What is the story about?
What's Happening?
A report from SRS Acquiom reveals that only 9.5% of life sciences M&A milestones have been paid since 2008, amounting to $9 billion out of a potential $95.1 billion. The analysis covers 342 deals, highlighting the prevalence of back-loaded, milestone-heavy agreements in biopharma and related industries. Biopharma deals alone had a payout rate of 19%, with most payments occurring within the first two years post-deal closure. The report also notes an increase in disputes tied to earnouts, with more than double the dollar amounts in contention compared to previous years.
Why It's Important?
The low payout rates for M&A milestones in life sciences underscore the risks associated with milestone-heavy deals. Companies may face challenges in achieving the necessary milestones, impacting financial outcomes and strategic planning. The report highlights the importance of negotiating favorable upfront payments to mitigate risks. The findings could influence future M&A strategies, encouraging companies to reassess deal structures and prioritize achievable milestones. The increase in disputes also suggests a need for clearer contract terms and better post-closure management.
Beyond the Headlines
The report's findings may prompt life sciences companies to reconsider their approach to M&A, focusing on more realistic milestone targets and improved contract clarity. The industry might see a shift towards deals with higher upfront payments to reduce reliance on uncertain milestone achievements. Additionally, the increase in disputes could lead to more stringent legal frameworks and negotiation practices, ensuring better alignment between parties and reducing post-closure conflicts.
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