Deal Flow Predictor Q1 2020

To verify the predictive nature of the Intralinks Deal Flow Predictor, we compared the data underlying the Intralinks Deal Flow Predictor with subsequent announced deal volume data reported by Refinitiv to build an econometric model (using standard statistical techniques appropriate for estimating a linear regression model) to predict the future reported volume of announced M&A transactions two quarters ahead, as recorded by Refinitiv. We engaged Analysis & Inference (“A&I”), an independent statistical consulting and data science research firm, to assess, replicate and evaluate this model. A&I’s analysis showed that our prediction model has a very high level of statistical significance, with a more than 99.9 percent probability that the Intralinks Deal Flow Predictor is a statistically significant six-month predictive indicator of announced deal data, as subsequently reported by Refinitiv. We plan to periodically update the independent statistical analysis to confirm the Intralinks Deal Flow Predictor’s continuing validity as a predictor of future M&A activity. The Intralinks Deal Flow Predictor report is provided “as is” for informational purposes only. Intralinks makes no guarantee regarding the timeliness, accuracy or completeness of the content of this report. This report is based on Intralinks’ observations and subjective interpretations of due diligence activity taking place, or proposed to take place, on Intralinks’ and other providers’ VDR platforms for a limited set of transaction types. This report is not intended to be an indicator of Intralinks’ business performance or operating results for any prior or future period. This report is not intended to convey investment advice or solicit investments of any kind whatsoever.

The Intralinks Deal Flow Predictor provides Intralinks’ perspective on the level of early-stage M&A activity taking place worldwide during any given period. The statistics contained in this report reflect the volume of VDRs opened, or proposed to be opened, through Intralinks and other providers for conducting due diligence on proposed transactions, including asset sales, divestitures, equity private placements, financings, capital raises, joint ventures, alliances and partnerships. These statistics are not adjusted for changes in Intralinks’ share of the VDR market or changes in market demand for VDR services. These statistics may not correlate to the volume of completed transactions reported by market data providers and should not be construed to represent the volume of transactions that will ultimately be consummated during any period nor of the revenue or M&A deal volume that Intralinks may generate for any financial period. Indications of future completed deal activity derived from the Intralinks Deal Flow Predictor are based on assumed rates of deals going from due diligence stage to completion. In addition, the statistics provided by market data providers regarding announced M&A transactions may be compiled with a different set of transaction types than those set forth above. Read more

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The Healthcare, Energy & Power and Industrials sectors are predicted to lead any growth in LATAM M&A announcements over the six months ending Q1 2020.

The Materials, TMT and Energy & Power sectors are predicted to lead the growth in EMEA M&A announcements over the six months ending Q1 2020.

EMEA

Intralinks six-month forecast

Deeper green = increasing early-stage M&A activity (YOY) Yellow = stable early-stage M&A activity (YOY) Deeper red = decreasing early-stage M&A activity (YOY)

The Real Estate, Financials and Industrials sectors are predicted to lead the growth in APAC M&A announcements over the six months ending Q1 2020 .

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H2 2019 recovery in worldwide M&A announcements predicted to continue into 2020

*Refinitiv's data on announced deal volumes for the past four quarters has been adjusted by Intralinks for expected subsequent changes in reported announced deal volumes in Refinitiv's database.

Click on the regions to find out more

This graph shows the year-over-year (YOY) % change in the number of announced M&A deals, as reported by Thomson Reuters, with our regional and worldwide mid-point growth forecasts for the next two quarters.

Deal Flow Predictions Through Q1 2020

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Our quarterly prediction of future trends in the global M&A market

Intralinks® Deal Flow Predictor

Mid-point forecast

High forecast

Low forecast

LATAM

TheTMT, Healthcare and Materials sectors are predicted to lead the growth in NA M&A announcements over the six months ending Q1 2020.

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Deeper green = increasing early-stage M&A activity (YOY) Yellow = stable early-stage M&A activity (YOY) Deeper red = decreasing early-stage M&A activity (YOY)

Intralinks® Deal Flow Predictor

A quarterly prediction of future trends in the global M&A market

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In EMEA our mid-point forecast for YOY growth in the number of announced M&A deals over the six months ending Q1 2020 is +5 percent, within a range of +7 percent to +2 percent, with the strongest growth in deal announcements expected to come from the Materials, TMT (Technology, Media & Telecoms) and Energy & Power sectors in Eastern Europe, Northern Europe (Benelux and the Nordics), DACH (Austria/Germany/Switzerland) and Sub-Saharan Africa. Among the five largest European economies, Italy, Spain, the UK and Germany are expected to show increased levels of M&A announcements over the next two quarters, whereas levels of M&A announcements are expected to decline in France.

In LATAM our mid-point forecast for YOY growth in the number of announced M&A deals over the six months ending Q1 2020 is -4 percent, within a range of +2 percent to -9 percent, with the Healthcare, Energy & Power and Industrials sectors predicted to lead any growth in LATAM M&A announcements. Among the largest LATAM economies any increases in M&A announcements are expected to come from Peru, Colombia, Brazil and Chile, whereas levels of M&A announcements are expected to be flat to declining in Argentina and Mexico.

