Types of Strategic Alliances and Risks Associated

Types of Strategic Alliances

• Non-equity alliances

  They do not imply participation in the capital of the strategic partner.

• Equity alliances

  There is participation of at least one company in the capital of the strategic partner. There may also be cross holdings. A specific type is corporate venture capital.

• Joint ventures

  The companies involved in the alliance form a new entity, of which they are all owners (in equal or different percentage).

Main Risks Associated with Strategic Alliances

• Opportunistic behaviors

  To acquire all the necessary resources/capabilities in a short time without providing all the promised resources/capabilities. They are more common when contracts fail to anticipate them and/or incorporate mechanisms that dissuade them.

• A company discovers that the partner has overestimated its ability to collaborate in the alliance

  It is more frequent when it has been promised to contribute with intangible resources and in alliances without equity. Example: license agreements between pharmaceutical companies and laboratories.

• A company fails to lend its resources/capabilities

  They are more frequent in alliances between companies from different countries.

• One company must make an investment that is specific to the formation of the alliance and the other company must not

  The risk assumed by each partner is different. Example: an alliance without equity between companies.

Why Do Firms Acquire Other Firms?

• Strategic anticipation

  It aims to reduce competitive intensity by acquiring potential (not current) competitors. In addition, it is about preventing direct rivals from buying these potential competitors and increasing their market power. Examples: acquisitions of Instagram (2012) and Whatsapp (2014) by Facebook; acquisition of Waze by Google.

Why Do Mergers and Acquisitions Destroy Value?

• The main reasons are:
  • Difficulties of integration between companies: problems to join different organizational cultures, to create good working relationships...
  • Inability to achieve the expected synergies. Example: Quarter Oaks acquisition of Snapple.
  • Taking on too much debt. It tends to be more present in hostile takeovers that end in a takeover bidding war.
  • Being too diversified or being too big. Management problems linked to the larger size of the portfolio of products or services offered or the larger size of the company.