Determinants of M&A Success in the Pharmaceutical and Biotechnological Industry
The IUP Journal of Business Strategy, Vol. VIII, No. 1, pp. 25-50, March 2011
Posted: 5 Jul 2011
Date Written: July 5, 2011
The pharma and biotech industry has faced major challenges in the previous years with respect to both the revenues and costs which led to a merger wave in this particular sector. Using standard event study methodology, this paper analyzes the success of the worldwide M&A (Mergers and Acquisitions) transactions in the pharma and biotech industry between 1996 and 2006. Overall, the combined entities show insignificant announcement effects, targets benefit from highly positive abnormal returns, whereas acquirers reduce their shareholder value. With regard to specific success factors, we find a strong evidence that focus on sales synergies is valued by the stock markets as a key success strategy for pharma and biotech M&A. Consequently, traditional pharma companies that still dispose of sufficient cash from their existing sales but face a dried-out product and patent pipeline should acquire innovative, but cash-poor biotech firms. The level of cost efficiency does not have a statistically significant impact on the abnormal returns. We interpret this finding as an indicator that the stock markets do not believe in cost synergies as a motivation for a successful transaction in the pharma and biotech industry.
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