29
Sat, Apr

Better together?

Paul Holohan, chief executive of printing industry merger and acquisition specialist Richmond Capital Partners, advises on how best to progress with strategic partnership formation.

1. A State of Mind

Whether it is a full-blown strategic alliance, joint venture, partnership (not in the legal sense) or some other form of collaborative agreement, one thing stands out as a pre-requisite for success or effectiveness - a state of mind.

What I mean here is that not only does your partner really need to care about your best interests, but you have to really care about theirs too. In my experience, some business people cannot master this state of mind. Perhaps this is because being “competitive” does not sit naturally in the minds of some when sitting alongside “collaboration”. Can these two positions be compatible? The answer is yes - but you have to buy into this state of mind.
Only then can the relationship be effective and create win/win results.

2. Fit for purpose?
For a strategic partnership to be effective it has to be a strategic fit for both parties. Many business people, in my experience, go head long into partnership arrangements without proper recognition of their strategic positions.

Ask yourself how the arrangements can fulfil a strategic need - for you and your partner.
If this answer is positive, then start the relationship by gently discussing how it would work.
Do not put off sensitive issues until later – and put pen to paper and draft a summary of how the partnership can work.

As the partnership is ‘strategic’ in nature you should be thinking two-to-five years on - by definition, anything else is short-term or tactical.

Always remember that you should plan to ‘divorce’ at a future date. This is not ruthless or mercenary, merely a recognition that it is not forever.

Interestingly, some strategic partnerships do end up in a merger, acquisition or joint venture (where equity is shared). This is why strategy is so important.

3. Chemistry test
Any relationship needs great chemistry to get started. With strategic partnerships it is important that you get on - particularly at CEO level. When big egos get in the way, or one seeks to dominate the other partner, relationships can become strained to say the least.

In order to be effective you really do need to get to know your opposite number well. Find out what makes them tick by meeting socially - always on neutral territory!  Do your homework and conduct due diligence. Remember, friends find it harder to fall out!

Need it be said, never, ever do business with someone you do not trust. Always follow your instincts here.

4. Benefits culture
In order for a strategic partnership to be effective, both sides need to receive a benefit - the sooner the better. This reinforces the relationship by confirmation that benefits are tangible.

Corporate and geographical cultures vary immensely so be clear on time horizons. If it takes time to deliver benefits it is important to ‘feed’ the relationship as interest can diminish.

When you achieve something good celebrate it together. This galvanises the relationship and reminds you both why you entered into it in the first place.

5. Ones to avoid
Interestingly, ‘big’ and ‘small’ can work well as long as the small partner is not dominated and has something strong on offer. But, ‘strong’ and ‘weak’ partnerships are different - they are generally difficult to manage as the strong partner spends much time dealing with weaknesses. These are known as ‘boot-strap’ partnerships. Avoid these.

Beware of a partners’ other relationships which could compromise, or even damage, your business interests. Ask for full disclosure and make sure that you uncover any issues early.

Avoid those with little or no top-level management commitment.

Reduce risk by being aware of Trojan horse ‘players’ who seek to download your knowledge to gain competitive advantage.

Cultural sensitivity, geographic and corporate, is a major reason for failure so recognise this issue and check out your partner thoroughly. Are you compatible? A good way to check this out is to work jointly on a smaller project first to gauge how you work together.

Finally, those with a win/lose mindset are to be avoided at all costs.

6. Experience counts
Creating a strategic partnership takes care and patience. All the empirical research suggests those with experience are more effective. But gaining experience can be just a question of getting started, like all things in life. Once you have experience you will be able to guide a new partner gently forward without dominating the relationship.

Every strategic partnership is a learning opportunity as no two are the same. Recognise this and be flexible.

Once you have made strategic partnerships work for you, you will have a hidden competitive weapon that many cannot master.

7. Doing due diligence
In the world of mergers and acquisitions no sensible person would conclude a deal without comprehensive due diligence.This would typically cover finance, tax, legal issues and commercial due diligence.Though not the same, strategic partnerships should be concluded with similar rigour.
Create a due diligence checklist (an advisor can help here) and complete it before reaching a formal agreement. Do not get lawyers involved too early as they can poison the relationship before it has even started. In my experience, it is best to hand both lawyers a copy of a simple, easy to understand agreement and ask them to create a formal draft agreement – with no tricks!

8. Wealth creation
In some cases, a strategic partnership can lead to merger and acquisition activity - after all, working closely together is an excellent way of conducting due diligence and reduces risk.
Almost all partnership agreements have a ‘sunset clause’ which details the terms of terminating the agreement. Some even have clauses which give an option to acquire where ‘upside’ is shared. Other options are to exit together if the ‘proposition’ is enhanced for strategic purchasers.

Either way an effective strategic partnership can be a route to wealth creation and shareholder value.