- Keep all options open. Explore licensing, financing and M&A
alternatives concurrently to the extent you can. Given the fragility of all of those options, we encourage clients to maintain this optionality to help ensure a deal gets done and create “leverage” in exploring more than one alternative to enhance shareholder value.
- There is not going to be an optimal market to kick off a deal. The objective should be to get out and start marketing. Deal timeframes are extended, taking eight to 10 weeks in order to accommodate the due diligence of fundamental investors who are driving today’s financing market. Once the marketing and due diligence are complete you can navigate the market in which you announce and close the deal.
- Competition for attention is intense whether you are targeting fundamental investors or strategic partners. With more than 300 public healthcare companies and 1,200 privates, the need for capital is still significant. Approximately 180 of the public companies are below $100 million in market cap, and roughly 80% of those have less than three quarters of cash. Investors and strategic partners are seeing a flood of opportunities. It takes a great deal of tenacity to garner attention in this market.
- Try not to focus on stock price. Investors are active but not necessarily in the aftermarket. This has caused the stock price stagnation and deterioration over the last year. Investors are more inclined to invest in a transaction. This enables them to see their capital put to use to fund a company through milestones versus trying to “time the market recovery.” Also, in less liquid names (for example, the 180 companies below $100 million in market cap), buying in the open market will take significant time in order to acumulate a meaningful position — and the investor is likely to drive up the stock price in the process.
- Lastly, metrics driving the need for capital remain unchanged. It takes approximately $1.2 billion and 10 to 15 years to take a project from research to the market. Bear in mind that there is a 90% attrition rate along the way. The ravenous appetite for capital still remains, however not all companies will be able to attract investors or partners in this marketplace. This process, unfolding as we speak, will be Darwinian and result in a smaller and more capital efficient sector when we emerge from this market tumult.
For more information, contact John via e-mail at email@example.com.
John W. Chambers heads Merriman Curhan Ford’s Heath Care investment banking team. Chambers was most recently co-head of investment banking at Rodman & Renshaw. He has also held senior-level healthcare and biotechnology banking positions at SG Cowen, Lehman Brothers, UBS and Salomon Smith Barney. Chambers has executed a significant number of banking transactions, strategic transactions and restructurings across all healthcare sectors. Chambers earned his M.B.A. from Columbia Business School and his B.S. in mechanical engineering from Union College. He is based in Merriman Curhan Ford’s New York office.