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Bain Medium M&A Valuation Corporate Governance

Pharmageddon

#Pharmaceutical
ProHub Comment

This is a comprehensive M&A case testing valuation (NPV perpetuity calculation), capital allocation, and strategic negotiation. The case progresses logically from financial feasibility to tactical execution, requiring candidates to identify that controlling 51% (not 100%) is the objective and that the $24B budget is sufficient when properly applied to acquire only 25% additional shares.

Estimated Time 15 minutes
Difficulty Medium
Source NYU
50 / 100
Your client, Hoffmann, is a Swiss pharmaceutical holding company. It produces most of its drugs in-house, but licenses many of its most profitable drugs from a smaller pharmaceutical company called Technologene. Hoffmann has maintained a 26% ownership stake in Technologene to ensure it receives exclusive rights to sell Technologene’s products. In a surprise overnight deal, one of Hoffmann’s primary competitors has purchased 20% of Technologene’s shares, and Hoffmann is deeply concerned about losing control of the company. Hoffmann has determined that sharing minority stakes in Technologene with their competitor is too risky and has hired your firm to determine if they have the resources available to take control of the company. How do you proceed?

Clarifying Information

  1. Timing: It’s 9AM on a Tuesday, and Hoffmann needs a recommendation by 4PM this afternoon.
  2. Goal: Success looks like “taking control” of the company. When the candidate asks what that means at any point during the case, push back and ask them what they think it means. Acceptable answers are acquiring 100% of the company, acquiring 51% of the company, or buying out their competitor’s 20% share entirely. If they provide any of these answers, explain that any party owning at least 51% of the company has effectively “taken control,” and furthermore that any group owning minority stakes can be denied decision making authority. Hoffmann would see this as success.
  3. Competitor: Hoffmann’s competitor is another European pharmaceutical holding company and can be assumed to be like Hoffmann in every respect (size, markets served, licensing structure, etc.), though they work with different partner companies.
  4. Budget: Hoffmann estimates that they can comfortably raise $24B in capital to acquire shares in Technologene.
  5. Regulations: There are no regulatory constraints from either a pharmaceutical or share purchasing standpoint.
  6. Revenue: Nearly 20% of Hoffmann’s revenue comes from Technologene products.