CFOs Moving More Toward Partnering

A survey of senior finance executives by PricewaterhouseCoopers (PwC)’ Transaction Services group found that nearly two-thirds of respondents were more willing to strike alliances now than they were three years ago. In fact, 25% of respondents expect alliances to outpace M&A in three years and 16% think they are already are. Enthusiasm is growing in sectors like major pharmaceuticals and technology, PwC said.

Business expansion is the primary reason for forging alliances among executives more willing to use them today. Some 80% of executives who have become more willing to use alliances in the last three years cite the need for new sources of growth as their motivator, compared with 56% who use alliances primarily to cut costs. Risk sharing, greater agility, new product development, and gaining access to new distribution channels and geographical areas were also cited.

“Companies are using alliances more and more because they can open the door to new business opportunities at less cost, and with greater speed and lower risks than traditional M&A or even internal growth initiatives,” Donna Coallier, a partner in the Transaction Services group,” said in a PwC news release. “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% when they look three years out.”

But the alliance is also not without difficulties. Over half of survey respondents either don’t know whether their alliances are meeting their performance goals, or admit that fewer than half succeed. When asked why alliances don’t work, CFOs point to financial performance, change in strategy, management/governance problems, culture clashes and their partners’ finances as key factors.

Coallier noted that companies can mitigate away many of these risks through careful planning and partner screening, thorough due diligence and structuring, and vigilant monitoring. Other hallmarks of successful alliances are clear performance goals, strong commitment of parent company senior management, and cultural compatibility.

The survey also found:

• More than two-thirds of respondents want to play a greater role in assessing major alliance proposals rather than simply monitoring their performance.
• Compared with a merger or acquisition, 61% said they put the same or more time into evaluating company alliances and 54% put the same or more time into appraising a contractual arrangement.
• 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.

The study reflects results from a mail survey of 201 senior finance executives, as well as in-depth interviews with CFOs and business development executives at twelve companies. It was carried out by CFO Research Services, the sponsored research arm of CFO Magazine.