12 and 15%. The Tufts Center for the Study of Drug Development predict in
the Outlook Report 2013 a growth of 15% for the following years. Visiongain (a market
research institute) estimates that the market volume in 2021 will be $61 billion (2013E: $35
billion), what results in an average growth of 12%.70
The market growth analysis is also supported by the Equity Research institute.71 They
estimated in a recent study that the addressable CRO market value represent an amount of
more than $53 billion in the next years. Actually the Contract Research Organizations have
69
Clinical Trial Management Systems (CTMS) Market – Site Management, Billing & Patient recruitment, Cloud
(SaaS) Global Trends, Opportunities, Challenges and Forecasts till 2016.
70
Tufts Center for the Drug Development Outlook 2012 and Visiongain: Pharma Clinical Trial Services: World
Market 2011 - 2021
71
B.G.L. & Company, Industry Spotlight: Pharma Services, Healthcare Insider, June 2012, p. 1.
30
estimated revenues of around $35 billion (see illustration No. X). That counts for a market
penetration of approximately 65% (based on own calculations).
Figure 2-6.: Revenue Growth for the CRO Industry
According to the growth estimations I can determine the stage in the Product-Life-Cycle
(PLC) model. The PLM model is used to explain patterns in the life of a product, as it starts
with the introduction stage, followed by the stages of growth and maturity until it ends with a
demand decline.72 As the industry indicates high growth rates in the next years, we can place
the point in the growth stage (see Figure 2-6). The stage is characterized by an expanding
market and an increase in new customers. These indicators will led to higher revenues.
In terms of total number of conducted studies the U.S. market is still the dominating one. In
Figure 2-7, we can see that the major amount of all clinical trials is still conducted North
America, whereof the U.S. market counts for 40%. Compared to previous years, where the
U.S. market alone counted for more than 50%, we can derive that the market is facing a
decline in respect to the total clinical trial market share.73 Similar to other industries, a large
part of the growth is coming from the emerging markets.
72
Anandan, C., Product Management, McGraw-Hill, New-Delhi, 2009, p. 94
73
Thiers, F.A., et al., Trends in the globalization of clinical trials, Nature Reviews Drug Discovery, Vol. 7 (1),
2011, p. 13.
31
Figure 2-7: Worldwide distribution of Clinical Trials
Own representation based on ClinicalTrials.gov74
CROs are looking for interesting growth opportunities in locations like Central and Eastern
Europe (CEE) or Russia. Particularly, flourishing countries like India and China play an
important role in the strategic expansion plans of Contract Research Organizations. All of
theses markets are relatively young, e.g. the China’s one exist since 1996.75 With 1.3 billion
people, China offers a huge market for pharmacy industry, especially CRO. The accomplish-
ment of clinical trials is meted to Western standards cheap and the Chinese market has an
estimated yearly growth of 30%.76 Just like the Chinese market also the Indian one has a huge
population of 1.2 billion people and a fast increasing health-care market. To subsume the
above-mentioned, the industry conditions of both old economies and emerging markets still
offer huge potentials for CRO growth.
2.4.2 Growth Strategies
In respect to growth strategies for Contract Research Organizations we can briefly distinguish
between organic, inorganic / external growth. Organic growth is the company’s expansion
from inside. These can be business activities like the increase of marketing budget (e.g.
additional salespeople), opening of new branches, and the internally development of new
74
Accessed on the 07.05.13
75
Ma, S., CROs in Modern-day China, Journal of Commercial Biotechnology, No. 18, 2012, p. 1.
76
ibid.
32
products.77 Inorganic growth is perceived as the growth through mergers and acquisitions of
other firms. Moreover, inorganic growth can be conceived wider as external growth through
collaborations like strategic alliances and joint ventures.78
Taking into account, that the presence in emerging markets is very important for growth, the
inorganic approach seems to be the adequate decision. As we have examined Mergers and
Acquisitions can accelerate the growth and also help CROs to keep pace with the increasing
sponsor demands of geographically reach.79 CRO companies have to move to low- and
middle-income countries to conduct clinical trials in a cheaper way.80 Moreover, the legisla-
tion for ethical constraints may be less rigorous and accelerate the process of clinical trials.81
2.4.3 Mergers & Acquisitions in the CRO Industry
Since 2006 we can observe a profoundly change in the CRO market. Small CROs (revenues
up to $25 Mio.), specializing in a particular trial stage, are often serving as business partners
for large-scale companies. The middle-market (revenues $25 Mio. up to $500 Mio) is in a
strong consolidation phase. Corporations are seeking for mergers and acquisitions to benefit
from the advantages global players have, e.g. serving as a global full service provider for the
top pharmaceutical companies.82 Large CROs are facing more pressure from new players
entering the market, which emerge through the mentioned consolidations in the middle
market. On this account large CROs are screening the market for potential targets to increase
their market share and gain new capabilities. Private equity is playing an active role since the
last years (PE takeovers marked in red, Figure 2-1). This kind of buyouts underlines the
previously mentioned optimistic outlook.83
77
Sherman, A., Mergers and Acquisitions from A to Z, 3rd Edition, Amacom, Washington, 2011, p. 1.
78
ibid.
79
Davidson, R., Change is not consolidation, Journal of Applied Clinical Trials, Feb. 2007, p. 12.
80
Skuse, D., The global spread of clinical trials. Journal of International Psychiatry, Vol. 9 (2), 2012, p. 29
81
ibid.
82
Olson, K., What to know about CROs, op. cit., p. 20.
83
B.G.L. & Company, Industry Spotlight, op. cit., p. 5.
33
Table 2-1: Selected takeovers in the CRO industry Sources:
S&P Capital IQ, PitchBook, Equity Research, Pharmaceutical Outsourcing Monitor
The average multiplier for selected mergers and acquisitions from 2007 to 2013 was 1,63x for
revenues and 12,44x for the EBITDA. In 2012 the EBITDA multiplier was a bit lower with
an average of 10x (see Figure 2-8). In comparison to Bloomberg’s Global Review (1,03x
revenue and 7,04x EBITDA)84 the CRO industry numbers still confirm the high confidence of
investors.
Figure 2-8: EBITDA multiple 2007 – 2012

Own representation based on Fairmount Partners85
84
Bloomberg Global Financial Advisory Mergers & Acquisition Rankings 2012
85
Fairmount Partners (2013): Pharmaceutical Outsourcing Monitor, April 2013
34
3. Explanatory Approaches and Motives for M&A
Technological changes, deregulations and economical aspects, like the emerge of new
markets, provide a source of growth and explanations as well as reasons for collaborations
and M&A. The globalization process increase the intensity of competition and led to the
factor that corporations have to adapt their structures to regional differences. Corporations can
counteract this development with collaborations and M&A activities. They can accelerate the
market entry process, gain new sales systems and customers, incorporate highly skilled
workers, financial capital and manufacturing facilities and get acquainted with the local
market requirements.86 Moreover, corporations can share their risk through strategic alliances
and joint ventures.87
Additionally, theoretical research and academic studies present several other manifold
motives for mergers & acquisitions. Usually, mergers are driven by a specific pattern of
motives and not just a single one.88 The pattern of motives is country- and time-depending, as
well as influenced by the different interests of involved parties (e.g. shareholders, employees
or governments).89
The literature has various attempts to group the motives into different categories.90 However,
the categorization depends strongly on the researchers perception and most theories have not
enough empirical results to claim a full correctness.91 In the following I will use three main
categories: Strategic-, Financial-, and Managerial motives.92 Potential reasons for M&A are
combined in table 3-1, which all examined in reference to academic literature. The following
table is also the basis to determine the impact of potential reasons for M&A in the CRO
industry (see Ch. 5).
86
Stahlke, N., Erfolgsfaktoren bei Mergers & Acquisitionen in der deutschen Energiewirtschaft, Dissertation
TU Berlin, 2006, p. 85.
87
ibid.
88
Trautwein, F., Merger Motives and Merger Prescriptions, Strategic Management Journal, Vol. 11, 1990, p.
283.
89
Balz, U. / Arlinghaus, O., Praxisbuch Mergers & Acquisitions, mi-Fachverlag ,München, 2003, p. 22, and
Hausser, C., Chancen und Risiken einer Unternehmensacquisition durch eine Zwischengesselschaft als
Finanzierungsmodell, Dimplomica-Verlag, Hamburg, 2009 p. 3 and Vogel, D.H. / Schumann, W., M&A – Ideal
und Wirklichkeit, Gabler, Wiesbaden, 2002, p. 32.
90
For example, Trautwein has seven different categories for M&A, which are efficiency, monopoly, raider,
valuation, empire-building; see Trautwein, F., Merger Motives, op. cit., p. 280 ff.
91
ibid.
92
This systematization is also used by Johnson, G., et al., Exploring corporate strategy, Pearson Education,
Harlow, 2011, and Schoenberg, R., Mergers and Acquisitions, Oxford University Press, Oxford, 2006
35
Potential Reasons for Merger & Acquisitions
♦ Potential Synergies in the departments