In NA our mid-point forecast for YOY growth in the number of announced M&A deals over the six months ending Q1 2020 is +7 percent, within a range of +15 percent to 0 percent, with the strongest growth in deal announcements expected to come from the TMT (Technology, Media & Telecoms, Healthcare and Material sectors.

Our mid-point forecast for YOY growth in the worldwide number of announced M&A deals over the six months ending Q1 2020 is +6 percent, within a range of +11 percent to +1 percent, with the strongest growth in worldwide deal announcements expected to come from the TMT (Technology, Media & Telecoms), Materials and Energy & Power sectors.

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This graph shows the year-over-year (YOY) % change in the number of announced M&A deals, as reported by Refinitiv, with our regional and worldwide mid-point growth forecasts for the next two quarters.

Spotlight

Infrastructure, M&A and protectionism

Guest comment

Business development war stories from the bipharma front line

Infrastructure has always been a significant area of investment, a space in which governments and the private sector often work together to achieve mutual objectives. However, as infrastructure investing has become more globalized and technology-led, national security concerns are being raised in relation to an increasing number of transactions – in a nutshell, governments are seeking tighter oversight over who owns businesses involved in infrastructure deemed to be of national or strategic significance. Despite this background, many M&A professionals feel that infrastructure is receiving more attention as an investment ...

From playing a pivotal role in historic billion-dollar biopharma deals with AbbVie, Roche and Bristol-Myers Squibb – the latter being the largest in drug-development history – to facilitating smaller, business-critical transactions, Ken Schultz, M.D., has ‘been there and done that’ in the realm of mergers and acquisitions (M&A) and licensing transactions.

Spotlight

Guest comment

We announced a USD 30 million upfront, USD 190 million deal licensing the very same Halozyme technology platform BMS had signed. So, it was very much like taking two dates to the same dance and having them find out about each other. You’ve got to be really careful here. Deals are more than just numbers and financials; they’re actually people and you have to manage these situations. If you ignore people, egos get bruised, feelings get hurt, and you may find yourself without a date to the dance.

Sometimes the best deal can be right in front of you – you just have to solve the other deal partner’s challenge. Eisai, a worldwide Japanese oncology company with USD 7 billion global revenue, has a drug called Eribulin – the brand name is Halaven – which held a third-line indication for breast cancer treatment in the United States. Eisai had a phase three trial readout where it went head-to-head with second line standard of care treatment and fell short by just days. We’re talking about missing the primary clinical endpoint by less than two weeks. There are a couple ways to react when reading these headlines. The first is to read them and forget them. The other is to try to apply them. And that’s what took place with us. We thought it was interesting because Halozyme had a biologic in phase three trials that alters the tumor microenvironment, allowing more drug to reach the tumor.

The common belief that small deals take the most effort is true. But some small deals can give you incredible goodwill mileage and make you a local hero. When I was the Chief Strategic Officer at Medtronic Diabetes, we had the most advanced insulin pump and glucose sensor system in the world. We could use our system to test drugs and devices when other companies requested, and these were small deals in the neighborhood of USD 1-3 million. Our scientists conducted contract work with new technologies that weren’t on the shelf – investigational and most times not even published – and received payment for their services.

When you’re a principal scientist running a lab with six to eight people, receiving a million-dollar infusion really changes your budget for the better. Two things resonate strongly with scientists: 1) having the opportunity to experiment with new technology: and 2) being able to buy new pieces of lab equipment. You leverage both of these by working with companies who can bolster the department budget for your scientists deploying their specialized expertise, in this case the artificial pancreas. Later on, when you’re closing a big deal with other parties, like when we announced the Sanofi-Medtronic Joint Development Alliance, the scientists are already in your camp because of access to a better provisioned laboratory and cutting-edge external technology. devices when other companies requested, and these were small deals in the neighborhood of USD 1-3 million. Our scientists conducted contract work with new technologies that weren’t on the shelf – investigational and most times not even published – and received payment for their services.

Business development war stories from the biopharma front line

Infrastructure, M&A and protectionism

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Ken Schultz, M.D., a seasoned biopharma executive with over two decades of global deal making expertise, provides an exclusive insider's view of transactions he's led during his storied career.

class and has the potential to attract increasing focus from private equity, one practitioner claimed. All this merits a closer look at this space. Given the USD 1 trillion infrastructure investment promised by Donald Trump in his 2016 presidential campaign, and China’s ambitious Belt and Road Initiative (BRI), it is no surprise that the infrastructure space is a hot spot. The sector is experiencing a shift from public to private investment as governments in several countries choose to privatize public infrastructure such as roads, rail systems and telecommunications networks. Private investors and even state-owned enterprises from other countries are stepping in to fill the gap.

