Acquisitions vs Alliances: the Basics

In your effort to decide between acquisitions vs alliances there are several important considerations. While the benefits to your organization might greatly differ between the two, so goes for the cost of failure. To help you succeed, first defining the terms might prove extremely helpful to you in your decision process.

Acquisitions

Acquisitions and mergers are effectively the same thing. Most mergers are really one company acquiring the other. In this acquisition process, the acquiring company receives the good and bad, the positive and the negative resources, liabilities, and reputation. The acquiring organization receives all assets and liabilities of the acquired organization.

Alliances

Alliances, generally strategic to an organization’s short or long-term plans, are contractual relationships wherein both organizations remain independent while collaborating to develop a mutually-beneficial result within a specific scope outlined in the contractual agreement. A very simple example would be the cross promotion efforts that are regularly employed by Hollywood’s movie producers and various companies that sell their products or services directly to consumers.

Value in Acquisition

Value can come to an acquiring company through: intellectual capital, real estate, equipment, resources, market share and an extensive list of other considerations. However, the reverse is also possible (think Daimler-Benz & Chrysler). One of the insidious pitfalls of acquisitions is when the company being acquired successfully, and deceptively, hides liabilities from their suitor. Generally the strategy of acquiring organizations is to somewhat dismantle an acquired organization, keeping the targeted valuable components and assimilating them into the acquiring organization while disposing of the unwanted, underperforming, or potentially damaging elements. If the acquiring company has a bad reputation (think Cingular) as an example, and the company they acquired has a good one (think AT&T), then value is delivered.

Value in Alliances

Value can come from alliances in a myriad of ways: immediate market penetration, immediate distribution of a product or service, cost sharing, new product development and the list continues. The down side might be: loss of complete control, divulging of proprietary information, ownership conflict of mutually developed products or services, time and resource distraction, and underperforming partners—just to mention a few possible negative elements.

Alliance Benefit

The important alliance benefit in the area of determining acquisitions vs alliances is the ability that alliance first provides in looking before leaping. While there are countless stories of failed alliances, there are more of failed mergers and acquisitions. The price of a failed acquisition is almost always multiplied many times as compared to the price of a failed alliance. An alliance first, gives you the opportunity to “closely study your prey before the actual hunt is under way.”

My Advice

From my two decades of helping companies to develop mutually beneficial collaborative relationships, I would advise any organization or groups of organizations that are considering acquisition or merger to first develop a strategic alliance, or a few alliances, with one another to better understand the core strengths, weakness, capabilities, and cultures of all organizations involved. This process will assist in developing a working knowledge of the other, the process will help in identifying under which rocks company secrets are buried, and will expand the vision of possibilities. Remember, you deserve the partner you select; synergistic or antagonistic.