- Finance - Administration - Business Development - Research
♦ Reduction of Overhead Costs
♦ General Improvement of the competitive situation – market power
♦ Increase of the market share
♦ Extension of the value chain – vertical integration
♦ Geographical diversification
♦ Diversification of offered services / products
♦ Influencing shareholders perception and valuation of the firm
♦ Tax reduction
♦ Intellectual capital – transfer of know how
Table 3-1: Potential Reasons for Merger & Acquisitions based on academic literature
3.1 Strategic Motives
Due to mergers and acquisitions the corporations want realize synergies, market power and
diversify the business portfolio. The corporations are able to acquire capabilities and to adapt
more quickly to economical and environmental deferrals than they could develop internally.
3.1.1 Synergy
Synergies tend to be the most frequently used explanation for mergers and acquisitions.93
Originally, the term Synergy was introduced by Ansoff in the early 1960s.94 Ansoff hypothe-
sis was the 2+2=5 effect, where the value and performance of two combined corporations is
higher than the mere sum of two separate undertakings.95 Davidson expressed the synergy
surplus more deepening in the formula V(Combined) = V(Bidder) + V(Target) + Synergy.96
This means that this kind of motive should be a value-increasing event precipitated by
operational-, financial-, and/or managerial synergies:97
93
Devos, E., et al., How do mergers create value?, Oxford University Press, Oxford, 2008, p. 1183.
94
Ansoff, I., Corporate Strategy, McGraw-Hill, Middlesex, 1966, p. 97.
95
ibid.
96
Davidson, I.R., Takeovers, Journal of Business, Finance and Accounting, No. 12, 1985, pp 373 - 385
97
The systematization refers to Trautwein, F., Merger Motives, op. cit., p. 284 and Ayoush, M., Are cross-
border mergers and acquisitions better or worse than domestic mergers and acquisitions?, Dissertation
University of Birmingham, 2011, p. 20.
36
Operrational Sy
ynergy
• Economicss of Scale
• Economicss of Scopee
• C
Cross-Sell ing Opporrtunities
• on of redud
Eleminatio dant functioons
• Minimazingg transactiion costs
Fiinancial Synergy
• Possibility to lower th
he cost of ccapital
Managerial Synergy
• Higher maanagerial co
ompetence e by the accquaring firrm.
Firm tend tto employ the surplus of manag gerial
c
competenc ce to impro
ove the efficiency of the
t target
f
firm.
Figure 3-1: Possibble Synergy

y benefits
98
Own reppresentation
n based on Trautwein
T (
(1990), Ayooush (2011), Georgen (2003)
(
Howeveer, a McKin
nsey study says that synergies
s arre systemattically overrrated, becau
use only
30% of all M&A trransactions achieve thee assumed syynergy goaals.99
3.1.2 Market
M Pow
wer
A very important motive forr mergers and

a acquisittion is to increase
i thee market sh
hare and
consequ
uently impro
ove the marrket power. According to Devos (22008) the fiinance and econom-
e
ic literaature recogn
nized this isssue since a longer tim
me that the market
m pow
wer can incrrease the
value.100 Th
equity v his kind off motivation
n is particullarly importtant for horizontal merrgers but
can also
o be an imp
portant argu
ument for conglomera
c ate mergerss. Smaller companies
c p
pursue a
risk min
nimizing way
w while merging
m witth competitoors, whereaas big playeers try to achieve a
dominan position.101 Moreover, in static m
nt market p ng rates and steady
market with low growin
102
compan
ny market sh
hares, firmss can increase their shaares trough M&As.
M T also go
This oes along
with thee internal fo
orces in a coorporations life-cycle. Managers undertake
u m
mergers and acquisi-
tions to pursue a continually
c eexpansion.103
1
Thereforre managerss can intern
nalize the grrowth of
98
wein, F., Merg
Trautw ger Motives, lloc. cit, p. 282
2 ff. and Ayooush, M., Are cross-border mergers, op. cit., p. 15
ff. and Georgen,
G M. / Renneboog g, L., Shareho older wealth effects of Euuropean domeestic and cro oss-border
takeover bids, Europeaan Financial Management
M A
Association, V
Vol. 10 (1), pp. 9 – 45.
99
McKinnsey Quarterly y (2004): Wheere Mergers go o wrong
100
Devos, E., et al., How
H do mergerrs create valuee?, op. cit., p. 1184.
101
Meyeer, L., Erfolgsffaktoren bei Mergers
M & Acqquisitionen, D
Dissertation Scchumpeter Sch
hool of Busineess and
Economics, 2011, p. 34 4 – 35.
102
Johnsson, G., et al., Exploring corrporate strateegy, Pearson EEducation, Harrlow, 2011, p..358.
103
Greenn, M.B. / Crom mley, R.G., Thhe horizontal merger, Econnomic Geograpphy, Vol. 58 (4),( 1982 p. 36 60.
37
young firms and strengthen their market power.104 However, corporations have to go through
antitrust instances and get the approval from governmental institutions’ if the merge can have
possible detrimental effects on the economy and for customers.
3.1.3 Portfolio Hypotheses / Diversification
The portfolio hypothesis or diversification is another important strategic motive for mergers
and acquisitions. The portfolio strategy is based on the theory of Markowitz, which he
introduced in the 1950s before the third merger wave - which led to conglomerate structures.
Markowitz stated that a portfolio with not perfectly correlated instruments might reduce the
overall risk of the portfolio compared to the sum of the individual instruments risks.105
Diversification is a strategic motive that increases the scope of the company, while it takes the
corporation away from its traditional markets and existing products.106
Figure 3-2: Diversification Strategy
Pertaining to the mentioned theories firms try to lower their dependence from one specific
business and to diversify into different low correlated ones to benefit from the cash flows.
3.2 Financial Motives

In comparison to strategic long-term approaches the financial motives seems more mid- and
short-term. The undervaluation of companies or the specific tax benefits could be possible
financial motives.
104
ibid.
105
Troschke, A., Strategien der Diversifikationen vor Markovitz, Josef Eul Verlag, Lohmar, 2011, p. 1.
106
Johnson, G., et al., Exploring corporate strategy, op. cit., p. 262.
38
3.2.1 Valuation Theory
In a recent study Rhodes-Kropf, Robinson and Viswanthan test theories to present an ap-
proach that undervaluation or mispricing of companies drives mergers.107 The misevaluation
of corporations is usually based on models for listed corporations on the capital markets.108
Generally, the assumption was that capital markets are efficient, the hypothesis that every
investor should have the same information.109 Due to an asymmetry of information’s, for
instance non-public information, an investor can have superior knowledge regarding the real
value of a company.
Managers can screen the markets for such merger and acquisition opportunities to derive
surplus revenue after the market see the real value of the company. Particularly, private equity
companies or hedge funds are looking for undervalued corporations. After the acquisition the
measure is to restructure the company, for instance with a new management or closing of
unprofitable business units. Moreover, the goal can be complete liquidation of the company,
as the assets sold separately may be higher valued than the entire company (asset strip-
ping).110 An Ernst & Young survey supposes that the amount of private equity deals will still
increase in the next years.111
3.2.2 Tax Hypothesis
Academic researches suggest that tax benefits could be a motive for mergers and acquisi-
tions.112 Beyond the motive to merge, taxes can determine the way in which a merger will be
structured. Empirical studies show that particularly the following points are very important:
• Carry over the net operating losses and unused tax credits between acquirer and tar-
get113
• Fully utilization of tax shields and increase leverage114
• To use the internal cash flow to acquire other companies and lower income tax rate on
capital gains in comparison to dividends115
• Deduction of interest payments from the taxable income
107
Rhodes-Kropf, M. / Viswanathan, S., Market valuation, op. cit., pp. 561 – 603.
108
Schleifer, A. / Vishny, R., Stock market driven acquisitions, Journal of Financial Economics, Vol. 70, 2002,
p. 1
109
Fama, E., Efficient capital markets, Journal of Finance, Vol. 25, 1970, pp. 383 – 417.
110
Achleitner, A., Handbuch, op. cit., p. 144.
111
Ernst & Young (2012): Branching Out
112
Devos, E., et al., How do mergers create value?, op. cit., p. 1183.
113
ibid.
114
Devos, E., et al., How do mergers create value?, op. cit., p. 1883.
115
Brigham, E. / Erhardt, M., Financial Management, Thomson South-Western, Mason, 2007, p. 685.
39
3.3 Managerial Motives
Managerial motives have a more psychological background. They are driven by the Hubris or
the Agency-Hypothesis.
3.3.1 Hubris
Roll presented a study 1980s where he suggested that the hubris is an important motive for
corporate takeovers.116 The interpretation of the empirical results is that manager’s pride and
an exaggerated opinion of oneself could have a negative effect on the shareholders inter-
ests.117 Pure personal interests and not economic gains motivate the decision makers to
undertake the takeovers.
Due to the hubris managers could tend to pay a premium for a company that was correctly
valued by the markets (assumption of strongly efficient markets).118 The hubris model is
similar to the winner’s curse phenomenon in auctions and the irrational decisions can cause
that the acquirer loose money on the acquisition.119
3.3.2 Agency Hypothesis
Georgen and Renneboog outline that takeovers could be motivated by the agency hypothe-
sis.120 This means that sheer self-interest of the acquirer is the main reason for the offer.121
Therefore, a conflict between the management (agents) and the shareholders could arise.
Managers who are driven by this motive are mainly interested in takeovers that provide them
additional power and prestige, whereas shareholders want a higher profitability and partici-
pate in higher stock profits.122 A study has shown that the corporation size is the main
determinant for management salaries and bonuses and not the profitability.123 The difference
to the hubris hypothesis is that here the managers will knowingly overpay the transactions to
116
Roll, R., Hurbis Hypothesis of Corporate Takeovers, Journal of Business, Vol. 59 (2), part 1, 1986, pp. 197 -
216
117
cf, Gaughan, P.A., Merger, loc.cit., p. 158.
118
ibid.
119
Mussati, G., Mergers, Markets and Public Policy, Kluwer Academic Publisher, Dordrecht, 1995, p. 60.
120
Georgen, M. / Renneboog, L., Shareholder, op. cit., 2003, p. 19.
121
ibid.
122
Hopkins, H.D., Cross-border mergers and acquisition, Journal of International Management, Vol. 5, 1999,
pp 207 - 239 and Ayoush, M., Are cross-border mergers, op. cit., p. 24.
123
Conyon, M. / Sadler, G., Executive pay, tournaments and corporate performance in UK firms, International
Journal of Management Review, Vol. 3 (2), 2001, p. 147.
40
enjoy the mentioned personal advantages.124 As a result Morck, Shleifer, and Vishny pointed
out that the pure self-interest could lead to many unprofitable mergers and acquisitions.125
124
Ayoush, M., Are cross-border mergers, op. cit., p. 24.
125
Morck, R., et al., Do Managerial objectives drive bad acquisitions, Journal of Finance, Vol. 45 (1), 1990, pp
31 - 48
41
4. Success Factors for the Merger & Acquisitions process
First of all, this chapter illuminates an ideal Merger & Acquisition process. On that account
the process is divided in three main phases. Subsequently, the components of each stage are
presented. Afterwards the emphasis lies on the possible success factors of the phases.
4.1 Merger & Acquisitions Process
Generally, Mergers & Acquisitions are structured as a multilevel process. According to a

