Analysis of third party valuation for merger

Challenge:

Our client, a publicly listed biotech company, was considering a merger with another publicly listed firm. To further initial discussions, a third-party valuation was commissioned on the two parties. That valuation was conducted by a generalist accountant, and the client feared that the assumptions and methodology used did not adequately reflect industry best practice. The client asked Alacrita to conduct a rapid critical assessment of the third party valuation.

Solution:

Our analysis of the valuation indicated numerous areas of concern, including:

• Use of generic timeframes and costings for pharma R&D projects at different stages of development.
• Evidence that a risk-adjusted NPV analysis was not conducted properly; an unadjusted NPV was multiplied by a global probability of success which is not a valid approach.
• Market potential estimates with extreme values (in either direction).
• Assets described as "preclinical" stage but not differentiated between "hit" stage requiring hit-to-lead, lead optimisation and IND enabling studies versus IND-ready assets.
• Assumption that all assets will be developed in parallel rather than prioritized in line with resource availability.

As a result of Alacrita's work, the client team came to consensus that the original valuation was misleading by an order of magnitude and the merger discussions were terminated.

Valuation Services

As a multi-disciplinary firm, in addition to valuations, Alacrita’s expertise in product development, strategy, and commercialization, allows us to draw on important insights that other valuation firms may not have. Understanding the key value inflection points for a pipeline asset and defining an overall value for a technology or business is vital, especially in transaction negotiations and commercial strategy, and few valuation firms are as well-placed as we are to do so.