As mentioned, private equity is increasingly focusing on the space. One example is the move by EQT Partners’ infrastructure investment advisory team to partner with Temasek, a Singapore government-owned investment company, two years ago. Together, EQT Infrastructure and Temasek will investigate investment opportunities in Southeast Asia, India, South Korea, Japan, Australia and New Zealand. The ambition is to identify interesting companies with existing assets within communication, transportation, energy, environmental and social infrastructure with a potential to grow, develop and transform. Attractive targets are sought after and fought over and, along with private equity, institutional investors are showing a growing interest in directly deploying funds into the space. For example, in 2017, Ontario Teachers’ Pension Plan invested USD 2 billion in a new partnership with Anbaric, a major U.S. developer of clean energy transmission and microgrid projects, to create a new development company, Anbaric Development Partners. The partnership is aimed at developing clean energy infrastructure projects in North America, accelerating the revitalization of aging transmission networks.

In early 2018, Temasek also joined forces with Swiss logistics and freight company Kuehne + Nagel to establish a joint venture to invest globally in early stage companies developing cutting-edge technology for logistics and supply chains. These examples – and there are many more – illustrate the attractions the space holds for a variety of investors looking for relatively stable, non-cyclical returns that are ideal vehicles for debt-heavy capital structures. Asian, and particularly Chinese, investors are set to play a crucial role in the development and expansion of the sector. China’s multibillion BRI is seeing Chinese companies and state-owned enterprises invest in infrastructure projects in more than 70 countries around the world. Expectations are that China will be spending more than USD 1 trillion on this ambitious and long-term development project, which has been likened to the post-World War II Marshall Plan. However, estimates on what has been spent so far differ greatly with one analysis putting it at USD 210 billion, mainly invested in Asia.

https://www.investopedia.com/terms/c/conglomerate.asp

https://www.bloomberg.com/news/articles/2018-02-01/conglomerates-are-broken

https://www.ft.com/content/97eb0712-fb79-11e7-a492-2c9be7f3120a

Based on volumes of early-stage due diligence M&A activity in worldwide virtual data rooms over the past two quarters, Intralinks’ predictive model forecasts that the worldwide number of M&A deals to be announced over the six months ending Q1 2020 is expected to increase by around +6 percent year-over-year (YOY), within a range of +11 percent to +1 percent, with the strongest growth in deal announcements expected to come from the TMT (Technology, Media & Telecoms), Materials and Energy & Power sectors. This is a marked turnaround from the 7 percent YOY decline in worldwide deal announcements in H1 2019.

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In APAC our mid-point forecast for YOY growth in the number of announced M&A deals over the six months ending Q1 2020 is +7 percent, within a range of +12 percent to +2 percent, with the strongest growth in deal announcements expected to come from the Real Estate, Financials and Industrials sectors. Within APAC, all regions are showing growth in their volumes of early-stage M&A activity, with India, Japan and North Asia (China, Hong Kong) expected to make the strongest contributions to APAC’s growth.

Currently, I’m the CEO and Chairman at the UCLA biopharma spinout Trethera. One of the observations you’ll make at a smaller company is that while the scale changes, you still need access to interesting modalities for drug research. For us, that’s the artificial intelligence (AI) applications that are now deployed to reduce drug development risk. It’s no longer good enough to simply shake things in a test tube and inject a mouse later; these days it’s a lot more technical, complicated and focused.

A trend in the market

Following in the footsteps of the Committee on Foreign Investment in the United States (CFIUS), the U.S. body that reviews the national security implications of foreign investments in U.S. companies or operations, the European Union has beefed up its foreign direct investment screening regulations, which will take full effect in November 2020. The aim is to protect assets that are deemed to be of strategic importance to the EU. A key aspect of the strengthened regulations will be the information-sharing provision between EU member states. The nixing of the Aixtron deal is an example of how a deal can end up being blocked even if the “host nation” does not have a concern with the transaction itself. Another Chinese company that has run into difficulties over its involvement in the infrastructure sector is telecoms equipment supplier Huawei, which aims to supply hardware to the global 5G mobile network. The company encountered political difficulties in the U.S., and its European prospects remain unclear while the EU develops a new strategy on 5G and cybersecurity. The concerns raised – such as increased exposure to attacks, more potential entry points for

attackers and the risk profile of individual suppliers – again show the challenges facing investors in the infrastructure space. Because of the strategic importance of infrastructure and its close relationship with national security, it must be expected that deals in this space will attract increasing amounts of scrutiny. Dealmakers will therefore have to take particular care and allocate extra time to ensure they are able to take full advantage of the vast opportunities in the space.

https://www.reuters.com/article/us-siemens-structure/siemens-ceo-says-breakup-is-not-the-goal-manager-magazin-idUSKBN1E81DX

https://edition.cnn.com/2018/11/27/business/united-technologies-breakup-conglomerate/index.html

https://trendreports.mergermarket.com/reports/d2918464-ce6d-4222-b5a3-c298f98698ab

https://www.financierworldwide.com/shareholder-activism-in-asia#.XSA5ro9RfIU

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https://www.woodlockhousefamilycapital.com/post/another-conglomerate-breakup

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https://www.investopedia.com/terms/c/chaebol-structure.asp

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https://www.financierworldwide.com/shareholder-activism-in-asia#.XSA5ro9RfIU

There is no denying it. Over the past 20 years the corporate world has undergone a central change and is still doing so. We talk about digitalization and the impact of artificial intelligence, bridging the gender pay gap and the glass ceiling that women encounter in the business world – all aspects that are changing the way companies do business. But businesses are also changing at a more fundamental level.

