The seemingly endless number of tasks required to sell a clinical research site often means there isn’t enough attention focused on what happens after the deal closes. Successful post-acquisition integration can be one of the most challenging, yet important, parts of an M&A process.
Buyers typically want the site owner or key principal investigator (PI) to stay with the company for two or three years after the transaction to help lead integration activities and grow the business. Owners need to understand their role in the transition process up front and the strategy for the new organization. Even if they don’t stay, many of their employees will move to the combined company, so owners should understand in advance how the integration process will affect their workforce.
The July issue of The CenterWatch Monthly looked at how clinical research sites can prepare for an acquisition as the level of M&A activity in the sector has reached unprecedented levels. This month, former owners of acquired sites, financial experts, analysts, buyers and consultants talk about how clinical research site owners can prepare for the post-closing integration process and steps that can improve its efficiency.
Experts agree there is no blueprint for a successful acquisition and the often-difficult integration process that follows. Every transition has its own unique challenges. Yet the most successful integrations are those that establish open lines of communication and consider the needs of everyone affected by the changeover.
“It’s important to remember that every deal is different and there are nuances and clear differences in every single deal,” said Mark Lacy, president and CEO of Benchmark Research, an integrated site network with six locations.
Prepare for integration in advance
Ideally, both the buyer and seller should begin preparing for the integration process before the deal is finalized. Lars-Olof Eriksson, Ph.D., executive vice president, Site & Patient Recruitment, Icon, the CRO that acquired site network PMG Research in 2015, said conversations around integration that occur before a transaction closes are usually high-level in nature. Yet the due-diligence and negotiation periods give both organizations the chance to ensure there would be a good fit between the companies, both organizationally and culturally, and questions around post-acquisition can give site owners a good sense of their role in the new organization and how they could contribute to the success of the acquiring company.
“It’s important at the outset that the acquisition is aligned with the acquiring company’s overall strategy,” said Eriksson. “In the example of Icon acquiring PMG Research, it was very clear at the outset where PMG fit within Icon’s strategy for site and patient recruitment, which in turn fits into Icon’s broader strategy for helping clients to reduce the time and cost of drug development. Ensuring that integration goals and objectives are aligned with overall service area and company strategies is really important and will help employee understanding throughout the integration process.”
Jennifer Byrne, founder and president of the Greater Gift Initiative and former CEO of PMG Research, said it’s also important to have a clear understanding, before the transaction finalizes, as to how success for the acquisition will be defined for the buyer and seller, the employees and all the stakeholders after one year, three years and five years.
“Will this asset become fully integrated or partly integrated into the acquiring business or will it remain relatively independent?” asked Byrne.
Christophe Berthoux, chief executive officer of Synexus, which has acquired clinical research sites in the U.S., Europe and Africa and just completed its operational integration with Radiant Research, said discussions are held during the acquisition process about the site owner’s vision for growing the business. How those goals align with the acquiring company’s overall strategy helps set the stage for the integration process to begin immediately once the deal closes.
“We talk with a target early on about integration,” said Berthoux. “This includes what needs to be happening with the site, how we need to collaborate, what is missing in order to grow the business and how we can accelerate growth. Once we have done the acquisition, we will progress very rapidly on the different work streams of integration in order to have a smooth and productive integration.”
Integration team formed
As soon as a transaction has closed, an integration team is formed. While these teams can vary greatly, they typically include key personnel from the two merging organizations and are comprised of a steering committee along with work streams aligned with departmental structures of the two companies, such as clinical operations, commercial, IT, human resources, quality assurance, legal and finance. An overall integration plan with specific milestones is established for the work streams.
Site owners might not lead the overall transition process at the investigative site, yet they should expect to play an important role on the integration team. Once the sale has been announced, employees will expect immediate answers about how the M&A will affect their jobs. Questions will include: Will there be a job for me in the new company? How will my benefits be impacted? Will I have a new boss? The site owner’s leadership, and how they communicate the value of the acquisition, will be critical to keeping staff focused on their work and motivated as systems and processes change.
“The (owner) is the other half of that new entity. They have all the historical perspective and they have the loyalty of their staff behind them,” said Rhonda J. Paz, chief operating officer, GuideStar Research, a company that provides business and financial support for organizations that conduct clinical research and works with sites during the M&A process. “The person staff will trust is the one they have been working with for many years. That person needs to be a key part in maintaining the staff morale and comfort level during the integration. They don’t necessarily have to be the idea-generator or do all the leg work in putting together the strategic plan. But they absolutely need to work hard to garner the buy in of the people they have engaged while they owned the business.”
Communication can be managed in various ways, including meetings, newsletters or webinars. Whatever the format, experts agree it’s important the communication be truthful and that the message remains consistent. Progress about the integration process should be updated frequently to avoid rumors, and include both company-wide meetings and one-on-one discussions.
“Focusing on the people and providing them with a feeling of stability and safety is probably the most critical thing,” said GuideStar’s Paz. “You are not going to know every answer from the beginning, but you need to tell them enough to make them feel safe. On the other side, it’s about honesty and transparency. If there are people who are going to be eliminated or departments that are going to be phased out, call them in first. Call them in and talk with them individually so they know their future before it’s announced organization-wide.”
Take cultural differences seriously
Site owners will also have a role in identifying and resolving cultural differences between the two companies during the integration process and facilitating training programs that help staff understand the culture and values of the combined company. Many business consultants have identified culture as one of the predominant factors that prevent effective integrations after an acquisition.
