Strategic alliances and joint ventures: Collaboration - when two come together as one

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What is a collaboration arrangement?

Alliances come in many forms – although they often come together through a legal entity that is jointly operated, they also may be created through a series of contracts. Collaboration arrangements broadly refer to the latter where two parties partner together for a specific goal through a contract or a series of contracts. 

These arrangements involve two (or more) parties that meet both of the following requirements: 

  1. They are active participants in the activity 
  2. They are exposed to significant risks and rewards dependent on the commercial success of the activity

 

Collaboration creates flexibility

Collaborations through a series of contracts creates certain flexibilities. Flexibility can have significant benefits, however, challenges can also arise as a result of these arrangements. 

Benefits from flexibility

  • Less structure – no Board of Directors or legal entity needed 
  • Faster time to market due to ability to quickly capitalize on each party’s strengths 
  • May allow for more dynamic sharing of risks and rewards 
  • More nimble and agile allowing for adaptation to changes quicker 
  • Easier to break up collaboration arrangement than a traditional acquisition or JV 
  • Reduced operational and reporting complexity – no separate financial statements or tax reporting needed 

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Challenges from flexibility

  • Monitoring and oversight may require more vigilance since people and assets are generally not physically moved 
  • Compensation structuring 
  • Increased reputational risk due to lack of control/oversight of other partner 
  • Increased risk over IP and data-security breaches given limited structure 
  • Lack of clarity on dispute resolution can quickly impede progress 
  • Value creation may be less apparent – it will often be less clear if collaboration is accretive to income or EBITDA

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Gregory McGahan

Gregory McGahan

Financial Services Deals Leader, PwC US

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