As recently as ten years ago, many larger businesses were multifaceted conglomerates, owning controlling stakes in a number of different, seemingly unrelated businesses: the U.S. giants GE and United Technologies, along with Germany’s ThyssenKrupp and Siemens, are well-known examples; some might argue that Warren Buffet’s Berkshire Hathaway falls into that category as well. These business structures were largely assembled through long-term M&A strategies with the aim to “diversify business risk by participating in a number of different markets.” The structure allows conglomerates to build long-term resilience, for example, by riding out business cycles or using cashflow from one division to fund R&D in another.

Jerry Davis, a business professor at the University of Michigan who studies corporate organization, said: “Conglomerates once provided efficiencies that investors couldn’t get from unsophisticated capital markets.” However, the cost of these benefits is the conglomerate discount, in which conglomerate firms typically trade below the sum of their parts. The prospect of “releasing” this discount as an immediate capital gain, along with increasing pressure from shareholders in search of yield – both long-standing, overall supportive institutional shareholders and short-term activist shareholders along the lines of Elliot Management, Wyser-Pratte and Cevian Capital – is forcing a change in the corporate landscape.

A flurry of divestment and restructuring programs, carve-outs and spin-off processes is reshaping the major industrial conglomerates of the world.

GE is undergoing an extensive divestment program to address a significant amount of debt, ironically accumulated by its own extensive M&A program. GE’s former chairman and CEO, John L. Flannery, was quoted as saying that “everything” was on the table. United Technologies, the U.S.-based industrial conglomerate known for its Otis elevator division, made headlines with its announcement to break the business into three separate entities. The company announced in late 2018 that it would spin off Otis as well as its Carrier building systems business.

The remaining company, solely focused on aviation, is now led by jet engine maker Pratt & Whitney and recently acquired parts maker Rockwell Collins. Siemens, a German industrial conglomerate, is also going through somewhat of a restructuring and divestment process, although CEO Joe Kaeser has rejected the idea that he is in the process of breaking up the company. That said, the carve-out of healthcare unit Healthineers along with the joint venture of its wind power business with Spain's Gamesa and the sale of its electric and hybrid-electric aerospace propulsion business to Rolls-Royce have gone a long way toward changing the look of Siemens. The USD 63.2bn split of chemicals conglomerate DowDuPont into three separate specialized companies a mere three years after the merger of Dow Chemical and Du Pont is yet...

another example of this trend. In fact, global demergers reached their third-highest value on record, with 11 deals worth USD 98.3bn in H1 2019. A company to watch is CNH Industrial, a capital goods provider based in the Netherlands, which is rumored to be another candidate ripe for a break-up. One group of winners from this trend – aside from advisors and some types of investor – are private equity (PE) funds. Flush with cash after a record-breaking fundraising cycle, they are emerging as key buyers of assets coming to market. Earlier this year, U.S. private equity firm American Industrial Partners acquired Current, a provider...

A trend in the market

It’s interesting to note, however, that this trend toward unravelling conglomerate structures is so far only affecting conglomerates in the West. The complex trading house structures in Japan and more traditional, family-owned conglomerates in China and India seem to be unaffected so far. However, according to a senior M&A executive at a Japanese conglomerate, this too could change. “The expectation has to be that here too these structures are going to be broken up,” he said. “But I think this process is still a good 10 to 20 years off.” Activist shareholders, meanwhile, are increasingly showing an interest in the Asian market – PAG Capital and Elliot Management being two examples – and it’s fair to assume that here too businesses...

will continue to come under pressure to streamline their operations. Back in 2011 there were only ten shareholder activist-led campaigns in Asia; by 2017 this number had increased to 106. The focus of activist campaigns so far has been on operational issues, such as with Japan’s Nintendo, where consistent pressure from Hong Kong-based hedge fund Oasis to make its games accessible on smartphones led to Nintendo’s runaway success with Pokémon Go. Another example is Australia’s Alchemia, where Sandon Capital successfully campaigned for board changes following a string of losses at the biotech company.

In South Korea, meanwhile, we are seeing early signs of the chaebol structures coming under pressure to dismantle. Chaebols are business conglomerate structures that originated in South Korea in the 1960s, creating global multinationals with huge international operations. Elliot Management has recently challenged South Korea’s top two family-run conglomerates, Samsung and Hyundai. Elliot has called on Hyundai to provide “a more detailed roadmap as to how it will improve corporate governance, optimize balance sheets and enhance capital returns” at Hyundai Mobis, Hyundai Motor and Kia Motors.

Spotlight

The demise of the conglomerate?

For over 25 years, Paul has specialized in leading both buy-side and sell-side financial accounting due diligence for complex public and private company transactions, as well as transactions in the capital markets. A former Big Four partner, U.S.-certified public accountant, and frequent guest on Fox Business Network, Bloomberg Businessweek Radio, and many other broadcast and print media publications, Paul leads the group’s global efforts in the cross-border delivery of services to private equity, sovereign wealth, family office and strategic buyers.

