Properly assessed, poorly integrated: Why 70 to 90 per cent of all laboratory deals fail to realise their synergies

The same principle applies in every accredited laboratory, regardless of whether it issues a test report, a certificate or a medical report: A result is only as reliable as the sample on which it is based, and as the path that sample has taken up to the point of measurement.

The biggest source of error is rarely the analytical instrument. It lies before that: in sampling, identification, complete documentation of the chain of custody, transport and preparation. A significant proportion of all laboratory errors arise during this unassuming phase, long before the first figure appears in the report. A flawless result based on a compromised sample is ultimately worthless.

This principle can be applied with remarkable precision to M&A in the laboratory market. The purchase agreement is the result, the impressive figure at the end of a complex process. However, whether this figure holds up is not decided during the valuation, but in everything that follows: in the operational and technological integration. This groundwork determines the resilience of the entire deal.

A market under pressure to consolidate

The testing and diagnostics laboratory sector is undergoing a phase of aggressive consolidation, with ‘buy-and-build’ driving the action. Between 2015 and 2025 alone, over 1,400 acquisitions of testing laboratories were completed worldwide. Regionally strong providers are being merged into laboratory groups, with the expectation of economies of scale in procurement, consolidated test portfolios, centralised logistics and combined sales strength.

When the synergies fail to materialise

The commercial valuation is usually carried out quickly and routinely. The promised synergies subsequently fail in the face of the reality of day-to-day laboratory operations. The figures are sobering: 70 to 90 per cent of all M&A transactions fall short of their original synergy targets. Even in the case of successful integrations, on average only 23 per cent of the planned synergies are actually realised. The deal is on paper. Whether it holds up is only decided afterwards. In practice, four specific hurdles are almost always to blame.

Divergent processes. Every laboratory has its own way of accepting, registering and reporting a sample result. When different SOPs clash, processes cannot be harmonised, and the expected synergies fail to materialise. Without standardised procedures, consolidation is simply not possible.

The IT black box. Acquired laboratories bring with them IT systems that have evolved over time and are highly customised. The result is a ‘LIMS zoo’ comprising different systems and proprietary interfaces. Data and samples can no longer be routed through the network in a standardised manner, and this is precisely what determines the strength of a laboratory group.

Regulatory risk. Migrating data to a centralised system entails significant validation risks. ISO 17025, ISO 15189 and GxP do not tolerate integration errors. A poorly implemented IT integration jeopardises accreditation in the event of a crisis – and thus the very basis of the business.

Lack of change management. Even the best system remains ineffective if the workforce does not get on board. Staff at the acquired laboratory resist new processes. Without professional change management, the integration fails due to a lack of acceptance on the ground.

A controlled process chain rather than chance

Just as a reliable result follows a controlled sample chain, a successful integration also follows a clear sequence. The key lies in not starting the M&A process only after the contract has been signed, but in viewing it as a continuous chain from due diligence through to the final system integration. Four phases form the foundation.

Phase 1: Due Diligence. This involves the pre-acquisition review, comparable to the validation carried out before a sample enters the workflow. Process analysis, assessment of the IT architecture, a robust LIMS audit and a scalability check identify technical red flags before they turn into costly surprises.

Phase 2: Day 1 Readiness. On the day of the acquisition, business continuity is paramount. Operations must continue without interruption for customers, suppliers and applications, including user access management and connectivity. ‘Keep the lights on’ is not just a cliché here, but a prerequisite.

Phase 3: Post-Merger Integration. This is where the real substance is created. Laboratory workflows are standardised, the LIMS is consolidated, the ERP is integrated and interfaces are built. Change management and synergy management work hand in hand to transform several individual laboratories into a single organisation.

Phase 4: Value Creation. In the final phase, integration is transformed into measurable added value. Automation, AI-supported analytics and a central data warehouse across the value chain make it possible to realise the promised synergies in the long term.

It all comes down to IT

If there’s one figure to take away from this article, it’s this: around 50 per cent of synergies depend directly on IT integration. Those who master it achieve ‘One Company’ operational status up to 30 per cent faster, and cloud-based LIMS consolidation reduces IT operating costs by 20 to 30 per cent. IT is not a side issue in laboratory M&A. It is the path from sample to result, which determines the reliability of the entire deal.

A properly valued transaction is valuable. A properly integrated one is truly valuable.

More information here.