This document discusses factors to consider when deciding between strategic alliances and acquisitions. It presents a framework with 5 sets of factors: 1) type of synergies, 2) nature of resources, 3) extent of redundant resources, 4) degree of market uncertainty, and 5) forces of competition. Alliances are generally less risky than acquisitions. Alliances are preferable when there are mostly soft resources, sequential synergies, high uncertainty, or many competitive forces. Acquisitions are better when there are mostly hard resources, modular synergies, or large redundant resources. Companies should avoid acquisitions when uncertainty is high.

1. When to Ally
When to Acquire
By Jeffrey H. Dyer, Prashant Kale, and Harbir Singh, presented by
Scott Moreno

2. What is M&A?
 Mergers & Acquisitions
 An aspect of corporate strategy that involves the
buying, selling, dividing, and combining of
companies and organizations.
 -For growth
 Options to consider:
 Nonequity Alliances
 Equity Alliances
 Acquisitions

3. Problems
 Most M&A FAIL
 Lose shareholder value
 Financial burdens
 Blinding Initial Experiences
 Separate units for Acquisitions and Alliances
Acquiring company Target company

4. Reasons
 Most companies or executives don’t compare the two
strategies.
 Acquire?
 Competitive
 Market Priced
 Risky
 Ally?
 Cooperative
 Negotiated
 Less Risky
**Knowing when to use which strategy may give a better competitive
advantage over knowing how to execute them.**

5. Strategic Framework to Decide
 Five sets of Factors:
1. Synergies
2. Resources
3. Redundant Resources
4. Market Uncertainty
5. Competition

6. Types of Synergies
 Modular – Manage resources independently and
pool results for greater profits.
 Sequential – One company completes its task, and
passes the results to the other company.
 Sequentially Interdependent
 Reciprocal – Working close together & executing
tasks through an iterative knowledge-sharing
process.

7. Nature of Resources
 Based on relative value of soft to hard
resources:
 Hard Resources (i.e. Manufacturing plants)
 Soft Resources (i.e. People)
 Creating synergy with mostly hard resources
 Acquisitions (Hard assets = easy to value)
 Creating synergy with mostly soft resources
 Avoid Acquisitions (Employees become unproductive)

8. Extent of Redundant Resources
 Large amount of redundant resources:
 Acquisition or Merger
 Even if assets are hard or soft
 Sequential Synergy using soft assets:
 Equity Alliance
 Modular or Sequential Synergy using hard assets:
 Contractual Alliance
 a.k.a. Nonequity alliance

9. Degree of Market Uncertainty
 Executives know collaborations are RISKY!
 Risk exists when companies can assess future
payoffs, and uncertainty exists when they can’t.
 Fast-changing world is uncertain.
 Two components of uncertainty:
1. Associated with the product being discussed.
 Can we tell if it will work?
 Is it superior to our competitors?
2. Will consumers use the product?
 How much time will it take to gain acceptance?

10. Forces of Competition
 Many companies engage in M&A
 Companies should check for rivals for
potential partners before making a deal.
 If there are many, Acquisitions are better.
 Beat out rivals

11. Keep in Mind
 Companies should avoid acquisitions when
uncertainty is high.
 Alliances can be made
 They limit a firm’s exposure (invested less money and
time)
 Can pick up a majority stake at a future date
 Can withdraw from the alliance

12. Questions??