As part of Haig Barrett’s 20th anniversary year whilst also celebrating the establishment of the London HQ of Haig Barrett Partners Ltd, I’ve decided to launch a Partner of the Year award.
Whilst I’ve partnered with many outstanding people and organisations over the years, our first Partner of the Year was a clear decision. Just as Haig Barrett celebrates 20 years in business, Nigel Walker, founder and managing director of That’s Nice, celebrates 25. Over the years, we’ve worked closely with Nigel and the That’s Nice team on many projects and also have very much enjoyed their companionship, having shared many a good meal together.
I’m constantly impressed by Nigel’s vision and ability to evolve his business as his clients’ business needs and ambitions change. Earlier this month, Nigel kicked off his Road to 2021 tour across Europe from London, where at a dinner Haig Barrett hosted at Home House, we were able to present him with a good bottle of Armenian brandy to celebrate.
Whilst we were together, we had the chance to chat about the state of the pharmaceutical and biotech industries with particular focus on the M&A opportunities in the (bio)pharma space. Before beginning our M&A discussion, Nigel talked through the evolution of That’s Nice. Every 4-8 years, he has added an entirely new, complementary offering exponentially enhancing their value proposition. Recently, That’s Nice has added M&A deal-making to their portfolio of services, facilitating the closure of 3 deals in little over a year and the questioning very much followed in that vein:
Haig: What are some of the general 2020 M&A activity trends in the pharma and biopharmaceutical industries?
Nigel: 2019 was a strong year for pharma M&A so it’s not surprising to see 2020 being a little slower in M&A activity. Of course, none of us saw COVID-19 coming, which meant that the first half of 2020 was pretty quiet. However there were some deals of note including AbbVie’s $63 billion acquisition of Allergan. Two of the larger transactions in the first part of this year—Novo Nordisk’s acquisition of Corvidia and Gilead’s acquisition of Pionyr—involved venture capital-backed companies. We’re expecting the last quarter of this year to be buoyant with a number of new substantial deals expected.
M&A stalled because, when the pandemic hit, many industry players began turning inward to make decisions about how to navigate the crisis. This delayed Mylan’s proposed merger with Upjohn, a division of Pfizer and a number of others.
Also from March to May, many pharma companies redirected resources towards developing vaccines and treatments for COVID-19. A lot of companies were also working to manage supply chain disruptions. All this together meant M&A went quiet. By my observations, activity resulting from the JP Morgan Healthcare Conference, the January event that sets the stage for a lot of (bio)pharma M&As, is down 50–70% in terms of both announcements and deals actually closing. But things are looking bright as we enter the final quarter of 2020
Haig: What part do you think travel restrictions have played in the rather subdued H1 market?
Nigel: The travel restrictions have played a large role as they’ve hugely impacted due diligence. It is easy enough to go to your local EY or PwC and do data room checks. But without traveling, you can’t get to the “fabric of the cloth.” Without physical visits, it’s tough to get a real feel for the business by talking to the management team, touring facilities, talking to team members and so forth.
That’s Nice has worked hard to address these problems. We developed a product called Virtual Site Tour. Using some advanced technologies to stabilise video and make sure the sound at an excellent quality, we can host facility tours based on a site plan. Buyers are walked through the facility, and the Virtual Site Tour guide stops to talk with subject matter experts from various departments.
As a substitute for travel, our M&A meetings have got longer – often 3-4 hours with management of up to up to 25 people on one call. These meetings are exhausting for everyone, and the Virtual Site Tour is not as good as a first-hand assessment, but this construct is working well all things considered.
We’ve been able to present companies and secure bids with this environment, which I’m really pleased about, all things considered.
Haig: Securing bids after digital-only presentations is impressive. What is leading to the success of this approach?
Nigel: By and large, established players are conducting deals based on existing relationships with longevity in the market. For the smaller, emerging players, there’s a lot of trust involved.
This said, big leaps of faith have been required for everyone. Business must go on, deals must get done and buyers need to be comfortable. To help make the buyers feel comfortable, we ensure the CIM documents are extremely clear, hold effective Zoom calls for discussions with management, quickly set up data rooms so that pre-due diligence can begin and establish an efficient question answering process for the final bidders. These are all important steps to keep due diligence on track and we’ve actually been able to shorten due diligence times.
Haig: What makes you anticipate a big uptick in deal activity in the fourth quarter?
Nigel: Despite ongoing travel restrictions, all the companies in our portfolio are experiencing record sales through COVID. There are now more than 400 COVID-related compounds in process. These compounds require R&D, the production of clinical trial material, manufacturing, lab analysis, testing and clinical trials.
Each of these projects involves $7 or 8 figures and require the resources of our customers in the pharma development and manufacturing sector.
Haig: Which sectors of pharma do you expect most M&A activity over the next twelve months?
Nigel: For the sake of this discussion, let’s divide the life sciences industry into four segments:
1) Outsourcing or contract organisations—contract research, manufacturing, and laboratory organisations
2) Pure R&D organisations—discovery houses that play in the target-to-lead space—all pre-IND
3) Innovator organisations—emerging pharma or small pharma companies that have molecules but need funding to move their work forward to commercialisation
4) Medical device organisations
In the R&D and Innovator spaces, I’m not forecasting many newsworthy M&A announcements over the next twelve months because so many of these players are racing toward a vaccine.
All the industry’s contract fill-and-finish capability has been bought up by big pharma in anticipation of vaccine approvals. Some companies are even premanufacturing large quantities of vaccines in anticipation of approval.
On the drug manufacturing side, there is little capacity available. There is some small-scale manufacturing capacity but capacity over 2,000 litres is already committed, primarily because of biosimilars coming into the market.
An interesting twist is that the US government is prepared to finance the reshoring of pharmaceutical manufacturing. Organisations will start popping up that are private equity funded and government backed.
Contract manufacturing organisations will increase in value because of this domestic sourcing so, in short order, I expect to see the most M&A activity involving contract organisations. It just takes too long to build brownfield or greenfield sites—three to five years. Therefore, contract manufacturing organisations are valuable right now.
Haig: What business opportunities do you think will manifest from current domestic reshoring efforts?
Nigel: We will see a massive acceleration in equipment acquisition as contract facilities are expanded to accommodate increased domestic manufacturing. We are already seeing the purchase of lab equipment multiplying tenfold compared to Q1 2019.
Companies will build out their labs as capacity expands and a lot of high throughput lab equipment is aging and therefore upgrading will be required.
From a pharma manufacturing perspective, this is the hottest time in my twenty-five years in the business!