Andrew Greta's Business Development Blog
Business development tips, advice, and observations including mergers & acquisitions, joint ventures, divestitures, and strategic partnerships. © Andrew Greta 2008
Thursday, July 10, 2008
Entry Paths - The Buy, Build, Partner Decision
Once corporate strategy identifies a new industry or market with attractive fundamentals for the business, M&A jocks often mount up the I-Banker safari wagon, lock & load the elephant gun, and roll off into the Serengeti in a cloud of dust to bag the next big acquisition. While M&A is often the cornerstone of a good business development function, outright acquisitions aren’t always the best path into new markets.
Building (through a new product development process or Greenfield business startup) should always be considered as an option even if discarded or reserved as a fallback position to any eventual 3rd party negotiation – even if it doesn’t result in a commemorative Lucite paperweight for the trophy case. In addition, skillful partnership creation is becoming increasingly more important in our rapidly globalizing economy as certain jurisdictions place limitations on foreign ownership and investment. Narrow-minded deal junkies with only a hammer in their corporate development toolkits run the risk of seeing every opportunity as a nail instead of taking a more nuanced approach to targeting value.
Listed below is a menu of entry options along with typical pros and cons to consider before blasting off on the next game hunt.
Entry Path | Pros | Cons |
Build | + Viable in absence of acquisition candidates (e.g. new markets, products) + Retain 100% of upside | - Large investment and long lead-time to market |
Acquire | + Quickest option if candidates are available + Viable if lacking go-it-alone entry skills | - Financials must work even in competitive bidding process - Integration and synergy risks |
Joint Venture | + Viable when pure-play acquisition candidates not available or financials don’t work + Allows specific targeting of key partner resource(s) + Shared risk | - 50/50’s difficult to manage - “Pre-nup” must be worked out in detail upfront - Potential Tax considerations - Shared upside |
Minority Equity Stake | + Works if acquisition price too high or full buyout otherwise prohibited + May provide future access to company ownership or other assets | - Limited control - Risk of value dilution to majority shareholders |
License | + Viable if full acquisition not required to enter business or M&A otherwise unattractive | - May not be exclusive - Could be held hostage on renewals |
Joint Development | + Benefits of JV without full business tie-up | - Jointly developed IP can be subject to later dispute |
A well-rounded business development function has skills in each area and can fit the right tool to the job. And while BD bread-and-butter is executing acquisitions and JVs, we’ll consider each entry path in greater detail on future posts.
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Entry Paths - The Buy, Build, Partner Decision
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