How to Make Medtech M&A Pay
Getting Go-to-Market Due Diligence Right
June, 2011
This presentation may not be circulated, quoted or reproduced for distribution without prior
written approval of ZS Associates.
Agenda
Opportunities and challenges of M&A for medical products industry
ZS perspective on M&A due diligence
Case studies
Conclusion
© 2011 ZS Associates
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Today’s Presenters
Pete Masloski
Brian Chapman
Principal
Evanston, IL
Associate Principal,
Zurich, Switzerland
Phone: +1 847.492.3474
Email: [email protected]
Phone: +41 44.254.6429
Email: [email protected]
Pete Masloski is a Principal in ZS Associates’
Evanston office and is the leader of ZS’ Medical
Products and Services practice. He has been
helping medical technology companies improve
the effectiveness of their sales and marketing
efforts for 15 years. Pete holds a BSE in
chemical engineering from Princeton University
and an M.B.A. with honors from Northwestern
University's Kellogg Graduate School of
Management.
© 2011 ZS Associates
Brian Chapman is an Associate Principal in ZS’s
Zurich office and the leader of ZS’ Medical
Products and Services practice in Europe. For
more than seven years at ZS, he has worked
with medical technology companies on a range
of sales and marketing issues, including
opportunity assessment, org design, channel
optimization and launch strategy. Brian has a
B.S. in chemical engineering from Michigan
Technological University and an M.B.A with
distinction from the University of Michigan’s
Ross School of Business.
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ZS Associates is a global leader in sales and marketing consulting,
capability building and outsourcing
With more than 1,700 professionals in 20 offices around the world, we can help
companies at any stage, whether they are a new firm launching their first product
or a global enterprise expanding into new markets.
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© 2011 ZS Associates
Agenda slide
Opportunities and challenges of M&A for medical products industry
ZS perspective on M&A due diligence
Case studies
Conclusion
© 2011 ZS Associates
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M&A is a frequent growth strategy in the medtech industry
Number of Medtech Deals
(Jan – Nov 2010)
$300M+: 7
$100 - $300M: 9
Burkhardt, Clyde A., Buyer’s Market Prevails for Medtech Firms, Medical Device and Diagnostics Industry, November, 2010
© 2011 ZS Associates
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Less than $100M: 200+
M&A is a frequent growth strategy in the medtech industry
Number of Medtech Deals
(Jan – Nov 2010)
$300M+: 7
$100M - $300M: 9
Less than $100M: 200+
Of the >$20B in M&A activity, the majority would qualify as an “acquisition”
Burkhardt, Clyde A., Buyer’s Market Prevails for Medtech Firms, Medical Device and Diagnostics Industry, November, 2010
© 2011 ZS Associates
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Example: A Medtech organization identifies an acquisition
opportunity that seems to offer high growth potential
Current Situation:
Potential Opportunity:
Cardiovascular device
company looking
to increase portfolio
© 2011 ZS Associates
Both products used by
cardiovascular surgeons – can
leverage existing relationships
Acquisition:
Cross-selling opportunities will
accelerate sales of both
products
Producer of capital
equipment used to monitor
patients in lengthy and
complex surgical
interventions
Despite the high price,
forecasts look promising (“Only
requires a couple of additional
units sold per rep”)
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18 months later, the acquisition has not met expectations…
1
Sales trail projections
The most experienced and effective
salespeople leave
2
3
Sales further decline
4
Pressure to further cut
sales force
The GM and head of sales were looking for new jobs
What went wrong?
