Building Relational Value before the Acquisition
Acquisitions can be very valuable but can also present unmitigated risks if not managed as strategic alliances. The differences between a strategic alliance and an acquisition are those of investment and timing. When acquiring a company, a buyer invests in the acquisition at the beginning of the relationship. In a strategic alliance, investment is made in incremental work and goals so that decisions can be made on specific value to be created and on the joint thinking of the partners as to what will be successful for both parties. When a buyer chooses to develop the strategic alliance relationship prior to the acquisition, then an acquisition can be just as effective and profitable for both parties as if they worked together as strategic alliance partners.
With this knowledge, a highly competitive business owner decided to bid to purchase a competing, but also complementary, company. During the due diligence period, the buyer directed his research staff to form relationships, department by department, to determine the real components of value of each department. The teams were then asked to combine the components of value to propose a new structure that would maximize the value of the two companies when combined. This new value would also help with pricing the purchase. All seemed to be going well. Employees of both firms were becoming friends. They were building trust and were able to make some joint decisions based on the context that they were building by knowing the other companies’ strengths and weaknesses. They were planning how they would work together effectively for the benefit of the combined companies. The buyer had made a strategic alliance out of an acquisition. The seller was very comfortable with the approach, the price as it was based in new value creation, and on the knowledge that his former employees would be treated as assets to the new company. All agreed that the deal was well done!