04/19/23 Dave Garten – Business Strategy 2
Dave Garten – Background Highlights
Current Faculty, PSU/OEMBA – Strategy, M&A, Negotiation, Biz Projects Consulting: management, strategy, alliances, M&A Board(s): Organically Grown Company, SeQuential, Bridlemile
Soccer, Forest Park Conservancy
CEO, SeQuential Biofuels, Inc.Intel – 15 year career General Manager Director of Business Development. >200+ alliances Marketing and product management
Engineer early-on – designed fuel injectionEducation: MBA M.I.T 1987; BS/MS Engineering
04/19/23 Dave Garten PSU MGMT 510 3
Syllabus Course Topics
Alliance Structures• Acquisitions• Divestitures• Spin-outs• Vertical alliances• Licensing• Joint ventures• Outsourcing• Equity
Focus Topics• Valuation• Antitrust• Negotiation• Due diligence• Ecosystems
Alliance Phases• Planning• Deal making• Execution• Integration
04/19/23 Dave Garten PSU MGMT 510 4
Strategy Gaps
Internal Analysis
External Analysis
Strategy
“Basis of Competition”
“What we have”
Mission
MakeBuy Ally
?R & D
Gap Planning“What we need”
SupplyMftg
SalesMktg
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Alliance PhasesPlanning
Deal-Making
Execution
Adjust
Unwind/separate
• Strategy• Screening• Analysis
• Negotiation• Deal Structure• Due diligence
• Perform• Manage
• Assess• Expand• Exit
Integration
Launch
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Alliance Growth Drivers Growth of Alliance Use – need to engage others
Driven by the gap in what a company would like to achieve vs. what it can achieve
X
Pace of change in technology Globalization of markets Product complexity increasing.
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Data: Alliance Types
Proportions of Alliances by Industry
Com
peti
tive R
ivalr
y
50%
25%
75%
100%
0%
Non-competitors
Computers & CommunicationHealth Care
Financial
Competitors
Energy Airlines
Other Auto
Consumer
Source: Booze, Allen, Hamilton analysis of 2000 alliances 1995-6
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Data: Global Reach a Significant Factor
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Data: Success & FailureLots of studies -> indicators at best…Success: ~30% acquisitions; ~ 50% alliances
Tend to be more successful Acquisitions in core businesses, existing geographies Alliances for related businesses, new geographies Alliances between strong companies Acquisitions between large and small companies
[45%] Alliances that evolve beyond initial objectives [79%] JVs with even split of ownership [60%] LBO & corporate buyers [~80%]
Source: various including Bleeke and Ernst, McKinsey
04/19/23 Dave Garten PSU MGMT 510 10
M&A Success & FailureTop 5 reasons for M&A Failure
Top 3 Ways to Beat the Odds…
X
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Alliance Success & Failure
Source: Vantage Partners
“an alliance is like a foreign body that has been grafted onto separate organizations. To keep it alive you have to guard against rejection by each one” – Jordan D. Lewis, Trusted Partners
X
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Industry Structure
Horizontal
ForwardIntegration
UnrelatedDiversification
Ver
tica
l
Backward Integration
Related
• Supply chain• Manufacturing• Natural resources
• Customers• Distribution
• Consolidation• New product, same customer• Same product, new customer
• Conglomerate
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Industry Structure
InnovatorsEarly
AdoptersEarly
MajorityLate
Majority Laggards
Mature
DecliningGrowth
Emerging• Features
• Quality & reliability
• Price
Growth strategies Consolidation
• service
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Structure Types
Ownership
Com
mit
ment
Purchase Order
MultiyearPurchase
Agreement
OutsourcingPurchase
AgreementAcquisition
JointVenture
JointDevelopment
Licensing
JointMarketing
“Strategic”“Transactional”
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Structure Propensities
Source: adapted from When to Ally and When to Acquire
Types of synergies
Nature of Resourcesvalue of “soft” to “hard”
Degree of Uncertainty
Degree of Competitionfor resources
AllianceAcquisition
HigherLower
LowerHigher
HigherLower
“Modular”Airline & hotel
“Sequential”Biotech-pharma
“Reciprocal”Mobile-Exxon
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Value Drivers (Synergies)Underlying purpose of strategic actions Links strategic intent to day-to-day operations
Ultimately->Effect on earnings & cash flowExamples Increase revenue (growth)
Sell a solution, add new products or customers, increase market share, more sales force coverage
Reduce costs (consolidation) Lower unit costs (economies of scale), lower capital
costs or taxes, consolidate facilities, reduce redundancies
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Value Drivers (Synergies)
Time Frame
Pro
bab
ility
of
Su
ccess
FunctionsDuplicate
dShort Long
Hig
hLow
Operating activities shared
Facilities shared
Existing products
through new channels
New products
through new channels
New products through existing channels
Increasin
g risk
Derived from: When to Walk Away from a Deal