Sep. 02, 2010

A Prime-Example of a Strategic Acquisition

Aquisition of Millipore by Merck

  • Dr. Bernd Reckmann and Dr. Arne Kusserow

There are several reasons to acquire companies like growth, investment, innovation, synergy, elimination of a competitor, and supporting an organizations' business strategy. In terms of strategy, the acquisition of Millipore by Merck is an example of a perfect strategic acquisition. Dr. Arne Kusserow, Editor-in-Chief of G.I.T. Laboratory Journal talked to Dr. Bernd Reckmann, Head of the newly formed Merck Millipore division and Member of the Executive Board of Merck.

Mr. Reckmann, Millipore almost perfectly complements Merck's existing portfolio. Were there any conditions imposed by the authorities to clear the transaction?

B. Reckmann: No, this is a perfect fit. The acquisition is very complementary. There are only very, very small areas where we have an overlap in products. We became one of the leading global players in the life science market. We now have a much broader global reach than Millipore alone had before. So I think Merck gained many very exciting, highly innovative products. On the other hand we offer more opportunities for the Millipore products now, especially in distributing them through the Merck global network to customers everywhere in the world. Millipore specializes in growing markets, the whole business is driven by innovation. Millipore represents a strong brand, and the products have high margins which represents a great fit with Merck. I haven't met anyone who doesn't agree that this is a very logical and smart deal. Fortunately, there was absolutely no restriction, no problem with the authorities either in the US or in Europe. That was exactly what we expected.

How has Millipore been integrated into the Merck organizational structure?

B. Reckmann: Millipore transforms Merck Chemicals in a way that we will end with having two high-growth innovative businesses. One is the Life Science tools business which we now assemble as the "Merck Millipore" division, and the other is the high-tech business "Performance Materials". This comprises liquid crystals, pigments, cosmetics and other material-driven businesses. Inside of the Merck Millipore division we will have three different business units, which includes Bioscience, Lab Solutions and Process Solutions.

Process Solutions are the products for production in the biotech and pharmaceutical industry, including the consumables of Millipore and the media as well as chemicals. Lab Solutions includes the broad range of Merck reagents, but also the combination of our assay products, microbiological products, the lab water business and Millipore's process monitoring tool products which gives us the opportunity to create a leadership in the business of biological contamination. Bioscience includes products for research in academia and all pharmaceutical and other labs doing modern science and technology. I believe we can really build up something completely unique in the industries, and this is very exciting for me.

What does the Millipore acquisition mean for Merck Serono?

B. Reckmann: Merck Serono is our pharmaceutical business. This is a completely different business. Of course Merck Serono will be a customer for Merck Millipore, but I think that is a minor issue. It did not influence our considerations when we decided whether we would like to go for Millipore or not. But there is some overlap in technology, so we have a common basis of biotechnology, maybe with a different focus. And if you look for future perspectives I think we are working to some extent on the same topics and challenges. For example the work on bio markers, cellular fingerprinting and diagnostics are comparable in a broader sense in both, Merck Millipore and Merck Serono.

What does the acquisition mean for Merck's presence in North America?

B. Reckmann: I think we now have reached critical mass in North America. We always had difficulties there. In the chemical business we always have been underrepresented. We, of course, still have the name issue which we face, but now with combined businesses Merck Millipore will do 35 percent of its sales in North America.

Does this acquisition reflects a general trend to merge biotechnology, pharmaceutical and chemical businesses?

B. Reckmann: I believe that these industries have the main drivers in common. If you want to develop new drugs, and that is ultimately what our customers do, then you simply need more than a single discipline. Everything has become more complex today and you have to interact with complex networks. Otherwise you fail. Both the pharmaceutical and the biotech industry will face tremendous challenges in the next few years. We all know the health care discussions happening everywhere in the world. We all have to reinvent our business and our research to become more efficient. We have to refine our manufacturing processes to prevent costs. There will be an enormous pressure for changes in industry. Merck Millipore is in a very attractive position to help our customers manage this transformation. What we are doing, is really combining the strength of both organizations, to understand exactly what our customers need so that we can help them by providing services and solutions to transform their business on a global basis while adding value on each level of the process chain.