PWC study a comprehensive structure is important to deal with the complex and multifarious
challenges. Moreover, it enables the management to work highly efficient and more goal-
oriented. There is no one-size fits all solution but the academic literature tries to develop
models, which can be used as instruction. Basically, three main phases can be identified:
Planning, Execution (Transaction), and Integration.
The process is not static but rather dynamically and can be adapted to each M&A scenario
concerning the company and industry characteristics.126 Additionally, there can be a lot of
another factors (e.g. tax considerations, ownership-structure), which can have an influence on
the configuration of the process
Figure 4-1: The development of the M&A Process127
126
Picot, G., Handbuch Mergers & Acquisitions, Schäffer-Poeschel, Stuttgart, 2008, p. 30.
127
You can find the phases in: Lucks / Meckl (2002): p. 54, Gerpott (1995): p. 800, Picot (2002): p. 16f. , Jansen
(2008): p. 249, Middelmann (2000): p. 112 (see literature review).
42
4.1.1 The Planning Phase
The planning phase can also be divided in three different parts (see illustration No. XX). First
of all, the management has to evaluate the corporation itself. After the management has a
better understanding of the entire situation it can develop an acquisition plan, which serves as
the fundament for the searching and screening process.
Figure 4-2: The Planning Phase with the first three steps
For a comprehensive evaluation of the company the management has to conduct several
analyses to determine the core competencies, potentials and corporate goals. The management
can use Porter-5-Forces to analyse the external factors and recognize industry trends to
determine where and how to compete. Additionally an internal strengths and weaknesses
profile in combination with opportunities and threats (SWOT-Analysis) has to be set as a part
of the company analysis. The Ansoff Growth matrix can be used to decide upon the product
and market growth strategy.128 The corporation can attempt to penetrate new or existing
markets either with new or existing products.129 The implementation of the Gap-Analysis can
identify the discrepancies between the current situation and the potential future situation as
well as the operational and strategic objectives.130 By doing this the management extrapolate
quantifiable elements (e.g. revenue, ROI, profit) into the future and determines which gaps
can be closed by basic optimalization of business processes (e.g. better usage of resources)
and which by change in strategy (e.g. M&A).
Out of the presented analyses the management should develop a strategic business plan,
which can be used as a benchmark und include strategic goals (timescale 2-3 years), perfor-
mance targets (1-2 years) and an action plan executable for the actual accounting period.
Moreover, it should develop an Acquisition Plan if M&A is needed and superior to internal
growth.
128
Perlitz, M., Internationales Management, Lucius & Lucius, 2004, pp. 35 – 37.
129
ibid.
130
Stahlke, Erfolgsfaktoren, op. cit., p. 202.
43
The acquisition plan determines the M&A strategy. It is derived from the acquisition needs
and the acquisition criteria’s. Moreover, the management decide whether a M&A or a
collaboration is better. With the scenario analysis the management can develop different
forecasts according to the created strategic business plan.131 The sensitive analysis can help to
indicate the impact of external factors.132 The objective of the acquisition plan is define some
key factors, by mean of the management can determine the research criteria for the screening
process – e.g. financial returns, size, growth or geographical reach of the target company.
After the needs are clarified, the management can draft a target requirements profile and
initialize the screening process. In a first attempt the company select and evaluate a relative
great amount of potential candidates. As the M&A market seems very discreet and intranspar-
ent companies usually hire external service contractor and experts – indiscretions may have a
heavy impact on the price or lead to loss of trust. The potential candidates are entered into a
Long List and are analyzed if they are fit into the requirements profile.133 Taking into account
the Desk Due Diligences – a company audit based on all public available information – the
list can be strongly shortened in this further consultation process.134
4.1.2 The Execution Phase
The execution phase consists of three main parts. It contains the first contact between the
firms, the negotiation stage and finally the closing.
Figure 4-3: The Execution Phase with steps 4 - 6

The first contact with the potential target can be made by the service contractor or directly
through the company itself. Usually the contact is established between the companies upper
level management. The first contact is important to build trust and relationships for further
131
Alcamo, J., Environmental Futures, Elsevier, London, 2009, p. 15.
132
Brigham, E. / Erhardt, M., Financial Management, op. cit., p. 432.
133
ibid.
134
Stahlke, N., Erfolgsfaktoren, op. cit., 2006, p. 205.
44
negotiations. Additionally, management of both firms can discuss about the first business
issues like common objectives and an approximately asking price. Generally, engaged parties
sign a confidentially agreement and record the first results in term sheets.135 If the parties
basically agree on the M&A process they sign a Letter of Intent (LOI).136
After the first contact is established the negation phase begins, which is one of the most
complex parts of the entire M&A process.137 The parties have to refine the valuation, structure
the deal, perform a due diligence, develop a financing plan and finally decide whether to close
the deal or walk away.138
First of all, the data from the LOI and first preliminary valuation has to be updated.139
Therefore, the acquirer request financial materials from the previous accounting years. A due
diligence team starts to analyse the accessible documents. Basically, the team can perform a
market, financial, legal, tax, human resource, environmental, and risk due diligence, which of
course have also overlapping parts.140 The goal of due diligence is mainly:
• In respect to the financial area due diligence evaluate past operating results and tries to
identify potential sources of value.
• Concerning the operational area due diligence taking multifarious layers into account
– e.g. quality of the management system, quality of employees, partners, and sellers.
• In regard to the legal area the future risk or risk from the targets past. Additionally,
legal due diligence cover areas like tax law, employee law, and environmental law.141
The extracted data can be used for a comprehensive evaluation of the company and for the
further asking price. The due diligence team can choose among a wide range of different
valuation methods (see illustration No. XX).
135
DePamphilis, D.M., Mergers, Acquisitions, and other restructuring activities, Elsevier, Burlington, 2011, p.
176.
136
A LOI is signed between both parties to summarize the first agreed terms and transaction intention. It can
either be a binding or non-binding agreement. Steingold, F., The complete guide to selling a business, Nolo,
Berkeley, 2012 p.224.
137
DePamphilis, D.M., Mergers, op. cit., p. 178.
138
DePamphilis, D.M., Mergers, op. cit., pp. 179 – 180.
139
ibid.
140
Stahlke, N., Erfolgsfaktoren, op. cit., p. 207.
141
Hao, Y. / Guoqiang, L., Due Dilligence in Merger and Acquisition – With China practice, International
Journal of Business and Social Science, Vol. 4 (4), 2013, p. 209.
45
Figure 4-4: Valuation Approaches Own
representation based on Jansen (2008) and Mellen (2010)142
The choice of the valuation method strongly depends on the available data and characteristic
of the company. Moreover, the due diligence team is not limited to use only one approach.
According to my M&A transactions research and illustration No. XX we can see that the
public market (for listed companies) or the merger market with the multiplier methods is most
common. Taking into account the valuation methods and external factors the management can
determine the standalone value of the company.143
After the final price is determined and a finance plan developed, the transaction can be closed.
A further premise is that all legal aspects are clearly solved – e.g. US antitrust law, EU merger
law. After the contracts are signed the acquirer pays, for instance cash or equity, and the seller
completes the transfer.
4.1.3 The Integration Phase