Spotlight

The demise of the conglomerate?

Paul Aversano: I have been engaged in M&A for over 25 years, and I can truthfully say that I have never seen as many variables driving the markets as we are seeing right now, nor the current levels of interconnectedness. On a macro level, we are dealing with an increasingly global economy and everything seems to impact everything else. As an example, a year ago the Turkish lira experienced a crisis, which in turn sent the U.S. stock market down. This just proves that the world is an increasingly global place. Talking about M&A, there are some inherent pressures dealmakers must face. There are the record-high valuations, coming in at 11x multiples. These valuations could in turn create challenges when it comes to selling these assets, possibly in a down market.

Paul, you talk about dealmakers having to navigate a “vortex of volatility.” What do you feel are the key challenges that make up this vortex?

But that is not all that dealmakers have to contend with?

Turning our attention next to geopolitical issues, are they really new, or are these in fact issues any generation of M&A practitioners have to deal with?

Value creation has been and will continue to be front and center, and a strong value creation plan, devised pre-acquisition, will be key. Financial engineering and increasing operation efficiencies will no longer be enough. Buyers will have to have a long, hard think about how they can really drive up revenues. The exact strategies will depend on the regions, but it means you need to be tactical about what our post-deal value creation plan is and have that in place pre-acquisition.

You have also highlighted the interconnectedness of many of these challenges. Keeping this in mind, how can dealmakers best prepare themselves? What structures and processes need to be in place to ensure successful transactions?

You are right. Chaos breeds opportunity. Yes, there are many challenges out there, but I would encourage buyers to assume the risk and find creative ways of dealing with it. When it comes to where the greatest opportunities lie, technology is the big thing and will be for years to come. The way I see it, every deal now is a technology deal, and every company needs a digital transformation strategy. Every company needs to have a long, hard think: Am I going to be a winner due to the digital transformation my industry is going to experience, in which case I will invest? Or am I in fact going to lose out – and here I am thinking in particular about the retail industry – and we therefore might want to exit and leave the field to someone else? These are big questions that businesses are going to have ask themselves.

Every challenge brings opportunities with it for those willing to take a risk and consider the long term. Where do you see the greatest opportunities?

Finally, Paul, can you give us your outlook on M&A for the near- to medium-term future?

Bullish, very bullish! The fundamentals are good, there is so much dry powder that deals will simply need to be done — there is no other way around it. Am I concerned about a crash? Not really. Unlike in the financial crisis when funding for deals from the traditional lenders dried up, the money is now coming from a huge range of new sources. Those funders too are sitting on huge amounts of cash that need to be deployed. The challenge will be developing that strong and sustainable value creation story and to be stringent in its execution.

limited partners to PE [private equity] funds … all players who have traditionally allocated capital to private equity funds but are now investing in their own right. The risks of higher interest rates and inflation, global currency fluctuations, the trade war between China and the U.S., technological disruption and digital transformation, Brexit, increasing levels of global protectionism, election cycles with the upcoming elections in the U.S. being the greatest concern, changing tax regimes and broader geopolitical risks in such places as North Korea, the Middle East and Venezuela. The list seems never-ending, and all factors put together to me create a perfect storm of factors that could potentially impact M&A, or what I have been referring to as a “vortex of volatility.”

But that is not all that dealmakers have to contend with?

Every generation of dealmakers has geopolitical challenges to deal with. What in my mind has changed is the volatility of the rhetoric, which seems to be escalating. Between the U.S. and North Korea, we are clearly experiencing a war of words. Does this impact M&A directly? No, but it does create a feeling of uncertainty which does have an impact on both global debt and equity markets. There is also the risk of the unknown. One large, unforeseen geopolitical event can create havoc in the global markets.

I think they will continue to stay at relatively high levels for the foreseeable future. There is just so much capital needing to be deployed, and that will continue to maintain these high valuation levels. This pressure to deploy is driving certain types of M&A activity; for example, in the U.S. right now we are seeing over 50 percent of PE deals being done as secondary buyouts and over 60 percent as tuck-in or bolt-on acquisitions. The PE asset class is right now simply offering the highest returns and continuing to attract record levels of capital for investment.

North Korea, we are clearly experiencing a war of words. Does this impact M&A directly? No, but it does create a feeling of uncertainty which does have an impact on both global debt and equity markets. There is also the risk of the unknown. One large, unforeseen geopolitical event can create havoc in the global markets. This is a real issue, largely concerning China, but also some others. On a recent trip to China, I was given to understand that Chinese businesses effectively see the U.S. market as shut, which is a stark contract to 2016 when we saw Chinese bidders in pretty much every situation. Yes, there is the issue of capital outflow restrictions that have had somewhat of an impact, but... seems to be escalating. Between the U.S. and

RESTART

Bristol-Myers Squibb – Managing multiple deals

The situation

Deals are odd animals. Whenever you’re working in business development, you have multiple horses in the race and you never assume that they’ll all cross the finish line at the same time … much less the same day. So what do you do when an actual photo finish occurs? On September 14, 2017, when I was VP of Innovation, Strategy and Business Development at Halozyme, we announced the largest drug delivery deal in history. The deal with BMS was USD 105 million upfront, USD 1.8 billion in total deal value, and the press release revealed the target as the checkpoint inhibitor PD-1. PD-1 is a very hot target. By 2025, over half of oncology revenue will come from immuno-oncology associated drugs. Interestingly enough, Roche, a BMS rival, signed a deal with us on exactly the same day. They already had two drugs under public license with Halozyme, Herceptin and Rituxin, which are some of the best-selling injectable oncology drugs of all-time.

