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Understanding the Drivers of MA&D Activity

As a consulting firm focused on the consumer products and life sciences industries, we are excited to provide our expert view on the cross-industry announcement that took place this week regarding Valeant Pharmaceuticals and L’Oréal. We’ve conducted a short Q&A with the Clarkston Consulting Life Sciences Practice Lead Janel Firestein and her counterpart for Consumer Products Steve Rosenstock.

Janel, can you please tell us your view on the divestiture announcements this week from Valeant and a little bit about their motivation?

“Earlier this morning, Valeant Pharmaceuticals announced they are selling three of their skin care brands to L’Oréal SA for $1.3 billion. Yesterday, Valeant also announced they are selling their Dendron cancer business to Sanpower for $820 million. There are two drivers motivating Valeant to make this deal, one is to better align their product portfolio which allows them to focus on their strengths and drive market growth and second to pay down the $30 billion in debt that has accumulated from the MA&D (mergers, acquisitions and divestitures) activity prior to the end of 2015. This MA&D activity gave them a large portfolio of products, that doesn’t necessarily align with their strengths or drive growth.”

When you think more broadly about pharma, and the life sciences industry as a whole, is this the type of activity we are going to continue to see and why?

“The industry, as in previous years, will continue to increase their MA&D activity to drive growth. However, with acquisitions, organizations will end up with products that don’t align with their portfolio, and they will need to divest to keep a focus on their strengths and drive profitability. A lot of the time there is a heavy focus on integration from the MA&D perspective, however divesting can be just as complex. In order for a company to effectively separate and transition assets to the acquiring company, the divestment strategy needs to be well thought-out, planned, and executed to ensure that the organizations focus continues to be on the core business.”

Thanks Janel. Steve, looking at the announcement from the consumer products perspective, what is the driver for L’Oréal?

“This deal will expand L’Oréal’s reach into the growing skin-care business and, representing annual revenues of approximately $170 million, these acquired brands will double the size of L’Oréal’s Active Cosmetics Division (ACD). With today’s consumers relying more and more upon recommendations from their health care professionals, L’Oréal ACD has seen strong growth over the past year and, particularly considering the power of and recent growth of the CeraVe brand, this acquisition will further solidify their standing in this category.”

Thinking about what this announcement means to the consumer products industry, and especially health & beauty, what stands out to you?

“There a few things at play here. First, taking into account an aging population, with the number of consumers over 65 set to double to 17% by 20501, I believe that this reinforces a market shift towards products that not only make you ‘look good’, but are also ‘good for you’. Secondly, this underscores that continued ‘blurring of lines’ between the health & beauty and life sciences industries and, as health & beauty companies continue to expand their cosmeceutical portfolios, they are going to need to ensure that they are set up to manage through the corresponding increased regulatory scrutiny. Finally, with no signs of this global merger & acquisition activity set to be slowing down, organizations’ ability to quickly vet deals, effectively integrate these acquisitions and align M&A with organic growth is going to be a core capability for market leaders.”

Thank you to Janel Firestein and Steve Rosenstock for providing this industry specific perspective. Looking ahead, Clarkston Consulting sees this trend continuing as both life sciences and consumer products companies make a play to grow, strengthen, or focus their portfolio through mergers, acquisition and divestitures.

If you are interested in learning more about MA&D within these two industries, we recommend the following:

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Tags: M&A, M&A Integration, Post M&A Integration