New York (May 14, 2004) -- Companies are increasingly using alliances as an alternative to higher-risk mergers and acquisitions in an effort to meet their business goals, according to a survey by PricewaterhouseCoopers' Transaction Services Group.
The survey of senior finance executives found that nearly two-thirds of respondents are more willing to strike alliances now than they were three years ago. One-quarter expect alliances to be much more important than M&A in three years, and 16 percent believe that they are already are.
Among executives who've become more willing to use alliances in the last three years, 80 percent cited the need for new sources of growth as their primary reason for doing so, while 56 percent said that they use alliances primarily to cut costs. Other reasons cited included risk sharing, greater agility, new product development, and gaining access to new distribution channels and geographical areas, PwC reported.
The study is based on a survey of 201 senior finance executives and interviews with CFOs and business development executives at 12 companies. The survey defines an alliance as any partnership between two or more companies and excludes M&A transactions, traditional vendor/client relationships and outsourcing arrangements.
"This study confirms what we've been seeing with our own clients; half of the senior executives interviewed said alliances are vital to their business today, and that number grows to 65 percent when they look three years out," said Donna Coallier, a partner in PwC's Transaction Services Group.
Compared with a merger or acquisition, 61 percent of CFOs said that they put the same or more time into evaluating company alliances and 54 percent put the same or more time into appraising a contractual arrangement. According to the report, CFOs prefer contractual agreements over new company joint ventures by a 60-40 margin because they are easier to manage and offer more flexibility and control.
However, executing a successful alliance isn't without its challenges, according to the report. More than half of respondents either don't know whether their alliances are meeting their performance goals or admit that fewer than 50 percent succeed. When asked why alliances fail, CFOs point to financial performance, changes in strategy, management/governance issues, clash of cultures, and their partners' finances as key factors. Coallier said that companies can mitigate risk through careful planning, partner screening, due diligence and structuring, and vigilant monitoring. Other hallmarks of successful alliances are clear performance goals, the strong commitment of parent company senior management, and cultural compatibility.
-- WebCPA staff
