04/19/23 1

Strategic Alliances & Acquisitions PSU MGMT 510

Dave Gartendaveoutside@alum.mit.edu

Week # 1

04/19/23 Dave Garten – Business Strategy 2

Dave Garten – Background Highlights

Current Faculty, PSU/OEMBA – Strategy, M&A, Negotiation, Biz Projects Consulting: management, strategy, alliances, M&A Board(s): Organically Grown Company, SeQuential, Bridlemile

Soccer, Forest Park Conservancy

CEO, SeQuential Biofuels, Inc.Intel – 15 year career General Manager Director of Business Development. >200+ alliances Marketing and product management

Engineer early-on – designed fuel injectionEducation: MBA M.I.T 1987; BS/MS Engineering

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Syllabus Course Topics

Alliance Structures• Acquisitions• Divestitures• Spin-outs• Vertical alliances• Licensing• Joint ventures• Outsourcing• Equity

Focus Topics• Valuation• Antitrust• Negotiation• Due diligence• Ecosystems

Alliance Phases• Planning• Deal making• Execution• Integration

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Strategy Gaps

Internal Analysis

External Analysis

Strategy

“Basis of Competition”

“What we have”

Mission

MakeBuy Ally

?R & D

Gap Planning“What we need”

SupplyMftg

SalesMktg

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Alliance PhasesPlanning

Deal-Making

Execution

Adjust

Unwind/separate

• Strategy• Screening• Analysis

• Negotiation• Deal Structure• Due diligence

• Perform• Manage

• Assess• Expand• Exit

Integration

Launch

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Alliance Growth Drivers Growth of Alliance Use – need to engage others

Driven by the gap in what a company would like to achieve vs. what it can achieve

X

Pace of change in technology Globalization of markets Product complexity increasing.

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Data: Alliance Types

Proportions of Alliances by Industry

Com

peti

tive R

ivalr

y

50%

25%

75%

100%

0%

Non-competitors

Computers & CommunicationHealth Care

Financial

Competitors

Energy Airlines

Other Auto

Consumer

Source: Booze, Allen, Hamilton analysis of 2000 alliances 1995-6

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Data: Global Reach a Significant Factor

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Data: Success & FailureLots of studies -> indicators at best…Success: ~30% acquisitions; ~ 50% alliances

Tend to be more successful Acquisitions in core businesses, existing geographies Alliances for related businesses, new geographies Alliances between strong companies Acquisitions between large and small companies

[45%] Alliances that evolve beyond initial objectives [79%] JVs with even split of ownership [60%] LBO & corporate buyers [~80%]

Source: various including Bleeke and Ernst, McKinsey

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M&A Success & FailureTop 5 reasons for M&A Failure

Top 3 Ways to Beat the Odds…

X

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Alliance Success & Failure

Source: Vantage Partners

“an alliance is like a foreign body that has been grafted onto separate organizations. To keep it alive you have to guard against rejection by each one” – Jordan D. Lewis, Trusted Partners

X

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Industry Structure

Horizontal

ForwardIntegration

UnrelatedDiversification

Ver

tica

l

Backward Integration

Related

• Supply chain• Manufacturing• Natural resources

• Customers• Distribution

• Consolidation• New product, same customer• Same product, new customer

• Conglomerate

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Industry Structure

InnovatorsEarly

AdoptersEarly

MajorityLate

Majority Laggards

Mature

DecliningGrowth

Emerging• Features

• Quality & reliability

• Price

Growth strategies Consolidation

• service

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Structure Types

Ownership

Com

mit

ment

Purchase Order

MultiyearPurchase

Agreement

OutsourcingPurchase

AgreementAcquisition

JointVenture

JointDevelopment

Licensing

JointMarketing

“Strategic”“Transactional”

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Structure Propensities

Source: adapted from When to Ally and When to Acquire

Types of synergies

Nature of Resourcesvalue of “soft” to “hard”

Degree of Uncertainty

Degree of Competitionfor resources

AllianceAcquisition

HigherLower

LowerHigher

HigherLower

“Modular”Airline & hotel

“Sequential”Biotech-pharma

“Reciprocal”Mobile-Exxon

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Value Drivers (Synergies)Underlying purpose of strategic actions Links strategic intent to day-to-day operations

Ultimately->Effect on earnings & cash flowExamples Increase revenue (growth)

Sell a solution, add new products or customers, increase market share, more sales force coverage

Reduce costs (consolidation) Lower unit costs (economies of scale), lower capital

costs or taxes, consolidate facilities, reduce redundancies

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Value Drivers (Synergies)

Time Frame

Pro

bab

ility

of

Su

ccess

FunctionsDuplicate

dShort Long

Hig

hLow

Operating activities shared

Facilities shared

Existing products

through new channels

New products

through new channels

New products through existing channels

Increasin

g risk

Derived from: When to Walk Away from a Deal