Case Study 1 - OleanderBio Looks to Grow by M&A

Taylor considered the situation again, as she drove home from the RTP office of the Contract Research Organization (CRO), OleanderBio that she had started 4 years ago.

The company was doing very well, consistently exceeding expectations from even their most optimistic early investors. Their focus on Oncology and Rare Disease clinical trials, a strategic focus since their inception 4 years ago, was paying off.

During the most recent board meeting, the board had asked Taylor to consider multiple avenues to achieve their EBITDA and revenue goals in the next 3-5 years. Since OleanderBio had been acquired by a US-based PE firm last year, the board was looking for both organic and inorganic methods to capitalize on their momentum and continue their explosive growth within the 3-5 year time horizon.

As a part of their M&A strategy, Taylor led series of intense, yet productive, white boarding sessions with her executive team to develop a list of 50 target companies. Later, they whittled down their target list to a reasonable 5 targets.

After deep diligence, one company stood above the rest. Highly profitable with a strong list of emerging biotech and large pharma among their clients, Morrisville Medical was #1 target. She had followed and admired Morrisville Medical for quite a while now.

On the surface, it appeared to be a perfect fit - Morrisville Medical would add capabilities and expertise that Taylor had been looking to add for years, and even better, they were local so the integration could be seamless.

The only challenge that came up during diligence was a thorny one - Morrisville Medical's CEO, an extraordinary entrepreneur in his own right, had expressed to members of OleanderBio's diligence team that he would only sell for 20x EBITDA, be assured a spot on the Board of Directors, and have free rein to continue growing Morrisville Medical as a wholly owned subsidiary of OleanderBio.

And this was going to be a competition to acquire Morrisville Medical. The diligence team had also uncovered that a private equity company, with a reputation for spending heavily for companies they desired, was also conducting diligence on Morrisville Medical. This private equity firm was the top competitor of the PE-firm that had acquired OleanderBio last fall.

Taylor was amenable to the first two requests of Morrisville Medical's CEO, as they weren't unreasonable, but the board had indicated that they wanted acquisitions to be seamlessly integrated into OleanderBio and have one voice and one vision driving the company, so giving Morrisville Medical's CEO free rein would be a tough sell.

The clock was ticking on her decision. It looked like she had two options:

1. Pursue the acquisition: Accede to Morrisville Medical's CEO's requests and begin the acquisition process

2. Move to the next target: politely inform Morrisville Medical that they were not moving forward, and risk having them be acquired by the other PE-firm and upset her board by missing out on a key target

Which option would she recommend and why? What were the risks and benefits of each option? Was there an even better option that she had not considered?