PricewaterhouseCoopers Research Findings: CFOs Embrace Strategic Alliances as Major Growth Tool and Alternative to Higher-Risk M&A

Business Wire, May 7, 2004

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NEW YORK--(BUSINESS WIRE)--May 7, 2004

Revenue growth, cost containment and risk sharing are key drivers

More companies than ever before are relying on alliances with other companies to meet their strategic business goals--at times even using them instead of higher-risk mergers and acquisitions--according to a new survey by PricewaterhouseCoopers' Transaction Services group.

The survey of senior finance executives found that:

-- The alliance trend is powerful. Nearly two-thirds of

respondents are more willing to strike alliances now than they

were three years ago. Enthusiasm is growing even in sectors

like major pharmaceuticals and technology, which have long

understood the strategic value of alliances.

-- Many CFOs choose alliances over M&A or internal growth to

achieve their strategies. 25 percent of respondents expect

alliances to be much more important than M&A in three years,

and 16 percent believe that they are already are.

-- Growth is the primary reason for forging alliances among

executives more willing to use them today. 80 percent 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 primary reason for doing so, compared with 56 percent

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," said Donna Coallier, a partner in the Transaction Services group. "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 percent when they look three years out."

However, while the understanding and use of alliances has clearly grown, executing a successful alliance is 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 50 percent succeed. When asked why alliances fail, CFOs point to financial performance, change in strategy, management/governance issues, clash of cultures and their partners' finances as key factors.

Coallier noted that companies can mitigate 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 that CFOs believe they should become more involved in alliance formation and are looking for:

-- Early involvement. More than two-thirds of respondents want to

play a greater role in assessing major alliance proposals

rather than simply monitoring their performance.

-- Thorough diligence. Compared with a merger or acquisition, 61

percent said they put the same or more time into evaluating

company alliances and 54 percent put the same or more time

into appraising a contractual arrangement.

-- Streamlined structures. 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--which 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--is the latest research on changing corporate attitudes towards strategic alliances. The survey defines an alliance as any partnership between two or more companies. M&A transactions, traditional vendor/client relationships and outsourcing arrangements are excluded. The survey was carried out by CFO Research Services, the sponsored research arm of CFO Magazine.

The Transaction Services group of PricewaterhouseCoopers (www.pwc.com/ustransactionservices) offers a deal process that helps clients bid smarter, close faster, and realize profits sooner on mergers, acquisitions, alliances, divestitures, and financing transactions. Dedicated deal teams operate from 15 US cities and some 90 locations in North America, Latin America, Europe and Asia.

PricewaterhouseCoopers (www.pwc.com) provides industry-focused assurance, tax and advisory services for public and private clients. More than 120,000 people in 139 countries connect their thinking, experience and solutions to build public trust and enhance value for clients and their stakeholders.