What is your strategy to ensure a swift integration process?

B. Reckmann: Of course, there is an integration office and a steering committee but I think the keyword is "best-of-both". We applied this in the extremely successful integration of Serono, and we will apply this philosophy here as well. We are open to learning, and also to adopting processes and systems wherever the Millipore legacy works better and the other way around, where we think that the Merck approach is the better one to serve the future needs of the markets. The second key issue is speed in all the integration decisions, because this is a topic which creates a lot of uncertainty and a lot of anxiety within the organizations. You can only prevent this by being transparent and honest. The third key issue is retaining the key talent at the top level of the organization. We have kept all the top talents at level one and level two, and with this strong management team I am sure that we can continue to deliver great results.

When do you expect the integration to be completed?

B. Reckmann: The major integration effort will take until the end of this year. The harmonization of processes like IT will take one or two years longer. But in my opinion the integration is completed when the people working for Merck Millipore feel like Merck Millipore and when they say "we at Merck Millipore always did it this way". And this, in my experience, is something that takes at least three years.

Which operational or cost synergies do you anticipate?

B. Reckmann: We announced that we expect 75 million Euros in cost synergies. This again shows that this is a deal to put together complementary businesses instead of justifying the deal out of cost savings.

As we all know the life science business is highly appealing in terms of growth opportunities, but also demanding in terms of R&D expenditure. Can you give us a number or an idea how much money you want to spend on R&D for Merck Millipore?

B. Reckmann: Both organizations already have a very attractive R&D budget. Together it will be in the range of 120 million Euro, reflecting 6 - 7% of the sales, making our R&D budget the number three in the life science tools industry in absolute terms. This will give us the critical mass to transform the knowledge we have of our customers' needs into the solutions that really drives innovation.

Do you think that the concentration process in the life science tools sector will continue?

B. Reckmann:
The main issue is whether you see this as consolidation process, or, like we see it, whether it is simply the need to deliver new solutions to the markets. You can't do it all by yourself. We have various kinds of arrangements for example with start-ups, but we are always interested in acquiring new technologies. We have to feed our innovation pipeline and we can't do everything by ourselves. The consolidation of the industry at the top is more or less done. Merck Millipore for example is now a leading company in the life science tool business. I think we would face strong antitrust issues if we were to acquire another company like Millipore.

Will you adapt the PR strategy and the branding of Millipore to the three newly formed business divisions of Merck Millipore?

B. Reckmann: It is too early to completely answer your question. The Millipore brand is fresh and well established in the industry. What we want to reach is "best-of-both," so we will not give up these elements, because they are unique and they are highly recognized. If you go into a lab you immediately recognize any Millipore product. A big task of the integration is to develop the new combined branding. Our goal is to develop a vision for the new brand concept, but to preserve the loved and established brands for our customers. Additionally we have to fulfill all legal requirements concerning the use of the name Merck in North America and Canada. So it is a pretty complex thing, and it will probably take some time until we have the complete solution, but then we will have an exciting new common brand for Merck Millipore.

As you know, there is rapid adoption of single-use technologies by the bio/pharmaceutical industry. How is Merck Millipore posed to capture a share of this business?

B. Reckmann: Yes, absolutely and we have been very active in this area and are doubling our efforts to strengthen our presence in this area. We are working on some very innovative, next-generation single-use processing solutions that will significantly simplify adoption of these technologies. We know that our customers are moving towards larger scales and moving towards adopting these single-use technologies for critical product-contact applications. Our development efforts are clearly focused in this direction. Furthermore, combining the strengths of Merck and Millipore will enable us to bring to market higher-value products so that our customers can run their processes without having to worry about cross-contamination.


Merck KGaA
Frankfurter Str. 250
64293 Darmstadt

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