The integration phase begins with the development of a comprehensive integration plan.144
Afterwards the integration process has to be managed and finalized with controlling / evalua-
tion. Of course this is only an abstract model as in reality the integration controlling can be
proceeded parallel to the previous steps.
142
Jansen, S.A., Mergers & Acquisitions, Gabler, Wiesbaden, 2008, p. 194, and Mellen, C. / Evans, F.,
Valuation for M&A, John Wiley & Sons, 2010, p. 139.
143
Stahlke, N., Erfolgsfaktoren, op. cit., pp. 210 – 212.
144
This step can also begin during the first contact or negotiation stage.
46
Figure 4-5: The Integration Phase with the last three steps
Basically, integration is the process of bringing two things together and merging them (static
perspective) or the implementation of a single part into a bigger entity (dynamic perspec-
tive).145 The final goal is to achieve the objectives for which the M&A was done – e.g. cutting
cost through synergies or other revenue enhancements. Therefore, it is important to design a
comprehensive integration plan or to elaborate and precious the previous ones (worked out
during the execution phase). Furthermore, a post-merger organization has to be developed.
The management has to assign the right people responsible for specific areas and tasks during
the integration (e.g. what should be done, by whom and when). Moreover, the plan defines
how deep the integration has to be and which level of organizational and cultural autonomy
can be kept.146
A project-oriented approach for the integration management can be advisable.147 The integra-
tion phase also consists of the personnel redeployment with the decisions if the current
company department is still needed or if the company is facing overlapping (rationalising
offices).148 A crucial factor of the integration management is to drive the consolidation of
both companies without having huge effects on the daily business. The objective is to
establish merge the two system that both can work as one legal entity and achieve the planned
long-term goals.149
Finally, the detailed integration plan can be used for the integration controlling. Usually, the
controlling process can proceed parallel to the integration management. The integration
controlling can use quantifiable measures, which allow a comparison of planned figures with
actual figures.
145
Davis, D., M&A Integration, John Wiley & Sons, West-Sussex, 2012, p. 21 and Barnickel, K., Post-Merger
Integration, CT-Salzwasser-Verlag, Bremen, 2007, p. 15.
146
Barnickel, K., Post-Merger Integration, op. cit., p. 16.
147
148
McGrath, M., Practical M&A Execution and Integration, John Wiley & Sons, West-Sussex,2011, chap. 5
149
ibid.
47
4.2 Potential Success Factors during the M&A process
Factors, which can have an essentially important influence and determine the success of
mergers & acquisitions, can be identified as potential success factors.150 Success factors can
be constructed as quantitative, qualitative or strategic goals.151 Usually the goals have a
quantitative character and are oriented on financial results. Financial results are all hard
factors like stock market performance, funding benefits and other measurable revenue and
earning numbers.152 According to various studies the failure rate of M&A is with 60 – 80%
relatively high – loss of shareholder value.153 Other surveys reckon that the success rate won’t
be higher than 50%.154
As we have examined the planning phase consist of three main stages: analysis of the compa-
ny, creation of an acquisition plan and the screening process. Each stage can contribute to the
overall success if specific parameters might fit. In the following chapters 4.2.1 – 4.2.3 I will
examine potential success factors, which we can find in the academic literature and other
sources, like corporate studies. At the end of each of the previously mentioned chapters, I will
formulate research questions for potential success factors based on the discussed academic
literature.
4.2.1 Potential Success Factors in the Strategic Planning Phase
The starting point of a successful merger & acquisition is the evaluation of the own corpora-
tion in strategic and financial terms. A development of a comprehensive business strategy
plan can clearly enhance the overall success. Consequently, the management should under-
stand the future value creating process and state clear and achievable deliverables.155 The
deliverables can emphasize the business goals and exclude managerial motives like hubris,
which might not contribute as a potential success factor.156 Also a McKinsey study pointed
out that is inevitable to identify the value drivers during the strategic phase.157 According to
the study 40% of all participants do not determine the value drivers or do it an insufficient
150
151
Vogel, D.H. / Schumann, W., M&A, op. cit., p. 273.
152
Meyer, L., Erfolgsfaktoren, op. cit., p. 43.
153
Morag, O., The role of speed of integration in the integration effectiveness and mergers & acquisitions
success, Dissertation University of Pecs, 2001, p. 25.
154
ibid.
155
Salwanee, Key success factors in Mergers and Acquisitions, Azmilaw, Kuala Lumpur, 2008, p. 1.
156
ibid.
157
Beitel et al., Erfolg in M&A, McKinsey Akzente, 2010, p. 24.
48
way. Crucial value drivers are future cash flows and the decrease of the associated risk of
those and the ability of the management to present a strategy for future growth.158
Fundamental for a good and comprehensive analysis of the own company is the management
team. The entire analysis and acquisition process involves a wide variety of different tasks.
Taking into account the complexity of those tasks the managers and key stuff people through-
out the process can exponentially increase the success of an M&A.159 The willingness and
support of the top management and the ability to delegate and commitment to the tasks can
represent a successful leadership team.160 Theses qualities can support the M&A process and
permanently push projects.
Additionally, it is assumed that the management experience in mergers and acquisitions also
play a significant role as a success factor. A higher number of conducted M&A can be
associated with better learning curve and therefore better decisions for actual and future
market situations.161
In relation to the to the acquisition plan we can refer to similar success factors like an experi-
enced management team. Above that, a proper conjunction of both the strategic business plan
and the acquisition plan can contribute as a success factor – according to McKinsey only a
few companies derive their M&A strategy from the business strategy. Additionally, the
preparation of an M&A roadmap with quantifiable goals can ease the subsequent steps in
order to create success.162
A crucial success factor during the screening process is the systematic selection of most
potential alternatives and afterwards the recognition of the right target company. Basically,
the selected companies have to fulfil three dimensions.
First of all, the strategic fit shall insure that the target company goals are complementary to
the acquirer strategy and therefore can contribute to the acquirer’s success, for instance,
financial objectives.163 Moreover, the strategic fit is crucial for reaching synergy – often the
main motive of M&A – and can determine the success or failure of an M&A.164 The defini-
158
Mellen, C. / Evans F., Valuation for M&A, John Wiley & Sons, New Jersey, 2010, p. 108.
159
Jemison, D. / Sitkin, S, Corporate Acquisition: A process perspective, Academy of Management Review, 11
(1), 1986, p. 147.
160
Westerveld, E., The Project Excellence Model: linking success criteria and critical success factors,
International Journal of Project Management, 21 (6), 2003, pp. 411 – 418.
161
Buehner, R., Erfolg von Unternehmenszusammenschlüssen der BRD, Poeschel, Stuttgart, 1990, p. 173.
162
Beitel, et al., Erfolg in M&A, op. cit., p. 22.
163
Jemison, D. / Sitkin, S, Corporate Acquisition, op. cit., p. 146.
164
Liu, H. / Dong, J., What makes Mergers and Acquisitions successful in China?, Journal of Management
Science, 1 (1), 2007, p. 45.
49
tion of a successful strategic fit must also be defined under the premise of pursed objectives –
e.g. geographical reach, increase of product portfolio.165
Figure 4-6: Stages for a successful screening process Own

representation based Lucks, K / Meckl, R. (2002)166
Secondly, the validations of the financial fit to estimate the basic feasibility of the M&A
project.167 The acquisition price, the necessary debt financing, the following charges for the
annual earnings, and the price premium paid are important determinants of the subsequent
success assessment.168 The financial fit considers also the financial situation of the target
company in respect of possible costs for the acquirer.
Finally, the organizational fit defines the level of successful and effective co-operation. The
appropriate co-operation depends on the compatibility of both firms in terms of similarity of
personnel characteristics, senior management style and cultural fit. These matching require-
ments are also central for the future integration phase. Organizational fit might also deal with
individual motivation and productivity, management control systems and operating sys-
tems.169
165
Lucks, K. / Meckl, R., Internationale Mergers & Acquisitions, op. cit., p. 81.
166
Lucks, K. / Meckl, R., Internationale, op. cit., p. 80.
167
Rezaee, Z., Financial Services Firm 3rd Edition, John Wiley & Sons, New Jersey, 2011, p. 150.
168
Lucks, K. / Meckl, R., Internationale, op. cit., p. 86.
169
Liu, H. / Dong, J., What makes Mergers and Acquisitions successful in China?, op. cit., p. 45.
50
Potential Success Factors for the M&A Strategic Planning Phase
♦ Assessment of internal management skills / effectiveness

