This is how Merck became a successful group

Company boss Belén Garijo used the company’s most recent capital market day at the beginning of October to reaffirm the ambitious medium-term goals. Even in the currently difficult environment, group sales should increase to at least 25 billion euros by the middle of the decade. “I am convinced that we will continue to drive our efficient growth, both organically and inorganically,” assured Garijo.

Behind the success of the Darmstadt group is an unusual combination of consistency and versatility. “The essential principles on which our company is based have survived every change,” says Frank Stangenberg-Haverkamp, ​​Chairman of the Merck Family Council and Head of E. Merck KG, through which the founding family controls around 70 percent of the capital.

“Merck develops research-intensive special products, attaches particular importance to quality and is a value-based company. Courage, performance, responsibility, respect, integrity and transparency – these values ​​determine our daily actions,” he emphasizes. But around these values, the company has sometimes drastically changed.

Merck is changing from a pharmacy to an industrial company

Company founder Jacob Friedrich Merck could hardly have foreseen the future rise when he acquired a pharmacy in Darmstadt in 1668. For more than a century and a half, the family exclusively ran the pharmacist trade before Emanuel Merck gradually began to put the business on an industrial basis in the 1920s.

As a scientifically trained pharmacist, he earned a reputation for publications on the synthesis of morphine and the production of plant alkaloids as starting materials for medicines. Building on this, he established a new business model with the production of high-purity medicinal substances for other pharmacists.

The pharmacy thus transformed into a research-based industrial company that is increasingly internationalizing its business. In the middle of the 19th century, Merck was temporarily the largest German pharmaceutical manufacturer.

Merck had to overcome its first crises during the time of the German Empire, when paint manufacturers such as Hoechst and Bayer grew into strong competitors. During the First World War, the group lost large parts of its foreign business. Sales fell by almost half by 1915. Towards the end of the war, the group also lost the flourishing US subsidiary Merck & Co, which was first nationalized by the US government and then sold to US investors.

Only with a larger loan from Deutsche Bank was Merck able to overcome the weak phase. On the occasion of the company’s 350th anniversary, Stangenberg-Haverkamp draws on a guiding principle of Winston Churchill when he describes the company’s crisis philosophy: “Success is not final, failure is not fatal, what counts is the courage to keep going.”

Supported the Nazi regime in armaments production

This courage was also needed when the company collapsed after the Second World War. Around 70 percent of the Darmstadt plant was destroyed in 1944 by bombing raids. Like many other companies, Merck also had to face the accusation of having supported the Nazi regime in armaments production too compliantly. The family came to terms with the regime surprisingly quickly, writes historian Joachim Scholtysek in the company chronicle.

Numerous family members joined the NSDAP in 1933, including the then senior boss Karl Merck, who later gave the ardent Nazi and Hitler admirer Bernhard Pfotenhauer a leading role in the company management against the resistance of other family representatives.

Until the early 1960s, the company struggled with liquidity problems, which slowed down the expansion of production. But the group was able to overcome these difficulties as well. Between 1970 and 2000, under the leadership of long-standing company boss Hans Joachim Langmann, sales increased almost twenty-fold to 6.7 billion euros.

One of the important success factors was that the company’s own researchers were given a great deal of freedom. This paid off particularly in the development of liquid crystals. For a long time, the group management had little enthusiasm for this field of research, but let it continue. Two decades later, with its liquid crystals, Merck created a business area that for a long time shone with a world market share of more than 50 percent and similarly high operating margins.

The flexibility of the traditional group and the willingness of the family to make radical changes proved to be the second success factor. In the early 1990s, Merck took an important step to secure the ailing pharmaceutical business with the purchase of the French pharmaceutical company Lipha and its successful diabetes drug Metformin.

Merck IPO brings money for acquisitions

In order to finance this acquisition and further expansion steps, the family decided to go public in 1995. The issue of 40 million shares of the newly formed Merck KGaA brought the equivalent of a good one billion euros into the coffers.

A good decade later, Merck is attempting to take over Schering AG in Berlin. In the end, Merck has to admit defeat to its competitor Bayer in this project.

Even after this defeat, the family business proves its flexibility: Shortly thereafter, it seals the takeover of the Swiss pharmaceutical and biotech company Serono – and thus the expansion of the pharmaceutical business in a different direction. While the Schering takeover was still aimed at entering the contraceptive business, with Serono Merck became a leading supplier of fertility drugs and also a strong player in the area of ​​multiple sclerosis.

Further acquisitions worth billions followed every three to four years: the takeover of the US company Millipore and later the acquisition of Sigma-Aldrich for a total of more than 18 billion euros made Merck a leading supplier of laboratory chemicals and materials for biotech research and production. The Life Science division, in which these divisions are bundled, is now the Group’s most important growth driver and, as an upstream supplier to many vaccine manufacturers, benefited massively from the corona pandemic.

All in all, the group has moved well over 40 billion euros in M&A transactions over the past two decades and has exchanged more than two-thirds of its business portfolio in the process. Among other things, the generics business and the traditional business with over-the-counter medicines and vitamin products were sold.

Unlike at Bayer, for example, the large acquisitions at Merck proved to be almost always successful. The Darmstadt group has thus shifted its business to innovation-driven and at the same time profitable and growth-stronger segments. “Merck can thus rely on a particularly resilient business model and will continue to focus on sustainable growth in the future,” promises CEO Belén Garijo. “Reliable cash flow will allow us to continue to make bold moves.”

But the company boss also admits that you can never rest on your laurels for long. “It is not enough to look back on 354 years of history. Resilience must be constantly re-secured.”

More: The secret of resilience: What can be learned from the oldest companies in Germany.