© 2011 ZS Associates
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On closer inspection, many of the assumptions around synergies
did not hold up
Customers and
decision-makers
were different
Primary decision-makers were the administrators, not
Selling capital
equipment is very
different from selling
devices
Long selling cycle for the new products
Intense clinical service required during trials
Complex interdepartmental process to gain hospital approval
Organizational
changes alienated
existing sales force
Integration created discontent among existing sales force,
© 2011 ZS Associates
cardiovascular surgeons, and there was no existing
relationship
who were not happy with new territories
Compensation plan based on unachievable sales targets,
resulting in unacceptable bonuses and turnover among the
experienced reps
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There are several sales and marketing strategy issues that we
have observed when considering an acquisition…
Inadequate understanding of
how the product is purchased
Lack of familiarity with how
product is sold
Unrealistic expectations for
the integration of the new
product
© 2011 ZS Associates
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There are several sales and marketing strategy issues that we
have observed when considering an acquisition…
Inadequate understanding of
how the product is purchased
Fail to understand the role of all stakeholders who exert influence
purchasing decisions
Underestimate the complexity or length of the purchasing process
Over-estimate value of a new attribute or product feature
Lack of familiarity with how
product is sold
Unrealistic expectations for
the integration of the new
product
© 2011 ZS Associates
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There are several sales and marketing strategy issues that we
have observed when considering an acquisition…
Inadequate understanding of
how the product is purchased
Fail to understand the role of all stakeholders who exert influence
purchasing decisions
Underestimate the complexity or length of the purchasing process
Over-estimate value of a new attribute or product feature
Lack of familiarity with how
product is sold
Assume the clinical end users will be the primary decision maker
and sales target
Fail to identify key steps in the selling process
Under-estimate the level or complexity of resources required
from sales force
Unrealistic expectations for
the integration of the new
product
© 2011 ZS Associates
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There are several sales and marketing strategy issues that we
have observed when considering an acquisition…
Inadequate understanding of
how the product is purchased
Fail to understand the role of all stakeholders who exert influence
purchasing decisions
Underestimate the complexity or length of the purchasing process
Over-estimate value of a new attribute or product feature
Lack of familiarity with how
product is sold
Assume the clinical end users will be the primary decision maker
and sales target
Fail to identify key steps in the selling process
Under-estimate the level or complexity of resources required
from sales force
Unrealistic expectations for
the integration of the new
product
Discover that current sales force does not have the skills required
to be successful in the new selling environment
Under-estimate value of existing relationships
Over-estimate synergy to be found in combined portfolio
Under-estimate organizational change required to promote
the combined portfolio
These issues lead to overpaying and saddling the post-merger organization with unrealistic expectations
© 2011 ZS Associates
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Agenda
Opportunities and challenges of M&A for medical products industry
ZS perspective on M&A due diligence
Case studies
Conclusion
© 2011 ZS Associates
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At ZS, we apply a broad go-to-market framework in organizing our
thinking around sales and marketing issues
Customer Focus &
Growth Strategy
Go-to-Market
Strategy
Competency
Model
Customer
Insight
Sales Process
(How)
Segmentation
& Targeting
Competitor
Insight
Value
Proposition
(What)
Hiring, Training
& Coaching
Success Measures
Sizing
& Deployment
Sales Channels
Strategy
(How)
Compensation &
Motivation Programs
Performance
Management
Information & Tools
Marketing Mix
Strategy
© 2011 ZS Associates
Marketing & Sales
Operations
Marketing & Sales
Analytics
Execution
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In the focused context of M&A, ZS recommends a three-step
approach to M&A go to market due diligence
Study the customer
buying process
Understand the
selling process
Design the future
sales model
Reasonable expectations and valuation, faster integration,
and better value from the acquisition
© 2011 ZS Associates
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In-depth understanding the customer buying process is critical for
assessing and validating forecast assumptions for the product
Study the customer
buying process
© 2011 ZS Associates
Understand the
selling process
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Design the future
sales model
In-depth understanding the customer buying process is critical for
assessing and validating forecast assumptions for the product
Study the customer
buying process
Usage Opportunities
Understand the
selling process
Competitive Landscape
What external market
trends affect usage
occasions?
What role does referral
play in product usage?
© 2011 ZS Associates
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Drivers of Product
Selection
Design the future
sales model
Key Stakeholders
In-depth understanding the customer buying process is critical for
assessing and validating forecast assumptions for the product
Study the customer
buying process
Usage Opportunities
What external market
trends affect usage
occasions?
What role does referral
play in product usage?
© 2011 ZS Associates
Understand the
selling process
Competitive Landscape
Is there a perception of
clinical differentiation?
How do physicians
perceive the relative
advantages of the
product?
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Drivers of Product
Selection
Design the future
sales model
Key Stakeholders
In-depth understanding the customer buying process is critical for
assessing and validating forecast assumptions for the product
Study the customer
buying process
Usage Opportunities
What external market
trends affect usage
occasions?
What role does referral
play in product usage?
Understand the
selling process
Competitive Landscape
Is there a perception of
Drivers of Product
Selection
What factors influence
clinical differentiation?
customer behavior?
How do physicians
What level of influence
perceive the relative
advantages of the
product?
does the sales force
have?
How compelling is the
value proposition?
© 2011 ZS Associates
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Design the future
sales model
In-depth understanding the customer buying process is critical for
assessing and validating forecast assumptions for the product
Study the customer
buying process
Usage Opportunities
What external market
trends affect usage
occasions?
What role does referral
play in product usage?
Understand the
selling process
Competitive Landscape
Is there a perception of
Drivers of Product
Selection
What factors influence
clinical differentiation?
How do physicians
perceive the relative
advantages of the
product?
Who makes the
purchasing decision?