♦ Realistic estimation of future market trend
♦ Identification of companies value driver
♦ Aligning of corporate and M&A strategy
♦ M&A roadmap with quantifiable objectives
♦ M&A experience of the management team
♦ Strategic / Organizational fit
Table 4-1: Potential Success Factors Strategic Planning Phase
4.2.2 Potential Success Factors in the Execution Phase
As above-mentioned the execution phase consists of the first contact, the negotiations and the
deal closing. Managing the entire M&A process is a challenging task. Related to the im-
portance of an experienced management team the selection of the right advisory team is also
considered as a potential success factor. The management should decide whether and in which
extent they want to involve externals. The first contact between two firms can be very
important in terms of the future M&A success. Taking into account the necessary nondisclo-
sure policy the first contact may be done by, for instance, (investment) bankers / financial
intermediaries.170 This factor is especially important for listed companies as to early public
announcement can have an adverse effect on the M&A.
Additionally, when preparing the final closing an experienced legal team is necessary to
ensure that the entire deal is in compliance with the (antitrust) law. A wrong consultation can
lead to a violation of the law and delay the final closure. Under this circumstances parties
171
can be affected by potential liabilities what may cause a significantly higher deal price.
Furthermore, a McKinsey study claim that an adequate level of involvement of the CEO and
senior / top-level management is a crucial factor of success. The point is to set up clear
management responsibilities and establish committees. Often the management is to late or
weak integrated what slows down the decisions making process. Clear responsibilities can
accelerate the entire process. A further point that may contribute to the above-mentioned
success factor is a transparent decision-making process.172 More specific, the management
170
Balz, U. / Arlinghaus, O., Praxisbuch, op. cit., p. 47.
171
Venema, W., Integration: The critical M&A success factor, Journal of Corporate Accounting & Finance, 23
(2), 2012, p. 52.
172
Beitel, et al., Erfolg in M&A, op. cit., p. 23 - 25.
51
should be involved as early as possible, be proactive – having a detailed plan – and remain
patiently in case of longer M&A transactions.173 .
The due diligence process evaluate the company, make possible opportunities and risks viable
and finally provide a basis for the bidding price.174 The buyer should not only assess the
company itself but also the target companies management relations and hence any possible
political risks. This is particularly important for cross-border deals in developing or political
unstable countries as.175
A further factor that influences the success is the type of the company ownership structure. A
public company has a higher bargaining power in negotiations than a private firm, what may
become apparent in the price paid (higher premium). The higher bargaining power can arise
due to more potential acquirers since there are more information’s available for a public
company.176
The mode of deal payment has also an impact on the success performance of the transac-
tion. Usually, the payment is either done in cash or in stocks. A research of about 1,200 M&A
deals showed that the (stock) performance was better when the transaction was done in cash
rather than stocks.177 These test results are also confirmed by another study. The random
sample resulted in an abnormal return of 1.4% for cash transactions and 0.2% for stock
transactions.178
Particularly, the purchase price is very important as an indicator for a successful M&A.
From the outside it is often the most relevant ratio. Therefore, the decision makers should
have a good valuation discipline in terms of realistic estimations of further M&A costs and
calculated revenues. As stated by Accenture, the management can overvalue the synergies and
overpay the acquisition.179
An incentive plan created set up before the closing can have a true value for a successful
merger and acquisition. Generally, the work force belongs to the most important assets of the
corporation. The first information of a possible M&A may create anxiety among the employ-
ees. According to a study is not unusual that during the first six month after an M&A 5
173
Honore, R. / Maheia, M., The Secret to a Successful RIM Merger or Acquisition, The Information Manage-
ment Journal, Sep./Oct. 2003, p. 58.
174
Berens, W., et al., Funktionen, Terminierung und rechtlicht Einordnung der Due Diligence. In: Berens, W.,
et. al. (Eds.), Due Diligence bei Unternehmensakquisitionen, 2005, p.86.
175
Salwanee, Key success factors in Mergers and Acquisitions, op. cit., p. 2.
176
Capron, L. / Shen, J.C., Acquirer Returns when buying public versus private firms. In: Finkelstein, S. /
Cooper, C. (Eds.), Advances in Merger & Acquisitions, 3, Emerald, Bingley, 2004, pp. 35 – 53.
177
Rappaport, A. / Sirower, M.L., Stocks or Cash? The Trade Offs for Buyers and Sellers in Mergers and
Acquisitions, Harvard Business Review, Nov – Dec 1999, pp. 147 – 158.
178
Moeller, S.B., et al., Wealth Destruction on a Massive Scale? A Study of Acquiring-Firm Return in the
Recent Merger Wave, Journal of Finance, 60 (2), pp. 757 – 782.
179
Park, M., Making M&A pay: Avoiding the winners curse, Accenture, 2005.
52
percent of the true value get lost due to drop out of key employees. An incentive plan,
finalized before the closing, can counteract such developments and contribute to a more
180
successful M&A. Therefore, it is advisable to involve the HR department in the due
diligence process. The HR department may have a different view on the deal structure and
identify possible pitfalls. These characteristics can significantly contribute to the success.181
A further point, acquisitions are often more successful for smaller acquirers. According to a
study, returns for shareholders of smaller firms were higher after the deal was announced and
decrease the larger the company was.182 Moreover, it is stated that success is also positively
correlated with the managerial stake in the firm. Particularly, the CEO ownership can posi-
tively influence the long-term success in terms of revenues.183
Potential Success Factors for the M&A Execution Phase
♦ Synergy Evaluation
♦ Involvement of an M&A advisory team
♦ Transparent decision-making process
♦ Involvement of CEO / Top-Management
♦ Involvement of other business departments
♦ Mode of payment / Financing scheme
♦ Final purchase price
♦ Creation of an incentive plan for the key personal
♦ Made availability of information by the target company
Table 4-2: Potential Success Factors Execution Phase
4.2.3 Potential Success Factors in the Integration Phase
As well as the other two previous phases the integration phase has many intersections with
them in respect to a successful M&A. Furthermore, the parties involved in the M&A are often
more concerned about financial data and due diligence and neglect the integration. Therefore,
a timely development of a post-merger integration plan is advisable, since a good integration
180
Watson, D., Acquisition: How to avoid Implementation Pitfalls and Improve the Odds of Success, Global
Business and Organizational Excellence, 27 (1), 2007, p. 15 – 16.
181
McKay, J. / Constable, S.J., Make your Voice heard. Strategically Positioning HR during Merger &
Acquisitions, WordatWork Journal, 11 (3), 2002, pp. 6 – 16.
182
Moeller, S.B., et. al., Firm Size and the Gains from acquisitions, Journal of Financial Economics, 73 (2),
2004, pp. 201 – 228.
183
Cosh, A., et. al., Board Share-ownership and Takeover Performance, Journal of Business Finance &
Accounting, 33 (3-4), 2006, pp. 459 – 510.
53
creates the potential for long-term success after the transaction. Due to time pressure and
hence for an optimal outcome the company must provide sufficient resources for planning and
managing the integration plan.184
The preliminary planning should start as soon as the potential acquisition candidate was found
during the screening process and contacted for the first time. The more information the
company get the more detailed the plan can be explained.185
Particularly, important for a successful M&A is the human resource management (HRM).
One of the main tasks of the HRM - to secure a successful M&A - is to keep the key personal
and minimize the fluctuation of both firms. Other than that previous mentioned incentive plan
the focus is here a proper information and communication management. The information’s
and communications should address all stakeholders, like employees, customers, and ven-
dors.186
The merging of different corporate cultures requires an especially sensitive management. The
management often underestimates divergences between cultures. An enforcement of the value
standards from one company to another may contradict a successful M&A. A to weak
consideration of different corporate cultures may be a substantial reason with the M&A fail.
The cultural integration is a crucial part of the entire transaction process. The key to success
should be to join the best of both cultures. In that case nobody has the feeling that he was
forced to different culture.187
A formation of a special project management team can create the necessary commitment for
the integration tasks, accelerate the process, and put a contact person for specific integration
questions in first place.188
The implementation of efficient controlling tools can help to monitor the integration pro-
cess. The adequate use of controlling tools enables the project management team to track the
integration progress and. Moreover, performance control can increase the effectiveness and
due to clear incentive schemes employees are more encouraged.189
Also as in other business the factor time is very crucial for the deal success. That is why the
speed of integration plays an important role. The entire integration process should move fast
and consistently in order to provide the new structures as soon as possible. Through this the
time of uncertainty among the employees, customers and vendors can be shorten as well as
184
Beitel, et al., Erfolg in M&A, op. cit., p. 24 - 25.
185
Cusatis, P. / Blumberg, M., Why can’t we predict merger and acquisition success? An analysis and
preliminary test of a new approach, Southern Business & Economic Journal, 32 (3-4), 2009, p. 87.
186
Venema, W., Integration, et. loc., p. 51.
187
Stahlke, N, Erfolgsfaktoren, op. cit., p. 239 f.
188
Salwanee, Key success factors in Mergers and Acquisitions, op. cit., p. 2.
189
Beitel, et al., Erfolg in M&A, op. cit., p. 25.
54
the cost can be kept on a lower level. Furthermore, the sooner the entire integration process
can be completed the earlier the corporation can benefit from the realized synergies.190
Potential Success Factors for the M&A Integration Phase
♦ Early start of integration planning

♦ Proactive risk-management
♦ Communication with employees, customers and vendors
♦ Delegation of special resources for post-merger management
♦ Prevention of key personal fluctuation
♦ Fast implementation of new management after the deal
♦ Cultural alignment – without violating believes and values
♦ Knowledge transfer between the companies
Table 4-3: Potential Success Factors Strategic Integration Phase
190
Angwin, A., Speed in M&A Integration: The first 100 Day, European Management Journal, 22 (4), 2004, pp.
418 – 430.
55
5. Case Study: Merger & Acquisitions in the CRO industry
5.1 Data & Methodology
First of all, I studied the literature and derived potential reasons for M&A (chapter 3) and
potential success factors in the M&A process (chapter 4). These findings were gathered in a
survey. In the survey I review the theoretical and empirical research. From my point of view,
a survey has a lot of advantages, namely it offers elaborate answers, answers that are reliable
due to the fact of blinded survey and finally and exact and quantifiable outcomes.
Most of the theoretical aspects in that survey can be found in academic literature, in jour-
nals, and publications of reputable consulting firms. Most of the literature deal in general with
mergers and acquisitions but are not focussed on the CRO market. Therefore, the goal is to
evaluate the impact of the theoretical findings for M&A in the Contract Research Organiza-
tion (CRO) industry.
In my opinion, many mergers & acquisitions fail during the M&A process. Accordingly, I
will emphasize those problems in the survey. Moreover, I discuss potential reasons fur
success failure, and examine the determinant and evaluation of success after a conducted
M&A.
Finally, the survey consists of four main parts:
• Reasons for M&A in the CRO Industry

• Potential success factors for the M&A process in the CRO Industry
• Reasons for Success failures for the M&A process in the CRO industry
• Determinations of Success after finalization of an M&A in the CRO Industry
For a representative sample I contacted preselected people via mails and asked for the
willingness to complete a survey for a research study. The approach was and is that there is no
or very few literature on this topic and my conclusions also base will basically base on the
survey. All contacted persons receive the survey attached to the contact and inquiry mail. All
together 20 surveys were sent. 13 surveys were completed what results in a response rate of
65%. According to the general discretion in this business area the actual response rate is a
success.
56
Figure 5-1: Sent and completed surveys and analysis in which kind of M&A the partici-
pants were involved.
The survey was completed by top-level managers in the CRO industry. All of them were
involved in at least one M&A (the involvement in an M&A was not a necessary condition).
As we can see in Figure 5-1, most participated in an acquisition (9) closely followed by
mergers (8). Just two took part in a strategic alliance and nobody in a demerger.
In the following parts of the book I will present the outcome of the survey. The chapters are
divided according to the structure of the survey. The representation takes place in form of
tables, some of which are ranked according to the number of entries and others according to
their average score.
5.2 Why M&A occur in the CRO Industry
The first part of the survey is about potential reasons for merger and acquisitions. We have
seen that the number of M&A is increasing. On the hand this is due to soared interest of
private equity investors on the other hand due to management decisions within the CRO
industry. I emphasize the latter one. The goal was to evaluate the impact of those factors,
which are mentioned in the academic literature, for the Contract Research Organization
industry. Additionally, the participants had the possibility to add own suggestions (“other”).
57
Rang Potential Reasons for Merger & Acquisitions Number of entries
General Improvement of the competitive Situation –

1-1 10
market power
1-2 Geographical diversification 7
1-3 Increase of market share 5
1-4 Intellectual capital – transfer of know how 4
Influencing of shareholders perception and evalua-

1-5 3
tion of the company
1-5 Diversification of offered services / products 3
1-7 Reduction of overhead costs 2
Potential Synergies in the departments:

