What kind of resources are needed to create value?
Hard resources could tilt the decision toward M&A, especially if that’s the only way to gain access. These include patents and intellectual property, facilities and equipment, and investment in research and development. But soft resources – employees and leaders, technology, and intangibles such as brands – may be better accessed through a partnership, which could leverage their capabilities collaboratively.
How engaged in the resources will your company be?
If accessing and using the resources will involve much or all of your company, it may be better to acquire. Examples include a certain business process or operational technology. But a particular product or service set or geographic market may not create much overlap in capabilities, making an alliance a better option.
How relevant are the resources to your core business?
Desired capabilities that are highly relevant to the core business could significantly improve a company’s market position or create a unique advantage, and may be best secured through M&A. Other capabilities may have a more moderate impact; they might be important to remain competitive, but they don’t fundamentally change company strategy or offerings. One example is expanding product/service distribution, which could be accomplished through a partnership.
How redundant are the resources?
If there’s a high amount of redundancy, such as a big overlap in product set or geography, an acquisition is likely to be the right move. A JV could be harder to negotiate, and there’s the risk that a partner could be left with stranded costs. A partnership is more palatable if there’s only some similarities between the parties’ resources, as well as stark differences in how and where those resources are deployed.
What are the competitive dynamics between parties?
The balance of strength in the capabilities of each party can shape the buy vs. partner decision. A company could pursue a target’s stronger capabilities through an immediate acquisition or a staged acquisition – an alliance with the option to buy later. If the companies have equally strong capabilities, a partnership can work if it has a clear strategic rationale, includes set boundaries and ensures the capabilities complement – not cannibalize – each other. An alliance also can head off potential culture clashes, especially in cross-sector deals. A fiercely independent startup may not want to risk being swamped by the bureaucracy of an established industry leader.