Opportunities become risks

Have you ever noticed that when companies acquire other organisations, they turn these opportunities into a risk?

They must have known the risks at the moment of acquisition. They must have estimated their capacity to integrate the acquisition and concluded that the anticipated synergies and benefits far outweighed the risks, or they would never have made the acquisition.

Yet as soon as they acquire them, they announce a material risk in the annual reports.  Here are examples of seven pharmaceutical companies: [1]

“AbbVie may not be able to integrate acquisitions successfully into its existing business.”

“Abbott may not be able to integrate acquisitions successfully into its existing business or transition disposed businesses efficiently, and could incur or assume significant debt and unknown or contingent liabilities.”

Bristol-Myers Squibb: “our ability to successfully integrate Celgene and MyoKardia could impact our results of operations.”

Sanofi: “if we are unable to quickly or efficiently integrate those activities or businesses”.

Astra Zenica – “Failure to successfully implement our business strategy, including the effective integration of Alexion into our Group, may frustrate the achievement of our targets and materially damage our brand, business, financial position or results of operations.”

Novartis – Failure to identify, execute, and/or realize the expected benefits from our external business opportunities.

You see it is systematic. And all of them doubt their capacity to integrate the new business or doubt their capacity to execute the ‘expected benefits’ of it.

Johnson & Johnson is the odd company out because they did not make any material acquisitions during the year, yet make up an imaginary risk coming in the future or from prior acquisitions in the past:

Johnson & Johnson – “The potential that the expected strategic benefits and opportunities from any planned or completed acquisition or divestiture by the Company may not be realized or may take longer to realize than expected.”

We are back to the ‘if unsuccessful’ syndrome as part of business as usual. Of course if management messes anything up, a risk will arise. But their job is to integrate their acquisitions. If they cannot, they should not make them.

 [1] I read the 2021 and 2022 annual reports (Form 10K USA or Form 20-F UK) of eight pharmaceutical companies, four based in USA and four based in the Europe.