Acquisitions are more than assets – people and culture are key  

This blog post was originally published in Chemistry Today as a Panel Discussion on Mergers & Acquisitions here.

One of the most successful and significant acquisitions for the Evonik Health Care business was the purchase of Tippecanoe Laboratories from Eli Lilly in 2010. Before this acquisition, I was a young engineer working for Eli Lilly at the site. In this short panel discussion article, I will give a snapshot of what made this acquisition successful, why there was an extremely high retention rate of staff at the acquired company, and how this strategic step is benefiting Evonik nearly 15 years later.  

The goal of the acquisition was to transform Tippecanoe Laboratories from a captive pharmaceutical manufacturing site into a cornerstone location for Evonik’s contract manufacturing (CDMO) business. Captive pharmaceutical manufacturing is when a pharmaceutical company produces their own products in-house using their own equipment. The manufacturing site is, therefore, a cost-center for the company. Evonik wanted to strengthen its CDMO business to meet the demand for increasingly complex active pharmaceutical ingredients (APIs) and intermediates, and was seeking a large, multi-purpose facility, capable of providing support for highly specialized, challenging projects. Tippecanoe Laboratories fit the bill – but in order to succeed, it would need to transform from a cost center into a customer-focused, profit center.  

The strategic focus of Evonik's Tippecanoe acquisition was to establish production capacities for APIs, and specifically for highly potent APIs (HPAPIs), in the U.S. Acquiring an API site from a pharmaceutical company was very favorable at that time, because many companies had built up excess capacity that they no longer needed for their new products and were offering them for sale.  

From my perspective, Evonik did a lot of things right with this acquisition. First, Evonik made it clear that it wasn’t purchasing equipment – the whole Tippecanoe package was part of the deal. That meant the people, business processes, and the culture were integral to the acquisition. The entire employee base at Tippecanoe was offered the same positions they had at Eli Lilly with Evonik. Under Eli Lilly, the site had developed a culture focused on what was important to pharma and had already built up a long history of manufacturing high-quality products. The site also had a strong reputation with global regulatory agencies. Rather than immediately jumping into changing the site, Evonik spent time getting to know what already worked well, and only then started to integrate the site into the company’s wider business model.  

Evonik management also made sure that the people at Tippecanoe felt welcomed and appreciated. They visited the site often during the first years, and spoke openly regarding the business goals, plans for the site, and financial targets so that everyone understood their place in the company. Evonik understood that retaining people and knowledge was the key to success.   

The acquisition brought Evonik significant benefits in terms of assets, know-how and large API manufacturing. The Tippecanoe assets essentially tripled Evonik’s manufacturing capacity for APIs and complex intermediates, and the site is now one of the world’s largest facilities for HPAPI manufacturing. The site also has a notable number of flexible, differentiating capabilities, such as cryogenic reactions, transition metal catalysis and hydrogenations. The site also came with strong cGMP policies that were used to strengthen Evonik’s culture across the globe. Evonik was able to capitalize on some “quick wins,” such as converting an existing engineering facility into a flexible pilot plant for cGMP and high potent manufacturing. 

From a people perspective, the site came with an educated, experienced, and loyal workforce that took pride in making medicine. New opportunities opened up to the former Eli Lilly employees at Tippecanoe because they were now part of a large specialty chemicals company under a new business model. Job complexity and creativity increased significantly. For example, I started as a process engineer at Lilly. After the acquisition by Evonik, new positions were needed that weren’t required before, and over the course of 14 years I moved from engineering to new business analysis, to client project management, to supply chain and production planning, and I am now responsible for managing the accounts of some of our largest customers. It’s safe to say that my career opportunities widened because of the acquisition by Evonik.  

Evonik came in with a very transparent business model. In a captive manufacturing model, you are a cost center, so there is less emphasis on cost and manufacturing efficiency. By changing to a CDMO, we became a profit center, and we had to think more seriously about costs and efficiency. Becoming a service provider required a completely new mindset. Evonik purposefully brought in people with a customer service mindset to lead the business model change. It was necessary to have people with the business-for-business (B4B) mindset to help everyone understand where the business is going. I remember one manager giving explicit everyday examples to illustrate why customer experience is so important. We were encouraged to reflect on what made this experience so good. Through this approach, we learned that we needed to be strong communicators, that customers have certain expectations and the importance of anticipating these and communicating effectively – especially when things don’t go exactly to plan.  

No strategies are perfect. After the acquisition, everyone had expectations that we could start right away with late phase, large-volume projects. We learned quickly that it was more practical to start with smaller projects and build trustful relationships, before moving on to the larger projects. This ability to pivot was essential. The site was intentionally designed to go from clinical to commercial scale, so we started by bringing in earlier phase programs. We worked with an intentional focus on being successful with earlier phase (small volume) programs to grow with those customers through their commercial launch.  

When considering an acquisition, take your time to make sure the culture is a fit. Remember that you are not just acquiring equipment, you are buying a business that is operated by people who have existing values and follow existing procedures. There should be a match, or you will likely be left disappointed. I can’t emphasize enough: don’t assume you know more than the people who are already there. Make the new colleagues feel welcome, teach them how they fit to the new strategy. A good way to do this is start with some good news. Make it clear that there is a plan and communicate this transparently. Evonik did this well and in the first few years after the acquisition a majority of staff stayed on at the site.  

Learn more about Evonik’s Drug Substance business: https://healthcare.evonik.com/en/drugsubstance  

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