However, as infrastructure investing has attracted increasing interest from cross-border acquirers, national security concerns are being raised and, as a result, the growing involvement of Chinese players in the space has not been without challenges. Concerns regarding Chinese companies’ acquisitions of assets in Australia, Europe and North America have been mounting, with several high-profile transactions blocked by governments. When, in May 2016, Chinese industrial group Midea spent close to USD 3 billion on the acquisition of industrial automation company KUKA, the deal was welcomed with open arms in engineering powerhouse Germany. However, after several other Chinese-initiated transactions, the mood soured amidst concerns of a “technology drain,” which could lead to a decline in Germany’s position in the engineering top table. By the time of Fujian Grand Chip Investment Fund LP’s bid for German semiconductor maker Aixtron, just a few months later, market sentiment had changed to such a degree that the German government withdrew its initial approval based on concerns raised by the U.S. government. It is difficult to deny talk of growing protectionism given these events.

What happened

For us, it was about managing the people, letting everybody know that they were important, placing those preemptive strategic phone calls and letting all partners – new and established alike – understand Halozyme could take on the additional work created by not just one new deal but two. The BMS deal was so material that they adjusted their EPS for three years on a go-forward basis – for 2017 and 2018 by approximately $0.01, and for 2019 by approximately $0.05 – and held a global press conference issuing a joint press

release with Halozyme. If you’re ever fortuitous enough to have two deals contemporaneously cross the finish line with archrivals, it’s a great opportunity – but check that the complex web of stakeholders avoids any surprises. People don’t like to find out news about themselves in the papers; they’d much rather hear it from you. When there are many players involved, make sure you manage it correctly.

Lessons learned

Pulling a deal across the finish line is no small matter, especially when you’re dealing with numbers like this. My advice is to embrace the opportunity, and don’t try to time the deal. During my medical career, I delivered multiple babies in all sorts of environments, from well-prepared delivery rooms to unexpected places. It’s impossible to time a baby’s birth, so just get the baby delivered! With deals, it’s the same way. Deliver in the best possible environment, and if you happen to have twins, that’s one you won’t forget anytime soon.

The situation

Eisai deal - How to make lemonade

What happened

We approached Eisai with the idea of combining their drug, Havalen, with our drug, PEG-PH20, testing a development pathway for both parties in breast cancer. A lot of times deals don’t land in your lap or knock at your door. You have to become strategically opportunistic. In this case, a clinical trial outcome helped to set the stage for a cost-share clinical collaboration deal. Whenever you’re solving a deal partner’s problem and making their life easier, chances are you will discover greater traction.

Lessons learned

When licensing, look for opportunities where you can solve for something that hasn’t been solved yet. If you can create value for the deal partner, your probability of closing improves. Bad news is not always bad news – sometimes it can be good. Halozyme had not formed a clinical development partnership with Eisai prior to this example; but a good story and strategic rationale opens doors and facilitates an expeditious closure.

The situation

Medtronic Diabetes - Be the local hero

Deals are more than just numbers and financials; they’re actually people, and you have to manage these situations. If you ignore people, egos get bruised, feelings get hurt, and you may find yourself without a date to the dance.

What happened

Lessons learned

the scientists are already in your camp because of access to a better provisioned laboratory and cutting-edge external technology. A lot of times as dealmakers, we concentrate on the shareholder value created, board directors, and our C-suite colleagues. However, sometimes you can also work directly for the scientists that form the backbone of the company. When it comes to the technical diligence you need, especially in a complex licensing situation or large M&A, having built rapport by providing R&D a service rather than always asking for things, lands extremely well. That can go a long way if you’re a dealmaker.

What happened

The situation

Kyan Therapeutics - Share incentives

What happened

One action I took early in my Trethera CEO tenure was to sign a co-development collaboration with Kyan Therapeutics, a Singapore-based AI drug development company working on the cutting edge of fuzzy logic and algorithms. We did this in a couple of ways. A grateful patient approached us who had had his chemotherapy AI adjusted with Kyan – plus he happened to be a significant Trethera shareholder. He brokered a conversation between Trethera and Kyan that helped as we encountered the early speedbumps that come with every deal, especially when you’re a small company.

