Strategic alliances and joint ventures (JVs) hold a unique place in the deal universe. Unlike an acquisition that adds a business or a divestiture that eliminates one, an alliance or joint venture allows two or more companies to pursue a shared goal while continuing to operate the other parts of their businesses independently.
Similar to mergers and acquisitions, alliances and JVs can be integral to a company’s growth strategy. In considering an alliance, the board should know the broader deal landscape, including market trends and recent actions by competitors. Directors also should have a clear view of their company’s overall growth strategy and be able to ask management, “Why are we doing this, and can we achieve more success in a different way?”
Alliances and JVs complement M&A, and both are important options for companies that may be struggling to achieve their growth goals organically. By pooling their resources to provide improved or new products or services in the marketplace, companies can unlock new paths to growth. And an alliance or JV may be a preferred choice for certain situations, such as when a company faces regulatory restrictions, is dealing with market uncertainty, or wants access to specific distribution channels or intellectual property.
Alliances and JVs typically require substantial cooperation, as well as an understanding that the relationship will likely change as it progresses. The board of directors should be part of the process and understand the key elements of significant alliances and JVs. Because alliances and JVs usually have an impact on the partner companies’ financial performance, appropriate communication and consultation throughout the process will improve the odds of success.
The most common reasons for alliances and JVs include sharing costs, gaining access to technology or gaining entry to a new region or new industry. For an alliance to move a company forward, the benefits should be apparent at the outset.