Finance 1
1-8 Administration
Business Development 1
Research 1
1-9 Tax reduction 0
other: 2
Table 5-1: Summary of the potential reasons for M&A in the CRO industry
Table 5-1 gives an overview about how often a potential reason for an M&A in the CRO
industry was named. Subsequently, the table is classified into four different groups. The
factors with the highest rank are also the most important motives in respect to the number of
entries.
The most important factor is the general improvement of the competitive situation – almost
all completed surveys had this point. Another very important fact in the first group – named in
over 50% of completed surveys - is the geographical diversification. The middle group is
dominated by factors mentioned between 3 and 5 times - 23% and 38%. These are, for
instance, the increase of market share or diversification of offered service and products. The
less frequent point were reduction of overhead costs together with potential synergies in
specific departments. Tax reduction was never mentioned. Other reasons were to get manage-
rial support and thus help with the growth of the company.
58
In reference to other studies synergies are often mentioned as one of the most important
motivations for M&A. Interestingly we can observe that synergies have practically not the
influencing value in the CRO industry and that other factors are more important. The same
assumptions are also valid for the reduction of overhead costs. Generally, we can see that cost
savings do not play an influencing role as estimated probably in other industries.
As we have already examined the CRO industry is very knowledge intensive. The diversifica-
tion of offered services and particularly the transfer of know are of great value for CRO
companies.
Business related factors like the general improvement of the competitive situation - market
power – and the expansion of geographical reach are the most important motivations for
M&A for CRO companies. Together with the previously mentioned points the firms are able
to extend their business line and conduct new clinical trial phases. A broader geographical
reach makes them also more attractive as a preferred strategic alliance partner.
5.3 Potential Success Factors for the M&A process in the CRO industry
The next part of my research was to determine potential success factors for the M&A process
in the CRO industry. According to a statement Joe Herring (CEO of Covance, in call with
investors) the M&A process for CROs is considered as relatively hard, “Having three differ-
ent operating systems, three different IT strategies, three different leaderships and cultures,
(and) three different facilities in a given region that need to be rationalized (makes it) very,
very difficult.191 The overwhelming number of questions is based on success factors, which
the academic research discovered and were determined in chapter 4. As well as in the previ-
ous chapter the idea was to identify the impact of those success factors for the CRO business.
The participants had the possibility to evaluate the success factors based on a grading system
from 1 (minor) to 5 (outstanding). In the following the potential success factor are ranked
according to the highest average. I also calculated the standard deviation to show the disper-
sion of the data from its mean.
5.3.1 Strategic Planning Phase
The survey part for the strategic planning phase consists of the analysis of the company, the
development of an M&A plan and the screening process. As we can see in the table below we
have 3 main groups. One group with five different points and a valuation range of 0,17
191
Online source: http://www.outsourcing-pharma.com/Clinical-Development/CRO-integration-post-M-A-will-
be-very-difficult-Covance (accessed 07.07.2013)
59
points. Followed by the assessment of internal management skill rated 0,20 points higher and
finally the realistic estimation of future market trend with minimum 0,41 point gap or 0,21
points in respect the second place.
Importance
Standard deviation
very important
outstanding
Potential Success Factors
Average Ø
important
helpful
Rank
minor
In the Strategic Planning
Phase
1 2 3 4 5
Realistic estimation of future

2-1 3,91 2,50 0 0 2 8 1
market trend
Assessment of internal manage-

2-2 3,70 1,58 0 1 3 4 2
ment skills / effectiveness
M&A experience of the manage-

2-3 3,50 1,72 0 4 1 1 4
ment team
2-4 Strategic / Organizational fit 3,45 2,31 0 0 6 5 0
Identification of companies value

2-5 3,44 2,37 0 0 7 0 2
driver
Aligning of corporate and M&A

2-6 3,40 2,22 0 0 6 4 0
strategy
M&A roadmap with quantifiable

2-7 3,33 1,84 0 2 2 5 0
goals
Table 5-2: Potential success factors in the strategic planning phase
First of all, we can identify that every factor is at least important, with a minimum average of
3,33. Moreover, we can observe that strategic planning factors like an M&A roadmap with
quantifiable goals and the aligning of corporate and M&A strategy don’t play the significant
role as estimated in the literature. More considerable is the evaluation of both companies, thus
the identification of companies value drivers and the right strategic and organizational fit. The
most crucial factor for a successful strategic planning phase is the right management team. It
should have M&A experience, the right management skills and effectiveness to come to the
right decisions and particularly run by a visionary team that have a realistic estimation of
future market trend.
60
These skills will help to identify a fundamentally good business and start a more successful
merger and acquisition process.
5.3.2 Execution Phase
I identified 9 potential success factors for the M&A execution phase, whereby the ranking is
scaled in four groups. We have one outstanding factor followed by group with three very
important criterions. A group, out of four points, rated as important and finally one character-
istic, which was classified as helpful.
The least important but still helpful process is the creation of an incentive plan for the
management. Probably, we face a relatively high variance of answers here since it is not easy
to define whether we count the entire management as key stuff or not.
Surprisingly, the involvement of an M&A advisory team is more or less at the same im-
portance level as the inclusion if other business departments. This is contrary to the literature,
where an advisory team was crucial for the success.
It is not uncommon that the acquirer pays a higher price in comparison to the real market
value. Therefore it is very important assess the financial aspects for a successful execution
phase. An accurate and detailed evaluation of the target company through a comprehensive
due diligence in the execution phase will help to determine the final purchase price as well as
the mode of payment / financing scheme.
In contrast to the previously mentioned M&A reasons, synergies and overhead costs play
quasi-no role. In the execution phase the synergy evaluation is much more important with an
average of 4,40. So it is rarely advisable to buy businesses that add mass and subsequently
hoping to reduce costs through the M&A. Companies have to be careful with to much
overlap. Limited overlap means limited disruption. However, a company with substantial
operations in a country / region buys another company with the same profile need many
thousand of hours focused on who will be in charge of what, who runs which department and
which employees will be moved to other offices.
Generally, the literature emphasizes the importance of an advisory team. Therefore, I for-
mulated the counter question, whether the company’s management should take part in the
execution process or just indicate the framework conditions. According to the survey out-
come, we can see that the involvement of the CEO / Top-Management is from outstanding
importance for a successful M&A.
61
Importance
Standard deviation
very important
outstanding
Average Ø
important
helpful
Potential Success Factors in
Rank
minor
the Execution Phase
1 2 3 4 5
Involvement of CEO / Top-

3-1 4,90 2,82 0 0 0 1 9
Management
3-2 Synergy Evaluation 4,40 2,22 0 0 0 6 4
Mode of Payment / Financing

3-3 4,33 1,72 0 0 0 6 3
scheme
3-4 Final purchase price 4,22 2,07 0 0 0 7 2
Transparent decision-making
3-5 3,70 1,56 1 0 2 5 2
process
3-6 Involvement of M&A advisory team 3,67 1,84 0 0 5 2 2
Involvement of other business

3-7 3,50 1,62 0 0 5 5 0
departments
Disclosure of information by the

3-8 3,50 1,95 0 0 6 6 0
target company
Creation of an incentive plan for

3-9 2,64 1,45 4 0 4 2 1
the management
Table 5-3: Potential success factors in the execution phase
5.3.3 Integration Phase
I identified seven potential success factors for the integration phase, which are divided into 4
groups. First of all, we can note that all reasons are at least important – lowest score 3,4. The
first as well as the second have one key reason. The third section has three and the fourth
section two main points.
62
Importance
Standard deviation
very important
outstanding
Average Ø
important
helpful
Potential Success Factors in
Rank
minor
the Integration Phase
1 2 3 4 5
Communication with employees,

4-1 4,82 2,69 0 0 0 2 9
customers, and vendors
Fast implementation of new

4-2 4,20 1,46 0 0 3 2 5
management after the deal
Prevention of key personal

4-3 3,90 2,82 0 0 1 9 0
fluctuation
Delegation of special resources

4-4 3,89 1,85 0 0 2 6 1
for post-merger management
4-5 Early start of integration planning 3,80 1,73 0 2 0 6 2
4-6 Proactive risk-management 3,56 1,51 0 0 4 5 0
Knowledge transfer between the

4-7 3,40 2,37 0 0 8 0 2
companies
Table 5-4: Potential success factors in the integration phase
Interestingly, we can note that the knowledge transfer between the companies is indeed
important (3,40) but not crucial for a successful M&A phase. However, the transfer of know-
how is a reason for mergers & acquisitions.
Generally, M&A projects have inherent risks and can negatively affect the entire project
success. In any term risks should be prevented. Nonetheless, risk management is ranked in the
lowest group with an average of 3,56. This is still important but savours not the recognition as
in other industries.
The management should start with an early integration planning and delegate special re-
sources for the post-merger process. A clear and systematic process can also help to prevent
the flight of the key staff. A fast implementation of the new management and therefore
distinct authorities can also contribute to those factors.
From outstanding importance for a successful integration process is the communication
with employees, customers and vendors. Particularly, the communication with employees will
63
affect the teamwork in terms of motivation and fluctuation. Additionally, the communication
with customers can ensure that the support and quality is still high and won’t be suffering due
to the M&A process.
5.4 Reasons for success failures for the M&A process in the CRO industry
As we already discussed most of Merger & Acquisitions are not successful. Depending on the
study, the number for M&A failures varies from 50 to even 80%. As we already determined
what are potential success factors for the M&A process we consider here the reasons for
success failures.
Rank Success failures in the M&A process Number of entries
5-1 Lost of trust between the partners 10
5-1 Insufficient information flow between the parties

10
(lack of communication)
5-3 Financial problems of one / both parties 9
5-4 Insurmountable cultural difference 8
5-5 Insurmountable differences between the Top-

