What type of control do you need?
There are different types of control, including strategic control, operational control and financial control. Some might be more important than others, and the requirements of each can help inform the deal. For instance, if control over a specific process, such as R&D or production, is necessary but control over distribution isn’t, a more limited-fit JV or similar collaboration may be appropriate. The type of control is just as relevant as the amount.
Can resources be accessed and maximum value achieved without equity?
When the desired assets are too expensive or stray too far from the main business strategy, a company may place less importance on having full control through an acquisition. Owning something also often requires reinvestment to maintain its value – particularly in technology. If the target isn’t a core capability, a partnership can provide access while preserving capital for another, more efficient use.
How much time are you willing to invest – for a specific deal and others?
Investing at a lower level and partnering instead of owning doesn’t necessarily mean less work, but rather a different kind of work. For instance, JVs can be harder to manage than M&A because they’re usually active longer than an acquisition and integration. If a company doesn’t have JV management capability, it may be better off pursuing M&A. Another option is building a JV/alliance management function with an eye toward multiple partnerships that could leverage that new function.
How certain are the capabilities and markets?
Deals in which a potential acquirer or partner has more certainty about the target and its market often gravitate toward M&A. Stability in a target’s business model or the way its products are sold and consumed can give a company more confidence to take ownership. When there’s a higher level of uncertainty, such as with emerging technologies or services more susceptible to disruption, a company may value full control less than a looser relationship through an alliance.
Can people and systems be aligned while keeping parties independent?
The control gained through M&A can be a mixed bag if talent isn’t retained. Acquisitions sometimes involve delicate negotiations to prevent “brain drain” – the departure of key employees who are worried about the new company’s future. JVs can help with talent retention because one company isn’t swallowing another; the partners are moving teams and processes to a new, independent entity – one in which each partner usually has a financial interest that could pay off long-term.
Is the control choice out of your hands?
Sometimes the deal decision and structure may be decided by particular situations or conditions. A partnership could be the only way some industries do business in some countries, such as China. Or in certain sectors, a stronger investment – either a JV or M&A – may be necessary as a defensive tool to prevent a competitor from gaining access to desired resources. With the latter, the control aspect isn’t just about the assets in the deal but about control of a market or industry.