The Acquisition of Deallus by Global Data - Implications for The Client and the Service Sector

Yesterday I posted an article proposing that, while acquisitions will continue in the healthcare service sector, they will be of a different type, driving my new market dynamics and new investors with different criteria and methods.

Today we read the news that Global Data (for once a company with a title that tells you what they do) with the help of their large debt financing facility, has acquired Deallus (a CI company that has developed some strategic capabilities over recent years under the previous owners Archimed). What are we to make of this acquisition? Is it a way to unlock new value opportunities? Will they be "Stronger together" as the Global Data press release suggests. Let's take a look at the potential for the new business.

Let's take a look at the potential for the new business

Firstly, Deallus. What sort of business is it? For those of us who know the CI market we know Deallus as one of the big CI companies, traditionally providing CI data, mostly secondary and some primary. Over recent years, under the stewardship of Archimed, their PE owners, they have invested with some - but not massive as far as this author can ascertain - success in developing more strategic services such as strategy consulting and a strong online client interface to create closer and stronger links with clients, making relationships harder to break. Deallus was ahead of its competitors in this, partly due to the influx of cash from Archimed and partly because they had senior managers in place who understood the need to change. The standard Deallus client is the CI department of larger companies, sometimes marketing people, and their strategic services might appeal to marketing and occasionally medical affairs departments.

Global Data does what it says on the tin. It provides a large, some say comprehensive, set of data to the pharma and biotech industry, service companies and anyone else that wants to buy it. Over recent years it has faced serious competition from companies such as AlphaSense. While I am not privy to the data I imagine pricing has been a significant battleground. Their customers are the CI departments and occasionally marketing teams.

What does the press release tell us about their hopes for the future?

What does the coming together of these two organisations mean? Let's start by looking at what they have said it means. Deallus leadership talk about being able to leverage the extensive research and analytics capabilities of Global Data. what does this mean? Will Global Data give Deallus exclusive use of certain data, blocking out other service companies (clients of Global Data of course) to give Deallus a significant advantage? This seems unlikely as stopping Global Data selling its data to give Deallus an advantage looks like robbing Peter to pay Paul. So does the idea that Deallus could purchase data from Global Data at a rate lower than their competitors. While this looks to give Deallus an advantage, in truth it is merely moving revenue from Global Data to Deallus, not something the leadership of Global Data will agree to quickly. So what does "Leverage" mean?

So what does "Leverage" mean in this case?

Perhaps, given the significant investment in AI and client facing tech that Global Data and Deallus have separately made they are planning on creating a client interface that beats the competition, possibly allowing the client to use AI to interrogate data. That would be very interesting to see and would be a game changer in the CI market. This novel approach may face obstacles, such as price as it will not be cheap to develop, and who in pharma will pay for it, though these will be dealt with if it offers significant value in insight and time.

The leadership of Global Data, through their press release, talk about being able to drive remarkable growth and deliver exceptional value. Regarding growth, the intimation is that together they will grow quicker than apart. Why would that be? If, as I suggest above, it will be difficult for Deallus to "Leverage" Global Data, why would they grow more rapidly. Furthermore, I doubt of Deallus can introduce Global Data to many pharma companies that aren't already buying from Global Data. So, where will this remarkable growth come from? Without a game changer it is hard to see why they will grow sufficiently quicker together to justify whatever the purchase price was.

Global Data also talks about delivering exceptional value to stakeholders. I'm sure both organisations thought they were already exceptional, so no change there. If they mean more value than their competitors I wonder where that value will come from. It seems unlikely, for the arguments put forward above, that Deallus will have privileged access to Global Data data. It seems unlikely that Deallus can open many new doors for Global Data. So, where will the market beating value come from?

Is there another way to look at this and to read between the lines of the press release?

Of course, time always tells about deals. We will know, sooner or later, whether this deal provides the remarkable growth and exceptional value that will make it a market changer and a market leader. Sometimes you learn quickly, especially in these times of challenging sales environments. Is there another way to look at this deal? Let's build a different scenario. At this point I should stress I have no inside information and this scenario is merely based on my knowledge of markets and deals in general.

The owners of Deallus, Archimed, invested significantly in both people and tech to turn Deallus from a pure CI company into a CI company with strategic services and a (somewhat) unique client interface that some clients liked and some clients didn't. During their tenure they likely got their original investment back, perhaps more, through cash flow and watched the market Deallus operates in stutter and - perhaps- shrink over recent years. As is almost always the case, Archimed set a timeline by which they want to exit. Market pressures may have helped them decide and their exit happened. Global Data may have got Deallus at a discount compared to a few years ago because the future market looks less attractive than it used to. Given said market pressures it may have made sense to Global Data to want to spread the risk across a range of clients, in the hope that a reduction in one may not mean a reduction in all. This scenario makes sense for the exiting and incoming owners of Deallus, assuming the price was right (again, time will tell). However, it does not provide any indication of why growth should be more rapid or value increased.

More types of clients does NOT mean cross-selling , or upselling, happens

Also in the press relaese, both cross-selling and upselling are mentioned as benefits of the deal. Cross selling means clients buying Deallus services that had never bought them before thanks to an introduction from Global Data and vice versa. Upselling means selling more to an existing client. Both cross-selling and upselling are often (maybe ubiquitously) quoted as exciting reasons for mergers and acquisitions, often accompanied by graphs of where each company is strong showing little overlap. However, we have rarely seen it work because clients don't work or buy in these ways. As a simple example, the CI department of a client buying data from Global Data has no impact on the strategy services the marketing team buys. In fact, forcing introductions has been observed to push people away, some times for business reasons, and some times for territorial reasons. And, to add to the example, if a marketing team are embedded with a strategic vendor why would they switch? They wouldn't. And, to add more, procurement may be against putting too many eggs in one basket unless they are offered substantial financial incentives, and this seems unlikely. Paradoxically, being together may even make it more difficult to win with some clients. Overall, the argument for cross-selling and upselling have often been overplayed, for obvious reasons.

So, how will they find growth and value?

How will they find growth and value? Well, time will tell. I've stopped using my crystal ball since yesterday.

The obvious approach is to make their business the most cost efficient in the market while offering a better (or at least as good as the best competitor) service. This COST LEADERSHIP approach, as described by Harvard's Michael Porter, is an exciting business prospect. It would likely require the new organisation to leverage its leading AI and tech knowledge to build an AI powered engine that consumes and interprets the data they own, generating exciting and new insights rapidly and efficiently that wow clients and beat the competition. They could sit this on their clients desktops making their relationship very hard to break. They certainly have a head start if they want to do this. Even if it provides the same insights as their competitors they win, because they do it at a lower cost. Of course, the result of this is the loss of some jobs, analysts for example.

While this is an exciting, game changing, option it is likely to require a radical change to the business, removing the existing profit centres, revenue and profit goals and creating one organisation. This may be too big a risk, or step to take. I, for one, hope they give it a go.

Sadly, the alternative is to allow the two companies to operate semi-independently with their own goals, try for cross selling and improve the margin by losing back office jobs, improving the business in the short term but not in the long term. Nor does this create any significant advantage.

I look forward to learning more about how this new organisation will look at the future and deal with it. We may be witnessing the birth of a game changing, value creating, AI and tech driven new approach to understanding markets that will show the way ahead for years to come and have the success that goes with it. Or, we may be seeing an uninteresting acquisition that is focused on short term gains from back-office efficiencies. Time, as always, will tell.

Chris Stevenson is an advisor to companies and investors on growth, market forces and competitive strategy. He can be contacted at [email protected]