6
Management
5-5 Insufficient synergy potential 6
5-7 Politically motivated interventions 1

Table 5-5: Summary of the potential reasons for M&A in the CRO industry
The most frequent answer is the lost of trust between partners and an insufficient information
flow between the parties – lack of communication. This can cause that decisions are not
executed in a proper way. Particularly, in fast changing situations and even chaotic situations
communications plays a critical role.
Subsequent reasons were financial problems of one or both parties. Followed by insur-
mountable cultural difference and by insurmountable differences between the top-
management. Late communications or not an ongoing dialog may be the reasons.
In respect to quantity of answers an insufficient synergy potential was ranked at the same
place. This is interesting due to the effect that potential synergies were not crucial reasons for
M&A in the CRO industry. Despite the fact that PESTEL analysis pointed political factors as
64
one potential problem for conducting trial phases in different countries, politically motivated
interventions are not common and appear in less than 10% of all M&A.
5.5 Determinants and evaluation for success after the M&A
In the last part of my survey I wanted to know how the participants assess the success after
the completed M&A process. The objective was to determine of specific parameters were
accomplished. I determined the four components of economic, competitive, social, and
cultural success and asked within these for specific parameters like income or stock price
development. Similar to the previous ranking system the participants had the possibility to
evaluate each parameter from 1 (minor) to 5 (outstanding). The raking is based on the average
from all answers.
The highest rated component after a successful M&A was the economical aspect. Factors like
income, profit and stock price were most positive affected. Particularly, the stock price had
the highest rating among all factors (4,13). This appreciation has to be seen in the long-term
view or from the perspective of the target company. Generally, after the announcement, we
face the situation that the stock price of the acquirer fell and the target company’s price rise.
In the long-term the price of the acquirer can also rise, as we face an increase of income and
profit.
65
Importance
Standard deviation
very important
outstanding
Average Ø
important
Determinants and evaluation
helpful
Rank
minor
of success after an M&A
1 2 3 4 5
6-1 Economic success 3,68
Income 3,63 1,33 1 0 2 3 2
Profit 3,88 1,81 1 0 0 5 2
Stock Price 4,13 1,81 0 0 1 5 2
6-2 Competitive Success 3,48
Market Share 3,38 1,64 0 2 1 5 0
Product Quality 3,25 1,80 0 0 6 2 0
Customer Service 3,00 2,48 0 0 8 0 0
New Trial Phases 3,63 1,33 0 1 3 2 2
Geographical Reach 4,13 1,66 0 0 3 1 4
6-3 Social Success 3,44
Number of employees 3,38 1,34 1 1 2 2 2
Motivation 3,50 1,36 2 0 0 4 2
6-4 Cultural Success 3,17
Working atmosphere 2,75 1,36 2 0 4 2 0

Loyalty and Identifica- 3,25 1,80 2 0 0 6 0

tion
Innovation orientation 3,50 1,96 1 0 1 6 0

Table 5-6: Determinants and evaluation of success after an M&A
66
The competitive success is rated 0.2 points lower than the economic component. Factors like
market share, product quality, customer service, new trial phases, and geographical reach
contribute to this group. Particularly, the last one seems to be very important as it has the
highest average rating at all. We can observe that geographical reach was one of the most
frequent reasons for an M&A and that are the managers are relatively satisfied with the
outcome afterwards.
In general the social success is rated only 0,04 point lower in than competitive success. But
we can observe that the answers are more fragmented. Particularly, the motivation aspect has
a quite large spread. However, the number of employees is assessed in the upper field. This
means basically, that companies could hire new people and increase the number of the staff.
The cultural success exhibits quite the same assumptions – large spread in terms of answer
allocation. The working atmosphere has the lowest rank among all other factors with 2,75.
Interestingly, the group of participants that evaluate the development of these success factors
predominately as minor or helpful were involved in M&As between larger corporations
(>1000 employees). The more satisfied group, that estimated the development more success-
ful was part in M&As of smaller firms.
67
6. Conclusion and Recommendations
In the first instance, the research analyses the definition and history of mergers and acquisi-
tions. What is certainly apparent from my brief review is that increasing globalization and
technological innovation together with the economic and financial markets play a very
influential role for M&A activity. Merger waves increased in intensity and frequency, have
larger volumes and are following more rapidly. Mergers and acquisitions play successively
increasing role for any industry.
Consequently, I give a broader insight into the Contract Research Organization industry. In
order to understand the importance of the business I presented the history and fundamentals
of the industry. Pharmaceutical companies are looking for a way to cut costs and outsource
more and more of research businesses. Contract Research Organizations face relatively huge
market growth since that. Nonetheless, we can observe that the requested standards are rising
in terms of service pipeline and also price and margin pressure. Since 2006 we can observe a
profoundly change and that CRO want to growth through mergers and acquisitions.
I could identify ten frequently mentioned reasons for mergers and acquisitions as well as 23
potential success factors for the M&A process. All of those were documented in academic
literature and showed in several studies. The literature, however, put no attention to the CRO
industry. Therefore, an adequate evaluation was performed using the survey method, which
were completed by top-level managers in that industry. Moreover, I add a category to ask
about potential reasons for M&A failures. Equally interesting, a category to determine and
evaluate the success factors after a completed M&A process.
When it comes to the reasons, the mot important is the general improvement of the competi-
tive situation of the firm and increasing of the market power. It is of elementary importance
that companies secure a good positioning among their business competition. Due to this fact
the company is able to compete in the service pipeline as well as on the quality and price.
Second most important reason is the geographical diversification. Buy a business that adds a
geography region that the acquirer doesn’t have and not a business that add only mass and is
similar to the existing one.

The potential success factors for the merger and acquisition process are divided into three
phases. We can observe that the most important attribute for a successful M&A is the man-
agement contribution. Activities throughout all phases require the involvement of the CEO
and Top-Management. In case of a successful strategic planning phase it is the realistic
estimation of future market trends, the assessment of internal management skills and the
68
M&A experience of the management team. For the integration phase it is the fast implementa-
tion of a new board and communication with employees, customers, and vendors. A visionary
and good management team can communicate in an effective way. Additionally, they can
identify and purchase companies that are relatively cheap in terms of final purchase price but
able to move them to a higher level.
All of theses facts can also affect the fluctuation in a positive way. The prevention of key
personal flight is of outstanding importance. Even when the buyer acquire a target with new
geographical reach, the company has to keep enough of the personnel at the acquisition object
so that the buyer can claim that they have that new geography region, service or expertise.
Likewise important is the synergy evaluation. Companies have to be careful with to much
overlap between the profiles of both because of the strain to put them together. Again, the
talented employees can find a new employment whereas the merging companies will keep
probably keep the mediocre ones.
Furthermore, lost of trust and an insufficient information flow between the partners can lead
to success failures. Managers also have to pay attention to avoid any financial obstacles that
might influence the M&A in an adverse effect. However, the majority of managers evaluate
the economic and competitive situation after the merger and acquisition in a positive way.
Eventually, managers should emphasize the integration planning. Not enough integration
planning and unrealistic expectations result into insurmountable cultural differences.
Conclusive, I detected that it takes a lot of patience and communication, and especially
planning to bring two companies together. First and foremost, you need a have a good team
and spend time to have the dedicated people to try to facilitate the integration with an effec-
tive communication and vision for the company.
69
Appendix
61
SGH - Warsaw School of
Economics
Institute of World Economy
Survey for the determination of

Success Factors for Merger & Acquisitions in the CRO
Industry
The goal of the survey is to determine success factors for collaborations / merger & acquisitions. Success is the
achievement of an action within a specified period of time or within a specified parameter. It can also mean
completing an objective or reaching a goal, e.g. to increase the value of the company.
Generally, there is no academic literature available and therefore it is very important for me that you could
complete the following questions. Even if you weren’t involved in any collaboration / merger & acquisition
process you can determine factors you might consider as important. If you do not want to answer some specific
questions, please leave them empty. Under every question you have space (“Remarks”) to add more information
or make any comments.
Assurance: The survey sheet is exclusively for academic purposes. The collected data is anonymized and
treated strictly confidential.
Company Name:
Address:
Homepage:
Name:
Mail:
62
1. General Company Data
1.1 Involvement in Merger & Acquisition / Collaboration procedures
Please, define if you were involved in a Merger & Acquisitions process or any other closer collaboration with
another company (Strategic Alliance, Joint Venture or Demerger)
Yes No (Please, go to question 2.4)
1.2 Type of (tried) Takeover

Please, define the type and number of (tried) takeover(s) – in case of a merger or acquisition. If there was more
than one, please use the space under the question to determine the quantity.
Friendly: Acquisition of one firm by another where the owners of both firms agree to the term of the
takeover transaction.
Company asked a potential target for a Company was asked for a potential M&A
M&A:
Remarks:
Hostile: Acquisition of a firm despite the disapproval of the management.

Company tried hostile takeover: Company was a potential target
Remarks:
1.3 Nature of M&A?

Please, define the type of collaboration with other corporations.
Merger Combination of two (or more) firms in which one

legally and functionally cease to exist
Acquisition Purchase of another firm’s assets, with the acquired

firm continuing to exist as a legally owned subsidiary
or any other form.
Strategic Alliance Arrangement between two companies that have decided

to share resources/undertake a specific project or provide

complementary type of service / geographical coverage
Demerger The act of splitting off a part of an existing company,

which operates completely separate
63
2. Reasons for the Collaboration / Fusion
Please, define the reasons for the collaborations / mergers & acquisitions (Multiple entries are expressly
welcome).
General improvement of the competitive situation – market power

Extension of the value chain – vertical integration
Geographical diversification
Diversification of offered services / products
Increase of the market share
Combined company can reduce its overhead cost
Intellectual Capital – transfer of know how
Influencing of shareholders perception and valuation of the company (public sectors)
Tax reduction
Potential Synergies in the departments
Finance Administration Business Development Research
Other
Remarks:
3. Potential success factors for the M&A process in the CRO industry
Which factors (could) contribute to the success of different processes in collaborations / mergers & acquisitions?
In the last two rows you have place to add your personal suggestions. Please, rate all relevant success factors
according to the subsequent 5 point grading system: 1=minor, 2=helpful, 3=important, 4=very important,
5=outstanding.
3.1 Strategic Planning Process

This process may include the following activities: Analysis of the company (Internal Analysis), Competitive and
environmental analysis (External Analysis), business vision/mission, business strategies, acquisition strategy.
minor= 1 2 3 4 5 =outstanding
Assessment of internal management skills

Realistic estimation of future market trend

Identification of companies value driver
Aligning of corporate and M&A strategy
M&A roadmap with quantifiable objectives
M&A experience of the management team
Strategic / Organizational fit
Other success factors:
64
Remarks:
3.2 Evaluation and Selection process

