Maintaining momentum through mergers and acquisitions

Paul Tunnah interviews Geoffrey Matthews

Merck Serono

As pharma looks for further innovation and diversification to maintain growth, the appetite for acquisitions and mergers seems to continue unabated. However, even with the best strategic fit between two companies, efficient integration is critical to ensuring such synergies can be leveraged and business momentum maintained. Get it wrong and your commercial teams and customers will be on the front line of a stalling organisation.

So once all the deal making has been done and the strategic integration plans drawn up, how can pharma ensure a seamless convergence of the two sides and maintain business as usual? What are the key considerations to ensuring employee motivation through such periods, in addition to making sure strong customer service levels are maintained?

pharmaphorum spoke with Geoffrey Matthews, Vice President of Organizational Strategy and Development at Merck Serono, ahead of his presentation at Fleming Europe’s 6th Global Pharma SFE Forum in March. As a key HR leader in the recent integration of Merck and Serono, he shared with us his advice on keeping the business operating whilst also managing the complex merger process.

Interview summary

PT: We’re talking today about the impact that mergers and acquisitions have on the pharma industry and its customers. First of all, do you see any calming of the corporate deals market in the current economic climate?

GM: I’m not an economist, but my impression is that the trend is not going to slow down. The pressures which have been pushing deals in the last few years, such as the shortage of funding for biotech start-ups and the quests for economies of scale, are still there.

PT: The relatively recent acquisition of Serono by Merck is one of the larger deals we’ve seen in recent years, so how did you see that process managed overall from a personnel perspective?

GM: Critical to success was a strong HR integration team, which brought together people from both companies to make sure that we had a “best of both” approach, as well as strong oversight of the integration.

We also had a detailed HR strategy and complete implementation plans with (you probably will be amazed) 221 integrated milestones to achieve! The team also had a dedicated balanced scorecard on the HR side to link together all those initiatives so that we knew how we were progressing, but also to make sure that we also kept focus on commercial success.

The BSC, or Balanced ScoreCard, was looking not only at the integration, but also at the general success of the business organisation. I think it was particularly important because we were then tracking things such as the overall business performance and some of the health metrics we had from an HR perspective, like how long it was taking us to hire people, workforce retention and achievement of integration goals. All of those meant that we kept an eye on the key things which mattered and we didn’t lose sight of any critical topics.

 

“It’s very easy during integration for people to focus on the technical aspects, but the soft side of it is also vital.”

 

It’s very easy during integration for people to focus on the technical aspects, but the soft side of it is also vital. So one of the things we did early on was a cultural survey to identify potential challenges in terms of cultural differences between Merck and Serono. Importantly, about a year after the integration started, we ran an employee engagement survey to make sure that people were fired up and on board. This has since become a really important theme for us as an organisation and a key metric for our managers – we now have industry leading levels of employee engagement.

PT: Was that process led equally by both parties, Serono and Merck?

GM: Yes, that was one of the factors which made the process successful. You do have some integrations where an acquiring organisation basically says to the acquired folks, “just move out the way and we’ll do it all thank you!” But for us it was very much a partnership, which helped to create trust and ensure everybody was committed to make it successful.

PT: If we look specifically at the customer facing sales and marketing personnel, what impact did you see from that acquisition?

GM: The integration was seen by most of our sales and marketing as a real opportunity, because we were bringing together two complementary businesses to give us the size and scale that we had been missing in the past. For example, Merck did not previously have a strong footprint in the US, and on the contrary Serono’s presence had been somewhat limited outside of Europe and the US. When we put the two organisations together we’re really focused and now have around 30% of our sales coming from emerging markets, which is one of the highest rates in the industry. So for the sales and marketing people there was a lot of upside opportunity.

PT: How was this change communicated to the sales and marketing teams?

GM: Overall the messages were very well received, and communication is key in this kind of situation. We had the usual top down regular updates from senior management to keep people informed, but importantly each of the countries had their own integration teams, acting locally to make sure people were fully kept in the loop.

We also had regional and therapeutic area kick-off events, which allowed people to understand the new wider product range and help accelerate the team building process.

When you have a lot of people being put together for the first time you risk losing a lot of sales and marketing momentum if they don’t engage and start working together fairly quickly. So we ran over 100 team building workshops globally to ensure people got aligned quickly.

About a year or so afterwards Merck then updated its internal values, with workshops across the whole company to get a shared understanding. All of those activities really helped to embed the change and bring people together.

 

“When you have a lot of people being put together for the first time you risk losing a lot of sales and marketing momentum if they don’t engage and start working together fairly quickly.”

 

PT: What would you say were the few critical things to ensuring internal productivity through this process?

GM: The critical thing is about getting the balance right, because you have a lot of diametrically opposed pressures when you go through integration. On the one hand you have to do planning, but at the same time you have to execute. You have to manage the integration, but also maintain daily business. You have to ensure the quality of the integration process, but also maintain speed. The challenge is to make sure you strike a balance, because if you don’t, the risk is either that you prolong the integration unnecessarily or that you are so focused on the integration that you neglect the business.

I think that for Merck Serono integration, we got the balance about right – we began the integration in 2007 when we saw revenue growth of 7.4%, followed by 9.7% in the first quarter of 2008, in both cases this was higher growth than the overall pharma market, even during the integration. For us this was a key success metric, we didn’t lose a beat on the commercial side of the business.

PT: Looking externally, both Merck and Serono were involved in a diverse range of specialist therapeutic areas, so how was the acquisition process communicated to your broad customer base?

GM: We produced a lot of materials to help explain to all of the prescribers and customers what the changes meant for them. But the key message we wanted to convey was that it was very much business as usual for our customers, that we were still committed to all our different therapeutic areas and that the integration phase wasn’t intended to reduce service to our customers. So the main thrust of it was really a sense of reassurance.

PT: Did you see any impact on the prescribers?

GM: I think it actually provided a lot of additional benefits, because it allowed us to introduce products in new countries. It also meant that we could reinforce further some of the patient focus with new programmes like, for example, help lines for multiple sclerosis patients.

The other key message was that we had become a stronger innovation driven organisation, with the two companies together able to invest over a billion Euros each year in scientific research that could really transform patient’s lives. This is a very compelling message and everybody could see we were right behind the customer to help them make a difference.

 

“There’s a saying that culture eats strategy for breakfast, so if you don’t pay attention to the people side of things it can really derail integration.”

 

PT: Do you think there would be some differences where the acquisition involved companies of very different size or focus?

GM: Every integration is in some sense unique and the drivers for integration can vary quite a bit. For us it was a complementary integration, but if you’re focusing on trying to gain market share whilst cutting costs, your agenda is different, but a lot of the keys to success are going to be the same in all circumstances.

For us, the two key takeaways were, firstly, the importance of planning and execution, but also paying close attention to the soft factors in integration. There’s a saying that culture eats strategy for breakfast, so if you don’t pay attention to the people side of things it can really derail integration.

About the interviewee:

Geoffrey Matthews is Vice President for HR Strategy and Organizational Development at Merck Serono, with responsibility for leading the shaping and implementation of HR strategy and key resulting initiatives. In addition, he provides organisational development support, with a special focus on change management and employee engagement. He played a key role in leading the integration of Merck and Serono from an HR perspective.

Geoffrey is presenting on the challenges of the merger-acquisition process at the forthcoming Fleming Europe 6th Global Pharma SFE Forum in Lisbon on the 15-16 March 2011.

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