As a small company, it is likely that you have less cash than a larger firm, as a result you learn creatively how to get the same things like at a big company. We installed an option share incentive program with Kyan, in addition to providing a blend of capital for the agreed tasks. Linking a deal partner’s success to your company’s success via stock options helps get the project done. Now we’re able to do the work we need to do across multiple tumor types with a proprietary AI system predicting our success and streamlining our development path choices. When you provide equity incentives to some of your closer partners, it gives them a greater ownership and the potential upside can be immense. Everybody’s looking for that hockey stick growth. Providing the hockey stick opportunity becomes a carrot that allows you to get things done in a cost-sensitive way, even opening up other unexpected doors. Kyan is now getting us further involved in the Asian health systems and has become one of our best thought partners in this challenging arena called drug development. Changing a vendor into a partner and a partner into a thought partner is something every small company should consider strongly.

Lessons learned

Interview conducted by SS&C Intralinks' . Kyle helps corporate development, legal and finance teams on the West Coast to facilitate and secure their deal sourcing, M&A, and post-merger integration activity. He has experience working with West Coast corporations to build out strategies around big data analytics, distributed systems and machine learning at scale.

A former emergency room doctor who gravitated toward dealmaking in healthcare services, product development, and strategic transactions, Dr. Schultz is the CEO & Chairman of Los Angeles-based , a privately held biopharmaceutical oncology company progressing a first-in-class small molecule into clinical trials. Previously, he’s held leadership roles at Halozyme, a publicly traded San Diego biotech company specializing in drug delivery and oncology therapeutics, and Medtronic, the world’s largest medical device company. He’s also worked at the global consulting firm McKinsey & Company where he advised a range of leading healthcare companies. He earned his M.D. from Texas Tech, MBA from IMD in Switzerland, and BA from Texas A&M. Dr. Schultz recently sat down to discuss four deals he’s been part of to date that he’s found particularly insightful. He graciously provided insight into each situation and learnings which I hope readers can utilize in their own transactions.

Trethera

Kyle Souders

As infrastructure investing has attracted increasing interest from cross-border acquirers, national security concerns are being raised and, as a result, the growing involvement of Chinese players in the space has not been without challenges.

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variety of investors looking for relatively stable, non-cyclical returns that are ideal vehicles for debt-heavy capital structures.Pension Plan invested USD 2 billion in a new partnership with Anbaric, a major U.S. developer of clean energy transmission and microgrid projects, to create a new development company, Anbaric Development Partners. The partnership is aimed at developing clean energy infrastructure projects in North America, accelerating the revitalization of aging transmission networks. In early 2018, Temasek also joined forces with Swiss logistics and freight company Kuehne + Nagel to establish a joint venture to invest globally in early stage companies developing cutting-edge technology for logistics and supply chains. These examples – and there are many more – illustrate the attractions the space holds for a

variety of investors looking for relatively stable, non-cyclical returns that are ideal vehicles for debt-heavy capital structures. Asian, and particularly Chinese, investors are set to play a crucial role in the development and expansion of the sector. China’s multibillion BRI is seeing Chinese companies and state-owned enterprises invest in infrastructure projects in more than 70 countries around the world. Expectations are that China will be spending more than USD 1 trillion on this ambitious and long-term development project, which has been likened to the post-World War II Marshall Plan. However, estimates on what has been spent so far differ greatly with one analysis putting it at USD 210 billion, mainly invested in Asia.

When, in May 2016, Chinese industrial group Midea spent close to USD 3 billion on the acquisition of industrial automation company KUKA, the deal was welcomed with open arms in engineering powerhouse Germany. However, after several other Chinese-initiated transactions, the mood soured amidst concerns of a “technology drain,” which could lead to a decline in Germany’s position in the engineering top table. By the time of Fujian Grand Chip Investment Fund LP’s bid for German semiconductor maker Aixtron, just a few months later, market sentiment had changed to such a degree that the German government withdrew its initial approval based on concerns raised by the U.S. government. It is difficult to deny talk of growing protectionism given these events.

Spotlight

As mentioned, private equity is increasingly focusing on the space. One example is the move by EQT Partners’ infrastructure investment advisory team to partner with Temasek, a Singapore government-owned investment company, two years ago. Together, EQT Infrastructure and Temasek will investigate investment opportunities in Southeast Asia, India, South Korea, Japan, Australia and New Zealand. The ambition is to identify interesting companies with existing assets within communication, transportation, energy, environmental and social infrastructure with a potential to grow, develop and transform. Attractive targets are sought after and fought over and, along with private equity, institutional investors are showing a growing interest in directly deploying funds into the space. For example, in 2017, Ontario Teachers' Pension Plan invested USD 2 billion in a new partnership

with Anbaric, a major U.S. developer of clean energy transmission and microgrid projects, to create a new development company, Anbaric Development Partners. The partnership is aimed at developing clean energy infrastructure projects in North America, accelerating the revitalization of aging transmission networks. In early 2018, Temasek also joined forces with Swiss logistics and freight company Kuehne + Nagel to establish a joint venture to invest globally in early stage companies developing cutting-edge technology for logistics and supply chains. These examples – and there are many more – illustrate the attractions the space holds for a variety of investors looking for relatively stable, non-cyclical returns that are ideal vehicles for debt-heavy capital structures.