This process may include the following activities: searching and screening process (contacting and negotiating),
perform due-diligence, structure deal, develop financing plan, closing.
Synergy evaluation
Involvement of an M&A advisory team
Transparent decision making process
Involvement of CEO / Top-Management
Involvement of other business departments
Mode of payment / financing scheme
Final purchase price
Creation of an incentive plan for the manage-
ment
Disclosure of information by the target company
Remarks:
3.3 Structural Development and Implementation Process

This process may include the following activities: Post-Merger integration, Implementation of integration
mechanisms (administrative, cultural, and operative).
Early start of integration planning

Proactive risk-management
Communication with employees, customers, and

vendors
Delegation of special resources for post-merger
management
Prevention of key personal fluctuation
Fast implementation of new management after
the deal
Cultural alignment – without violating believes
and values
65
Knowledge-transfer between the companies
Remarks:
4. Potential reasons for M&A success failures

Please, tick the reasons for failures of collaboration / merger & acquisition (Multiple entries are expressly
welcome).
Insufficient Synergy potential

Financial problems of one / both partners
Insurmountable cultural differences
Insurmountable differences between the Top-Management
Politically motivated interventions
Loss of trust between the partners
Insufficient information flow between the parties (lack of communication)
Other
Remarks:
5. Success
5.1 Determination of success in collaborations / mergers or acquisitions, until now.
If you were in involved in any collaboration / merger & acquisition, determine how successful the development
of the following parts is. If you were involved in more than one collaboration / merger & acquisition, you can
use letters (e.g. a,b,c,…) to fill in the boxes (instead of just one X). Please, rate all factors according to the
subsequent 5 point grading system: 1=deficient, 2= sufficient, 3=satisfactory, 4=good, 5=outstanding.
deficient= 1 2 3 4 5 =outstanding
The economic success:

Income
Profit
Stock Price
Remarks:
The competitive success:

Market share
Product Quality
66
Customer Service
Possibility to conduct
new trial phases
Geographical Reach
Remarks:
The cultural success:

Working atmosphere
Innovation orientation
Loyalty and Identifica-
tion with the company
Remarks:
The social success:

Number of employees
Motivation of employees
Remarks:
5.2 Evaluation of the success components

How important are the following components for accomplishing a successful collaboration / merger & acquisi-
tion? Please, evaluate the overall components of a successful collaboration / mergers & acquisition according to
their importance (in %).
Economic Success % Competitive Success %

Cultural Success % Social Success %
Remarks:
6. Presentation of the Outcomes

As many thanks for your support, I would like to propose you the aggregated results of this survey.
Yes, I would like to get the aggregated results.

No, thank you.
Additional comments:
67
68
SGH - Warsaw School of
Economics
Institute of World Economy
Survey for PESTEL and Porter-5-Forces

in the CRO Industry
1. Please, describe the influential factor in the CRO industry according to the PESTEL-Model
(Political, Economical, Social, Technological, Environmental, Legal):
2. Please, the influencing factors in the CRO industry in respect to the Porter-5-Forces Model
(Threat of new Entrants, Substitute products / services, bargaining power of customers,
bargaining power of suppliers, intensity of competitive rivalry):
69
Number of
rank Potential Reasons for Mergers & Acquisitions entries
1-7 Potential Synergies in the departments:
Finance 1
Administration
Business Development 1
Research 1
1-6 Reduction of Overhead Costs 2
General Improvement of the competitive situation – market

1-1 power 10
1-3 Increase of the market share 5
Extension of the value chain – vertical integration 0
1-2 Geographical diversification 7
1-5 Diversification of offered services / products 3
1-5 Influencing shareholders perception and valuation of the firm 3

1-8 Tax reduction
1-4 Intellectual capital – transfer of know how 4
Other 3
Potential Success Factors for

the M&A Strategic Planning Standard
Rank Phase Average Deviation 1 2 3 4 5
Assessment of internal manage-
2-2 ment skills / effectiveness 3,70 1,58 0 1 3 4 2
Realistic estimation of future
2-1 market trend 3,91 2,5 0 0 2 8 1
Identification of companies value
2-5 driver 3,44 2,37 0 0 7 0 2
Aligning of corporate and M&A
2-6 strategy 3,40 2,22 0 0 6 4 0
M&A roadmap with quantifiable
2-7 objectives 3,33 1,84 0 2 2 5 0

M&A experience of the manage-
2-3 ment team 3,50 1,72 0 4 1 1 4
2-4 Strategic / Organizational fit 3,45 2,31 0 0 6 5 0
Other:
70
Potential Success Factors for the Standard
Rank M&A Strategic Planning Phase Average Deviation 1 2 3 4 5
3-2 Synergy Evaluation 4.40 2.22 6 4
Involvement of an M&A advisory
3-6 team 3.67 1.84 5 2 2
Transparent decision-making
3-5 process 3.70 1.56 1 2 5 2
Involvement of CEO / Top-
3-1 Management 4.90 2.82 1 9
Involvement of other business
3-7 departments 3.50 1.62 5 5
Mode of payment / Financing
3-3 scheme 4.33 1.72 6 3
3-4 Final purchase price 4.22 2.07 7 2
Creation of an incentive plan for the
3-9 management 2.64 1.45 4 4 2 1
Make availability of information by
3-8 the target company 3.5 1.95 6 6
Other:
Potential Success Factors for the Standard

Rank M&A Strategic Planning Phase Average Deviation 1 2 3 4 5
4-5 Early start of integration planning 3.80 1.73 2 6 2
4-6 Proactive risk-management 3.56 1.51 4 5
Communication with employees,
4-1 customers and vendors 4.82 2.69 2 9
Delegation of special resources for
4-4 post-merger management 3.89 1.85 2 6 1
Prevention of key personal fluctua-
4-3 tion 3.90 2.82 1 9
Fast implementation of new
4-2 management after the deal 4.20 1.46 3 2 5
Cultural alignment – without
4-5 violating believes and values 3.80 1.36 4 4 2
Knowledge transfer between the
4-7 companies 3.4 2.37 8 2
71
Potential Reasons for Mergers & Acquisi- Number of
rank tions entries
5-5 Insufficient synergy potential 6
5-3 Financial problems of one / both partners 9
5-4 Insurmountable cultural difference 8
Insurmountable differences between the Top-
5-5 Management 6
5-6 Politically motivated interventions 1
5-1 Loss of trust between the partners 10
Insufficient information flow parties (lack of
5-2 communication) 10
other 6
Determinants and evaluation of Standard

Rank success after an M&A Average Deviation 1 2 3 4 5
Economic
6-1 success 3,88
Income 3,63 1,33 1 2 3 2
Profit 3,88 1,81 1 5 2
Stock Price 4,13 1,81 1 5 2
Competetive
6-2 success 3,48
Market Share 3,38 1,64 2 1 5
Product Quality 3,25 1,80 6 2
Customer Service 3,00 2,48 8
New Trial phases 3,63 1,33 1 3 2 2
Geographical reach 4,13 1,66 3 1 4
Cultural
6-4 success 3,17
Working atmosphere 2,75 1,36 2 4 2
Loyality and identifica-
tion with the (new)
company 3,25 1,8 2 6
Innovation orientiation 3,50 1,96 1 1 6
Social
6-3 success 3,44
Number of employees 3,38 1,34 1 1 2 2 2
Motivation 3,50 1,36 2 4 2
72
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LIST OF FIGURES ...................................................................................................................................... VII

LIST OF TABLES ..................................................................................................................................... VIII

LIST OF ABBREVIATIONS ...................................................................................................................... IX

1. MERGER & ACQUISITIONS FUNDAMENTALS.............................................................................13

2. CONTRACT RESEARCH ORGANIZATION INDUSTRY ................................................................20

3. EXPLANATORY APPROACHES AND MOTIVES FOR M&A ........................................................35

͵Ǥʹ   ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͵ͺ

5. CASE STUDY: MERGER & ACQUISITIONS IN THE CRO INDUSTRY ......................................56

6. CONCLUSION AND RECOMMENDATIONS.....................................................................................68

Figure I-I Structure of the book

Figure 1-1 Concept of M&A definition

Figure 1-2 Merger Waves in the US Industry

Figure 1-4 Recent world-wide Mergers & Acquisitions

Figure 2-1 The drug development process

Figure 2-2 CRO revenue growth 1992 – 2013E

Figure 2-3 The CRO scope of operations

Figure 2-4 The ten largest CRO corporations by revenue

Figure 2-5 Clinical Trial Management Systems

Figure 2-6 Revenue growth for the CRO industry

Figure 2-7 Worldwide distribution of clinical trials

Figure 2-8 EBITDA multiple 2007 – 2012

Figure 3-1 Possible synergy benefits

Figure 3-2 Diversification Strategy

Figure 4-1 The development of the M&A process

Figure 4-3 The execution phase with steps 4 – 6

Figure 4-4 Valuation approaches

Figure 4-6 Stages for a successful screening process

Table 2-1 Selected takeovers in the CRO industry

Table 3-1 Potential reasons for Merger & Acquisitions

Table 4-1 Potential success factors of the strategic planning phase

Table 4-2 Potential success factors in the execution phase

Table 4-3 Potential success factors in the strategic integration phase

Table 5-2 Potential success factors in the strategic planning phase

Table 5-3 Potential success factors in the execution phase

Table 5-4 Potential success factors in the integration phase

Table 5-6 Determinants and evaluation of success after an M&A

CAGR Compound Annual Growth Rate

CRO Contract Research Organization

et. al. et alii (and others)

f. folio (following page)

ff. folios (following pages)

FDA Food and Drug Administration

HTS High Throughput Screening

ibid. ibidem (the same place)

IND Investigational New Drug

IPO Initial Public Offering

LBO Leveraged Buy-Out

M&A Merger and Acquisitions

NDA New Drug Application

op. cit. opere citato (in the worked cited)

PLC Product Life Cycle

PPD Pharmaceutical Product Development

PPP Public Private Partnerships

R&D Research & Development

Figure I-I: Structure of the book

1.1 Definition and History

Figure 1-1: Concept of M&A definition

͵Ǥʹ ǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤǤ͵ͺ