Alastair Burns - Private Equity and M&A Practice

The Life Science SectorManaging Risk in M&A

October 20th 2005

Marsh 2

Agenda

M&A activity in the life science sector

Why is risk management on the M&A agenda?

The role of risk and insurance advice in M&A

Managing risk throughout the ‘dealcycle– Pre-transaction– Post-transaction– Divestment

Marsh 3

M&A Activity in the Life Science Sector

Quarterly M&A Activity- Pharma, Biotech, Medical

05

101520253035404550556065707580

Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05

Quarter Ended

Volu

me

Source: Mergermarket

Marsh 4

M&A Activity in the Life Science Sector

Quarterly M&A Activity- Pharma, Biotech, Medical

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,00060,00065,000

Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05

Quarter Ended

Valu

e €m

Source: Mergermarket

Marsh 5

Why is risk management on the M&A agenda?

– 10 years ago, dealmakers spent little time considering risk orinsurance.

– Flawed intelligence or questions over a deal at any stage canbecome a deal breaker.

– Corporates need robust strategies that leave no margin for error incompany valuations, and maximise the value of an M&A in the longterm.

Marsh 6

Risk management does more than minimise risk

– Provide a truer picture of value of assets to be acquired or sold

– Enhance a bid or pricing of an acquisition or divestment

– Facilitate clean divestment

– Protect the value of an investment through the management of risk

Marsh 7

What does a ‘Deal’ look like?

SellerSeller’s advisors

- Financial

- Legal

- Risk & Insurance

Bidder 1

Bidder’s advisors

- Financial

- Legal

- Risk & Insurance

Bidder 2

Bidder’s advisors

- Financial

- Legal

- Risk & Insurance

Bidder 3

Bidder’s advisors

- Financial

- Legal

- Risk & Insurance

Bidder 4

Bidder’s advisors

- Financial

- Legal

- Risk & Insurance

Company being sold

Marsh 8

Simple Deal TimelineWhat does it look like?

Decision tosell a company

Key advisorsare brought in:

- Finance

- Strategic

Additionaladvisors - Marsh(SDD or TR)

Data room set-up:

- Insuranceinformation maybe provided(SDD)

InformationMemorandumsare sent out

Buyers beginlooking atbusiness withadvisors:

- Financial

- Legal

- Insurance (BDD)

1st RoundFINAL BIDS

Exclusivity forbest bid -furtherdiligence

Final Bid

FinalNegotiations

Sign SPA

New Programmeincepts/integrationbegins

Less than six weeks

Marsh 9

Our Role in an M&A Transaction

Improve the deal by:– Identifying and reducing the ‘cost of risk’– Highlighting risk early on (e.g. Director’s Exposures)– Highlight and overcome deal obstacles

Timing

Global Nature of M&A Transaction

Marsh 10

Due Diligence:

– Qualitative & quantitative assessment of a business risk profileincluding benchmarking, and an assessment of accreditedinsurance markets

– Comprehensive reporting and recommendations for mitigating andmanaging risk and liability

– Highlight issues in due diligence reports which may impact thepricing strategy or SPA (Sale & Purchase Agreement).

Marsh 11

Transactional Risk SolutionsWhy are they relevant?

During an acquisition, tailored insurance solutions can be used toovercome deal-specific obstacles to:

- Enhance a deal by transferring historical liabilities / potentialrisks to a securely rated insurance carrier

- Enable bidders to sharpen their approach and ‘win’ the deal- Enable price enhancements

Solutions complement and enhance due diligence – they don’t replace it.

Marsh 12

Risk Management

– What systems have you in place to keep investments / portfoliobusinesses on track?

– How do you intelligently manage operating risk and contain costs?– How do you manage potential operating risks associated with a

business or sector?– How would you transfer potential or unforeseen costs to protect

investment values ahead of realisation?– How do you integrate the two business’ risk management practices

and cultures?– How do you harmonise the two business’ retention levels?

Marsh 13

Summary

- Life Sciences is an active sector with respect to M&A.2005 Y.T.D activity is already €20b.

- Addressing risk and insurance in the M&A process can support thelong term value of the business.

- Whether buyer or seller, risk and insurance should be consideredthroughout the deal cycle.

- The risk manager can add value to a company’s M&A team.

Marsh 14

Contact Details

Alastair Burns

Marsh Ltd

Tower Place

London

EC3R 5BU

+44 (0)20 73573772

alastair.j.burns@marsh.com

Marsh 15

Who are we?Private Equity and M&A Practice of Marsh:

– 13-year operating history– 13 countries– 55 professionals– Backgrounds: insurance,

accountancy, actuarial,banking, law and privateequity

– 1,000 deals– Structured/executed 70% of all transactional risk solutions in 2004– Unrivalled model of accessing industry experts

Marsh 16

Disclaimer

The information contained in this [publication, presentation, etc.]provides only a general overview of subjects covered, is not intendedto be taken as advice regarding any individual situation and should notbe relied upon as such. Insureds should consult their insurance andlegal advisors regarding specific coverage issues.

This document or any portion of the information it contains may not becopied or reproduced in any form without the permission of Marsh Ltd,except that clients of Marsh Ltd need not obtain such permission whenusing this report for their internal purposes.

© Copyright 2004 [current year] Marsh Ltd All rights reserved

Marsh is authorised and regulated by the Financial Services Authority.