Asian, and particularly Chinese, investors are set to play a crucial role in the development and expansion of the sector. China’s multibillion BRI is seeing Chinese companies and state-owned enterprises invest in infrastructure projects in more than 70 countries around the world. Expectations are that China will be spending more than USD 1 trillion on this ambitious and long-term development project, which has been likened to the post-World War II Marshall Plan. However, estimates on what has been spent so far differ greatly with one analysis putting it at USD 210 billion, mainly invested in Asia. However, as infrastructure investing has attracted increasing interest from cross-border acquirers, national security concerns are being raised and, as a result, the growing involvement of Chinese players in the space has not been without challenges.

Concerns regarding Chinese companies’ acquisitions of assets in Australia, Europe and North America have been mounting, with several high-profile transactions blocked by governments. The German response to Chinese companies' acquisitive endeavors has been to a certain degree emblematic of developments in other established economies. When, in May 2016, Chinese industrial group Midea spent close to USD 3 billion on the acquisition of industrial automation company KUKA, the deal was welcomed with open arms in engineering powerhouse Germany. However, after several other Chinese-initiated transactions, the mood soured amidst concerns of a “technology drain,” which could lead to a decline in Germany’s position in the engineering top table. By the time of Fujian Grand Chip Investment Fund LP’s bid for German semiconductor maker Aixtron, just a few months

later, market sentiment had changed to such a degree that the German government withdrew its initial approval based on concerns raised by the U.S. government. It is difficult to deny talk of growing protectionism given these events. Following in the footsteps of the Committee on Foreign Investment in the United States (CFIUS), the U.S. body that reviews the national security implications of foreign investments in U.S. companies or operations, the European Union has beefed up its foreign direct investment screening regulations, which will take full effect in November 2020. The aim is to protect assets that are deemed to be of strategic importance to the EU. A key aspect of the strengthened regulations will be the information-sharing provision between EU member states. The nixing of the Aixtron deal is an example of how a deal can end up being blocked even if the “host nation” does not have a concern with the transaction itself.

Another Chinese company that has run into difficulties over its involvement in the infrastructure sector is telecoms equipment supplier Huawei, which aims to supply hardware to the global 5G mobile network. The company encountered political difficulties in the U.S., and its European prospects remain unclear while the EU develops a new strategy on 5G and cybersecurity. The concerns raised – such as increased exposure to attacks, more potential entry points for attackers and the risk profile of individual suppliers – again show the challenges facing investors in the infrastructure space. Because of the strategic importance of infrastructure and its close relationship with national security, it must be expected that deals in this space will attract increasing amounts of scrutiny. Dealmakers will therefore have to take particular care and allocate extra time to ensure they are able to take full advantage of the vast opportunities in the space.

Spotlight

Infrastructure, M&A and protectionism

As mentioned, private equity is increasingly focusing on the space. One example is the move by EQT Partners’ infrastructure investment advisory team to partner with Temasek, a Singapore government-owned investment company, two years ago. Together, EQT Infrastructure and Temasek will investigate investment opportunities in Southeast Asia, India, South Korea, Japan, Australia and New Zealand. The ambition is to identify interesting companies with existing assets within communication, transportation, energy, environmental and social infrastructure with a potential to grow, develop and transform. Attractive targets are sought after and fought over and, along with private equity, institutional investors are showing a growing interest in directly deploying funds into the space. For example, in 2017, Ontario Teachers' Pension Plan invested USD 2 billion in a new partnership

Interestingly enough, Roche, a BMS rival, signed a deal with us on exactly the same day. They already had two drugs under public license with Halozyme, Herceptin and Rituxin, which are some of the best-selling injectable oncology drugs of all-time. We announced a USD 30 million upfront, USD 190 million deal licensing the very same Halozyme technology platform BMS had signed. So, it was very much like taking two dates to the same dance and having them find out about each other. You’ve got to be really careful here. Deals are more than just numbers and financials; they’re actually people and you have to manage these situations. If you ignore people, egos get bruised, feelings get hurt, and you may find yourself without a date to the dance.

Bristol-Myers Squibb - Managing miultiple deals

Lessons learned

The situation

What happened

The situation

Bristol-Myers Squibb - Managing miultiple deals

Lessons learned

What happened

oncology company with USD 7 billion global revenue, has a drug called Eribulin – the brand name is Halaven – which held a third-line indication for breast cancer treatment in the United States. Eisai had a phase three trial readout where it went head-to-head with second line standard of care treatment and fell short by just days. We’re talking about missing the primary clinical endpoint by less than two weeks. There are a couple ways to react when reading these headlines. The first is to read them and forget them. The other is to try to apply them. And that’s what took place with us. We thought it was interesting because Halozyme had a biologic in phase three trials that alters the tumor microenvironment, allowing more drug to reach the tumor.

Bristol-Myers Squibb - Managing multiple deals

What happened

devices when other companies requested, and these were small deals in the neighborhood of USD 1-3 million. Our scientists conducted contract work with new technologies that weren’t on the shelf – investigational and most times not even published – and received payment for their services.

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Lessons learned

Kyle Sounders