The Multitopic Blog

In this day and age of globalization, companies are increasingly looking to capture a greater market area and turn out more products at a fast pace, i.e., reduce the research-sale cycle while maximizing the profits.  The corporations, in an increasingly knowledge based global economy also seek to enhance their databases of research and development in various areas. Attrition or stagnation in such a case may very well lead to a collapse of the company.

To this end most corporate entities are looking to grow. But the question remains as to growth in what manner – whether organic or by acquisition?  It is noted that the trend has turned towards mergers and acquisitions for growth. The reasons for this are many – first, the cost for research and development are reduced vastly; secondly, core intellectual property assets are combined; third, intra-company transfer of intellectual property assets is easier than inter-company transfers and internalization of distribution reduces costs in general.

According to Dilley the logical conclusion of this must be that such companies will be more inclined to pursue growth by acquisition than organic growth in relation to these product markets. Diversification growth by acquisition can of course continue unaffected by this consideration in unconnected product markets.

In 2004, there was a significant increase in pharmaceutical M&A activity with values rising to $100 billion almost reaching the record levels of 2000. In the pharmaceutical sector there were eight deals valued at over $1 billion, compared to five in 2003. The overall improvement in market sentiment is reflected in the increase in deals to 703 from 568 in 2003.

In pharmaceutical companies vertical mergers are ample. Mainstream companies controlling a large part of the market often merge with the smaller companies which have specialist research and development cells.  The implications of this is predicted that in the future the market may see large companies with large market command merge with smaller companies with core research cells. The market command of one will fully utilize the intellectual property assets of the other. Horizontal mergers see the merging companies combining their research expertise. Bayer and Glaxo have emerged as market behemoths by effecting a horizontal merger.

The importance of intangible assets has created an urgent need to value these assets in many contexts including intellectual property management, mergers and acquisitions, sales, corporate takeovers, joint ventures, and licensing. In the context of intellectual property management, intangible asset valuation is necessary to establish performance measures and evaluate business strategies.  In the context of acquisitions, sales, and joint ventures, intangible asset valuation is necessary to determine the value of a company for a buyer or seller and the value of partners’ contributions to collaborative undertakings.