While there may be plenty of opportunities to buy businesses right now, there are plenty of reasons why it's not necessarily a good idea. The stress and strain of acquiring a company could lead you to take your eye off the ball and neglect your own business. Then there are the legal fees, TUPE regulations and negotiating a price. It's a minefield.
There is, however, another way. Some organisations have found that you can expand your business interests by entering into a joint venture or strategic alliance. Provided there is a mutual interest, partnerships can help strengthen your business and give you new ideas on how to move forward. But, like an acquisition, there are plenty of potential pitfalls and for a partnership to succeed it requires hard work and a certain degree of openness.
"A strategic alliance is a collaboration of mutual interest and a joining of entrepreneurial ideas, where both participants have an equal say and work together for mutual benefit with or without share equity," explains Paul Holohan, chief executive at Richmond Partners. "Joint ventures are a more formal type of alliance, which result in the creation of a new business with shared equity. The ownership, risks and rewards are formally allocated and it is often run and staffed by a separate management team."
The best of enemies
A good example of this is Duplo. At its recent equipment showcase event in London, fellow finishing manufacturers Renz and Kern were in attendance. The theory is that by forming alliances with other players in the sector, Duplo is able to show customers a more complete offer.
"Partnerships are a very important part of our strategy," explains Duplo UK managing director Tony Lock. "By working with our partners it works out better for our customers."
Such alliances between manufacturers are commonplace, even between companies that appear to be direct competitors. Kodak and Ricoh have a deal where the latter sells the NexPress and DigiMaster digital presses in the EU.
However, in the commercial print world, such link-ups are less commonplace. But there are some players that have woken up to the idea that two heads are better than one. Rival greetings card printers, Sherwood Press and Loxleys Print, formed a £15m strategic alliance last year, to pool buying power for materials and cross-selling services. Nottingham-based Sherwood has been driving a radical purchasing strategy and Loxleys, based in Sheffield, has similarly benefited.
Print giant Polestar has also been busy striking-up partnerships. The group formed a strategic alliance with Tokyo-based print group Vanfu in November last year. "The rationale is simple - it extends our reach," explains Tim Smith, managing director at Polestar Applied Solutions. "It is, in effect, a business marriage. It's about openness and trust."
Polestar offers skills and technology to aid the development of Vanfu's print management business Synergy Communications. It means that the company has a foot in the Japanese market. US communication media management company Enterprise Communication Media (ECM) is the latest company to form a partnership with the UK group and, according to Smith, Polestar isn't stopping there. It is weighing up setting up strategic alliances with UK companies. Smith believes that the climate is right for these tie-ups and they are preferable to an acquisition.
But there are a few hurdles that you need to clear in order to make such a tie-up work. The first is to find your partner. Smith says that this requires plenty of hard work. "A lot of research and networking is needed," he explains. "Being the size that we are, Polestar does have a certain level of attractiveness. We do get approached by companies, but it's important you don't deal with a partner you don't know - don't go into this cold and you need to have a vetting process."
A meeting of minds
Richmond's Holohan points out that partnerships work where the two companies are like-minded and their cultures complement each other. If you pick the wrong partner then problems will arise. "Conflict of cultures is a recipe for disaster so it's important to get to know your opposite numbers - their values and strengths," he advices. "People make businesses work so make sure that the people you are getting together can work with your people."
The difference in cultures loomed large during negotiations between Polestar and Japanese firm Vanfu. As Smith, who has been involved in business transactions in locations including India, recalls: "Throughout the negotiations with Vanfu I had an English interpreter with me. He was from the UK and when the directors of Vanfu found out he had lived in Japan for 15 years there was far more openness - it was something they could relate to. The tone of the meeting changed and it strengthened the relationship."
Getting to know your partners on a social level can be very useful as it helps to cement the relationship. But for the joint venture or strategic alliance to get a flying start the business objectives need to be spot on - a clear understanding on what both parties want to achieve is paramount. Both companies also need to understand the expectations of the partnership and its timescale.
"Mutual benefit is vital," adds Holohan. "Both partners must gain something. This may mean giving something up and this should be recognised from the outset."
It's also important to have a tight legal contract that doesn't shy away from contentious issues. If everything is agreed, and both sides are happy, then the alliance is good to go and the partners should be ready to enjoy the numerous upsides that such a move brings, according to Holohan.
Business benefits
"The key advantage of a joint venture or strategic alliance is that the initial capital outlay is limited as both companies are already operating and will bring their own skills together to fulfil specific roles in the alliance," he says. "This gives operating economies and a wider audience, usually addressing newly identified niche markets and opportunities for specialisation."
Such arrangements also give both parties the chance to develop products, skills and a potential customer base. It's important to remember that these can be developed independently once the alliance has proved to be successful and concluded. It's also worth noting that there's usually a sunset clause as both parties are expected to go their own ways.
"You need to share as much as possible," adds Smith. "The relationship can be as open as you want it to be. My strategy has been to be very open and it builds up more of a level of trust."
He adds that for a company looking to make an acquisition, a strategic alliance could help potential customers to understand the company they are buying and to see if it's likely to be a good fit - almost like a trial before you buy.
But be warned: things don't always go to plan. There are plenty of examples where strategic alliances or joint ventures have crashed and burned and resulted in a messy divorce. One famous case took place in the early 1990s when IBM and Apple set up a joint venture called Taligent. From the outset there seemed to be plenty of synergies between the two companies but there was a rather large fly in the ointment - both were pitted against each other in the courts over patent and technology infringements. The partnership couldn't withstand the lawsuits, as well as other factors in the market, and eventually they went their separate ways.
As this example shows, the bigger the organisation, the more complicated a tie-up can become. It's why Polestar's Smith prefers to target smaller firms. "We look at finding privately owned businesses," he explains. "I would be more reluctant to do a deal with a division of a corporation. They have influences outside their due restriction. With a private business, it's sometimes the case of getting to know the owner and one handshake does the deal."
Despite stories of arrangements falling flat, it's understandable to see why printers might be tempted to enter into a joint venture or strategic alliance. With the industry consolidating fast, firms that link up and pool resources may just be the ones who survive. But while working together can be a good thing it's worth taking care that you're partner is on the same wavelength.
TOP TIPS: STRATEGIC ALLIANCES AND JOINT VENTURES
? Make sure there is plenty of trust in the relationship. Don’t do business unless this is evident
? To make it work, ensure that you and your potential partner have mutual goals. The objectives need to be clearly identified right from the start
? Finding the right partner requires hard work and plenty of networking. Once you’ve found a like-minded company, it’s worth getting to know the directors socially – friends take longer to fall out.
? Plenty of management time is needed to make the partnership work. Make sure you’ve factored this in
? Business cultures can differ significantly between companies. It’s worth exploring whether or not you share the same business ethos
? Have a tight legal contract and don’t put off contentious issues until later. Also, establish the contributions each party will make including funding and know-how
? Strong and weak partnerships don’t work. Don’t allow one side to be more dominant than the other, known as a ‘bootstrap alliance’
? Remember that there is usually a sunset clause in the agreement, as partners are eventually expected to go their own way
