Monday, June 14, 1999
The recent flurry of merger and acquisition activity involving British companies should not be seen as a signal that the consolidation of the U.K. biotech sector is about to get into full swing. So far, all that has happened is that a few cash-starved companies are finding solace in the arms of others.
What the sector is looking for, however, is mergers from strength - acquisitions by large cap biotechs that have the ability to cherry pick the best projects from weaker companies to fuel their own development engines. Market sentiment suggests that this is still some way off, as many of the U.K.'s top-tier players are focused on moving toward profitability. Any M&A they do thus is likely to be limited to deals that enhance their earnings.
"All we are witnessing at the moment is a number of companies tidying up around the edges. While we would like to see some consolidation, this won't happen in a meaningful way until CEOs at the more promising companies actually throw their hats into the ring," said David Hawkens of Dresdner Kleinwort Benson.
Stephen Parker of Apax Partners is busy trying to put deals together. But, he said, "I think we need to be very careful at looking at these mergers. What we are all looking for are mergers from strength. What we are seeing in the U.K. at the moment are deals which are fundamentally from weakness."
The problem with such mergers, said Hawkens, is that, "unfortunately 1 plus 1 does not always even get to 2 when what we really want to achieve is 2 plus."
Parker believes that the key question is whether the resulting company will be any more fundable. "Notwithstanding the fact that some companies are launching cash calls on the back of merger announcements, I am skeptical that many will turn out to be fundable," he said.
Looking for a groundbreaker
The deal that prompted the speculation about a pending consolidation of the U.K. life sciences sector was the announcement that Proteus International PLC (LSE:PTI, Macclesfield, U.K.) and Therapeutic Antibodies Inc. (LSE:TAB, Nashville, Tenn.) had agreed to a share-for-share merger. The two companies, each valued at about £25 million ($40 million) are merging on a 55:45 basis and will issue £9.3 million ($15 million) of new capital in a rights issue at 40p a share (see BioCentury, May 24).