What level of influence
What role do others play
does the sales force
have?
How compelling is the
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Key Stakeholders
customer behavior?
value proposition?
© 2011 ZS Associates
Design the future
sales model
in influencing the
decision?
Understanding the selling process for the potential acquisition will
help validate key assumptions around promotional synergies
Study the customer
buying process
Sales Reps
© 2011 ZS Associates
Understand the
selling process
Clinical Educators /
Trainers
Reimbursement
Specialists
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Design the future
sales model
Customer Service
Personnel
Understanding the selling process for the potential acquisition will
help validate key assumptions around promotional synergies
Study the customer
buying process
Call Points for Sales Force
Understand the
selling process
Selling & Support Activities
Design the future
sales model
Current Sales Force Structure
Who does the sales force call on?
What type / level of expertise do
these activities require from the
sales force?
Sales Reps
© 2011 ZS Associates
Clinical Educators /
Trainers
Reimbursement
Specialists
23
Customer Service
Personnel
Understanding the selling process for the potential acquisition will
help validate key assumptions around promotional synergies
Study the customer
buying process
Call Points for Sales Force
Who does the sales force call on?
What type / level of expertise do
these activities require from the
sales force?
Sales Reps
© 2011 ZS Associates
Understand the
selling process
Selling & Support Activities
Design the future
sales model
Current Sales Force Structure
What are the activities required to
sell the product?
What level / type of service do
these call points expect?
Clinical Educators /
Trainers
Reimbursement
Specialists
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Customer Service
Personnel
Understanding the selling process for the potential acquisition will
help validate key assumptions around promotional synergies
Study the customer
buying process
Call Points for Sales Force
Who does the sales force call on?
What type / level of expertise do
these activities require from the
sales force?
Understand the
selling process
Design the future
sales model
Selling & Support Activities
What are the activities required to
sell the product?
Current Organization
How is the product sold today?
How important are sales force
What level / type of service do
these call points expect?
relationships?
Would customers see a change in
activities or support?
Sales Reps
© 2011 ZS Associates
Clinical Educators /
Trainers
Reimbursement
Specialists
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Customer Service
Personnel
A basic understanding of the future sales model is important both
for valuation as well as kick-starting integration
Study the customer
buying process
Understand the
selling process
Design the future
sales model
Hospital Rep
NSM
Manager
Hospital Rep
Hospital Rep
© 2011 ZS Associates
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Customers
Specialist
A basic understanding of the future sales model is important both
for valuation as well as kick-starting integration
Study the customer
buying process
Resources Required
Understand the
selling process
Organization Changes
Design the future
sales model
Disruption Risks
What types of resources
would be required to
support the new
portfolio?
How many resources will
be required for the new
portfolio
Hospital Rep
NSM
Manager
Hospital Rep
Hospital Rep
© 2011 ZS Associates
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Customers
Specialist
Value of Synergies
A basic understanding of the future sales model is important both
for valuation as well as kick-starting integration
Study the customer
buying process
Resources Required
What types of resources
would be required to
support the new
portfolio?
How many resources will
be required for the new
portfolio
Understand the
selling process
Organization Changes
Design the future
sales model
Disruption Risks
How would the current
organizations need to
change in order to
support the combined
portfolio?
Do the sales people have
enough bandwidth?
Hospital Rep
NSM
Manager
Hospital Rep
Hospital Rep
© 2011 ZS Associates
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Customers
Specialist
Value of Synergies
A basic understanding of the future sales model is important both
for valuation as well as kick-starting integration
Study the customer
buying process
Resources Required
What types of resources
would be required to
support the new
portfolio?
How many resources will
be required for the new
portfolio
Understand the
selling process
Organization Changes
Design the future
sales model
Disruption Risks
How would the current
Would implementation
organizations need to
change in order to
support the combined
portfolio?
affect sales results?
Can relationship
disruption risks be
minimized?
Do the sales people have
enough bandwidth?
How would the existing
cultures match?
Hospital Rep
NSM
Manager
Hospital Rep
Hospital Rep
© 2011 ZS Associates
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Customers
Specialist
Value of Synergies
A basic understanding of the future sales model is important both
for valuation as well as kick-starting integration
Study the customer
buying process
Resources Required
What types of resources
would be required to
support the new
portfolio?
How many resources will
be required for the new
portfolio
Understand the
selling process
Organization Changes
Design the future
sales model
Disruption Risks
How would the current
Would implementation
organizations need to
change in order to
support the combined
portfolio?
affect sales results?
Can relationship
disruption risks be
minimized?
Do the sales people have
enough bandwidth?
How would the existing
cultures match?