“The thing that usually derails integrations after an acquisition is culture and communication. If you have a good understanding of the culture, aspects of the business and you can be a facilitator for communicating for the acquiring company, in addition to doing the nuts and bolts of the integration, it can go a long way,” said Jason Monteleone, president of Pivotal Financial Consulting, a firm that serves the clinical research industry.
Sean Stanton, senior vice president, Global Operations, Bioclinica Research Network, who was the co-founder and former CEO of Compass Research, which was acquired by Bioclinica in 2016, said a company’s culture is its most important attribute and must be taken seriously during the merger of two companies. Bringing employees from different companies together can be difficult, yet retaining key researchers and other personnel committed to the newly formed organization is critical to a successful site acquisition.
“The corporation and the business owner need to appreciate the types of cultures that exist. And it takes the leadership to align the people to form the new entities’ culture. The more sophistication the teams have, the more appreciation they see in advancing culture. When we take a primitive perspective and force culture onto each other, it creates a less desirable environment,” said Stanton.
Benchmark’s Lacy added, “Integration is very difficult and many times never successfully achieved because cultures are people and people have egos. Successful integration requires everyone, but particularly the acquirers, to integrate based on the best parts of each company instead of requiring everything be done their way.”
Functions will be centralized
Transition strategies will likely include integration of functions, particularly those that could help lead to cost savings through centralization such as finance, business development, operations, human resources, marketing and advertising, recruitment and quality assurance/quality control. Typically, acquired sites should expect to migrate to the acquiring company’s systems and standard operating procedures (SOPs), yet when the acquired site remains a stand-alone company, there often won’t be major changes to SOPs. In some cases, after an evaluation of systems and best practices at the merging companies, the acquiring company might adopt the acquired systems and SOPs.
“Integrating and getting the new site up and visible to sponsors and CROs as part of the marketing area is another area of focus,” said David K. Blume, managing director, Edgemont Capital Partners. “Leveraging best practices across the organization, such as for subject recruitment, is another area of focus. They look at how to leverage the relationships that the acquired site has and cross sell those going forward.”
Many of the integration activities that take place during the first 100 days post-closing a deal, depending on the nature of the transaction, involve upgrading finance and accounting capabilities. Chris Bitler, managing partner, Advisory, Warbird Consulting Partners, said sites either getting folded into a larger platform or a strategic buyer typically need to migrate to new systems, such as a general ledger financial reporting platform or a central clinical trial management system. If a privately-held, investigator-owned site sells to a private equity group or a larger site or site network that is private-equity backed, however, post-closing activities typically involve establishing more robust bank, board and management reporting processes along with converting cash or modified-accrual basis financials to a generally accepted accounting principles (GAAP) basis.
“There will likely be some sort of investment that will be needed on the financial reporting end,” said Bitler. “Maybe the site is on QuickBooks, but the private equity wants them to be on something bigger to handle larger size.”
To support operating in a new private equity environment, Bitler advises small site owners without bank debt prepare in advance for the consolidation by having someone internally focus on treasury management and the cash flow forecasting side of the business.
Icon’s Eriksson said preparing up-to-date documentation across a variety of areas can benefit the integration process; some of this information will already have been provided to the acquiring company as part of due diligence. Employee terms should be clearly summarized, for example, and in the U.S. detailed information around 401k arrangements must be transferred to the acquiring company as soon as the acquisition closes. Sites should also provide a summary of key client contracts and contractual commitments to help ensure a smooth transition. On the quality assurance side, Eriksson said sites should prepare an up-to-date index of live documents, as well as a list of compliance requirements. Other areas to consider include developing a list of the IT systems and software, along with their associated licenses, that touch all parts of the business, particularly those that are impacted by data privacy and security regulations.
Staff members may be asked to share their experience and participate in the integration process. Yet those who have been through an acquisition caution that employees should focus primarily on day-to-day operations during the transition.
“Integration is a very time-intensive process, as is the acquisition process,” said Bioclinica’s Stanton. “Having key people in analytics, finance, legal and management will allow your business to grow while these other important, zero-revenue generating events are occurring. Two critical roles are the CFO prior to the acquisition and the COO that can integrate. SOPs and policies are always going to unify at some point, but it won’t be irrational, so I would not worry about completing this prior to the acquisition.”
The logistics required when selling an investigative research site, whether to become part of a larger organization that can offer economies of scale or to bring in outside investment to grow the business, can be overwhelming for a site owner and leave little time to consider what happens when the deal closes. An effective integration process requires that site owners ensure the M&A is a good cultural and organizational fit, prepare in advance for the various requirements required during the transition and establish a strong communication plan.
When properly executed, M&A in the clinical research site sector can deliver great value for the new organization.
“Change is never easy, but it will make us all stronger. The industry needs a consolidation model that makes the drug approval process more efficient and cost effective,” said Bioclinica’s Stanton. “Just be open minded and, if everyone has been honest during the acquisition process, the new road ahead is just as much fun as the road that got you to where you are today. The next chapter needs to be about becoming a corporation and not about running your own business.”
Karyn Korieth has been covering the clinical trials industry for CenterWatch since 2003. Her 30-year journalism career includes work in local news, the healthcare industry and national magazines. Karyn holds a Master of Science degree from the Columbia University Graduate School of Journalism. Email email@example.com.
This article was reprinted from Volume 24, Issue 08, of The CenterWatch Monthly, an industry leading publication providing hard-hitting, authoritative business and financial coverage of the clinical research space. Subscribe >>