Acquisition or Alliance for My External Growth Operation?

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Do you want to grow quickly and are thinking of carrying out an external growth operation?

If an acquisition is the first strategy that comes to mind, don’t neglect alliances! Less expensive and less rigid than a purchase, they have many advantages.

Buy yes, but not at any price!

An external growth operation by M&A advisory, once it is successful, offers your company the assurance of rapidly developing its turnover.

It saves you, in theory, from “composing” with partners: as a buyer, you become the sole master on board!

However, a few “details” are likely to dampen your enthusiasm. Acquiring a business requires a massive investment; which means increasing your debt, or opening the door to new investors. While the prospects for growth are attractive, the difficulties of failure can threaten the very survival of your business.

The alliance, the good compromise

If these obstacles put you off, you still have the possibility of engaging in a logic of partnership or joint project with one or more other companies.

Such an alliance can take different forms and objectives.

In a co-integration alliance, you share your resources with your competitors and pool certain complementary elements of your respective value chains. This is what cooperative wineries or Economic Interest Groups (EIGs) do, solutions that are increasingly used, particularly in the construction sector.

 If you want to create a joint offer with your allies, you will instead register as part of an additive alliance. For example, in the nautical sector, a mast manufacturer can join forces with a sailmaker and a hull designer to create a new range of boats.

 To streamline your organization or acquire new skills, you can simply create a complementary alliance with a competitor (joint ventures, joint ventures, etc. ). This is what two manufacturers of innovative materials in the field of thermal and acoustic insulation have decided. Positioned on two different markets, one for supermarkets and the other for craftsmen, they have, thanks to their alliance, gained power in their lean strategy and reorganized their commercial network.

Multi-benefit marriages

Whatever the form of the alliance, it will make you stronger against large groups operating in the same market as you.

For example, an alliance formed in the form of a GIE can give you the critical size and credibility necessary to position yourself on large markets, and even public tenders.

Another advantage, your organization remains flexible and you limit fixed costs inducted by heavy investments. If you pool your purchases with your allies, playing on the volume effect with your suppliers, even your operating costs can be reduced! By sharing your technological know-how with your partners, you also develop your capacity for innovation. An alliance also preserves your legal independence and remains reversible, limiting the impact of its possible failure…

The key factors of a happy union

However, for the alliance to be successful, all its members will have to play a fair game. It is important that you are in phase with your allies, that you have a strategy and common values, shared and formalized in a letter of intent and/or in a letter of confidentiality.

Your specifications must be precise, in particular on the operating rules of the alliance, its conditions of implementation, the scope of activity concerned, the geographical area selected, the objectives targeted, and above all, the sharing of power within the new group.

To keep its promises, an alliance must therefore be carefully considered and patiently implemented.

And nothing prevents a happy alliance from resulting in the merger of several entities into one. This was the case for the EADS consortium which gradually transformed into an integrated group under the name of Airbus.

But this may just as well be the case for three independent m&a advisory firms who, having created a common website to offer a wider range of services, finally decide to move from the informal alliance (or EIG) to the company. When the alliance is successful, it may indeed become necessary to consolidate its achievements, based on a more stable legal structure and more effective governance.

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