Hospital Rep
NSM
Manager
Hospital Rep
Hospital Rep
© 2011 ZS Associates
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Customers
Specialist
Value of Synergies
How does combined
promotion enhance the
opportunity of the
individual products?
Agenda
Opportunities and challenges of M&A for medical products industry
ZS perspective on M&A due diligence
Case studies
Conclusion
© 2011 ZS Associates
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Case #1- Understanding the key stakeholder
Situation
Company:
Medtech company with
portfolio of products
targeted to
anesthesiologists
Potential acquisition:
Competitive bid for
company with pain
management device
Objectives for
acquisition: Leverage
existing relationships with
anesthesiologists to win
additional share within
pain management market
© 2011 ZS Associates
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Case #1- Understanding the key stakeholder
Situation
Company:
Medtech company with
portfolio of products
targeted to
anesthesiologists
Potential acquisition:
Competitive bid for
company with pain
management device
Assessment
Examination of the buying process showed that
anesthesiologists do not play role in pain device selection;
surgeons should be primary target
Surgeon recognizes need
for therapy
Surgeon selects therapy
Objectives for
acquisition: Leverage
existing relationships with
anesthesiologists to win
additional share within
pain management market
© 2011 ZS Associates
Anesthesiologist implements
device
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Hospital purchasing
The implication of the buying process was that a combined sales
force would offer little synergistic value
Adding another call point to the existing reps
NSM
would likely be too much for a team already at
the limit of their bandwidth with 6 different
specialties to manage
Manager
The deal did not actually meet stated business
Surgeon reps
objectives of expanding relationship with
anesthesiologists
General and
Anesthesia reps
With more realistic assessment of selling
costs, the acquisition no longer made sense at
a higher price point
Outcome: Company decided not to raise bid, and began to look
for other growth options
© 2011 ZS Associates
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Case #2 – Understanding the current selling environment
Situation
Company:
Medtech company with
one product used in spine
surgeries
Potential acquisition:
New product to be used
in the same spine
surgeries
Objectives for
acquisition: Develop
portfolio of spinal
offerings and strengthen
relationship with ortho
and neuro surgeons
© 2011 ZS Associates
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Case #2 – Understanding the current selling environment
Situation
Assessment
Company:
Medtech company with
one product used in spine
surgeries
Examination of the selling process showed that the current
selling environment was based on distributor relationships
Economic
Compliers
Clinical Believers
Relationship
Buyers
Prevalence
20%
35%
45%
Risk
Low
Low
High
Minimal
Minimal
Significant
Ensure continuity in
approval status
Maintain current surgeon
perceptions
Convert to clinical
believers
Potential acquisition:
New product to be used
in the same spine
surgeries
Objectives for
acquisition: Develop
portfolio of spinal
offerings and strengthen
relationship with ortho
and neuro surgeons
Sales at Risk
Mitigation
Strategy
Paradigm Shift
© 2011 ZS Associates
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Outcome: Company moved forward with acquisition but with a 2–3
year phased integration plan to minimize disruption
Current
= Current
= Transition
= Future
Clinical
Selling
Case
Coverage
Relationship Selling
Distributors
Direct
Account
Management
Future (2–3 Years)
Clinical
Focus
Support the
Distributors
Clinical
Selling
Account
Management
Case
Coverage
?
?
Clinical Specialist
Sales Force
Outcome: The deal continued with confidence in an approach to
manage the transition, along with updated forecast expectations
© 2011 ZS Associates
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Agenda
Opportunities and challenges of M&A for medical products industry
ZS perspective on M&A due diligence
Case studies
Conclusion
© 2011 ZS Associates
38
We believe that go-to-market due diligence should be conducted
on the any potential acquisition prior to any initial offer
Study the customer
buying process
Understand the
selling process
Design the future
sales model
Reasonable expectations and valuation, faster integration,
and better value from the acquisition
© 2011 ZS Associates
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When evaluating a deal, the process should never be constrained by
internal limitations of capacity, experience or perspective
Extra resources can be
brought from another
division or from outside
but capacity and timing
is never a good reason
to compromise quality
Capacity
The unbiased
perspective is best
introduced using
participation from
members of another
division or an external
party
© 2011 ZS Associates
Unbiased
Perspective
Experience
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The best practice is to
involve the leader of the
new sales organization for
input and buy-in;
occasionally additional
experience is needed if
the market is unfamiliar
Pete Masloski
Principal in Evanston, IL
Phone: +1.847.492.3474
Email: [email protected]
Brian Chapman
Associate Principal in Zurich, CH
Questions?
© 2011 ZS Associates
Phone: +41.044.254.6429
Email: [email protected]
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