Mergers & Acquisitions in the Contract Research Organization Industry

Master's Thesis from the year 2013 in the subject Business economics - Business Management, Corporate Governance, grade: 1,0, , language: English, abstract: This thesis 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 admission, 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. Additionally, we can see that mergers and acquisitions basically not succeed

during the actual process.[...]