We are right at the heart of world-leading research and it is a very popular choice for private equity investment. Large companies too are often looking to extend their offerings by buying smaller businesses in this sector.
A transaction of this kind could take place by way of a company purchase, or a sale of some or all of the business’ assets.
Below we highlight a few of the key considerations for a sale or purchase in this sector.
The structure of the deal
First you must decide the structure. Should this be a sale of assets or shares? Is there a reason you would like to retain the company afterwards or are you a buyer perhaps looking for a specific part of what the company has to offer?
There are often two key drivers in any deal when considering whether to proceed with a share or asset sale: tax and historic risk. For the most part, in an asset sale, the risk remains with the company and therefore, indirectly, the sellers. With a share purchase the buyer takes the risks along with the company.
Employees will remain a key point in both types of transaction. The sale of the business, or a specific part of it, may entitle some or all of the employees to be transferred to the buyer. With a purchase of the company, of course, the employees remain employed by the company.
For companies in this sector you might specifically consider where the real value of the business sits. If, as is often the case in a life sciences business, a major part of the value is attributable to specific intellectual property (IP), the buyer may want to limit the purchase to just that IP and the employees that work with it. That way they avoid any concerns about other areas that they are not so interested in.
You might also concentrate on the core contracts in the business when considering the structure of the deal. Life sciences companies often have significant agreements with third parties such as the licence of IP (in or out). It would be important to check these for restrictions on assignment which might instead mean the buyer would lean towards a share purchase.
Obligations before completion
Transactions across various sectors often include conditions that must be satisfied prior to completion. This could be clearance from the relevant competition authority for example.
Of particular importance to life sciences deals might be ensuring that the buyer has the relevant approvals in place from regulatory bodies such as the MHRA or EMA, the Home Office and DEFRA. The buyer might also be keen to see consent to assign any key contracts or perhaps consent on a change of control if required.
The buyer might also want to be sure that there has not been a competitive product launch or patent application prior to proceeding to completion or any patent infringement claims that could devalue the products.
Obligations following completion
With asset sales particularly, it is likely that, as in other transactions, the buyer would require a transition period for integration.
Many of these services might be familiar to deals in other sectors such as accounting and human resource provisions or IT systems. But of particular relevance to life sciences businesses might be adverse event reporting and dealing with the regulatory bodies. It is possible that communication of these matters could be made to the seller (the company in the case of an asset sale) for a period time after completion and the buyer would want a mechanism to ensure they are passed on in good time to ensure that the buyer is able to comply with its reporting requirements.
Where the asset sale includes medicinal products that are the subject of a marketing authorisation, the marketing authorisation itself will also need to be transferred to the buyer to ensure that it has the right to sell the product. The same applies to medical devices which require CE marking.
The relationship with the NHS and relevant CCGs, for medicinal products sold in the UK, is also crucial. The seller could agree to assist with communications with these bodies for a time after completion especially in respect of historical arrangements under the Pharmaceutical Price Regulation Scheme (PPRS) for example.
Contact Gail Vallis or our Life Sciences team to find out how we can assist you in your merger or acquisition.