Post-Merger Integration

Merging Alliances:
Ignore at Your Own Risk
With U.S. companies pursuing alliances, joint ventures, and/or ance partners’ organizations. Diplomatic savvy and a willingness
partnerships in record numbers, most merger & acquisition to make and enforce tough decisions are essential, as the alli-
(M&A) transactions are bound to involve dozens if not hundreds ance integration leader may be called upon to mediate difficult
of strategic business-to-business relationships (which we’ll call negotiations or conflicts between alliance partners.
“alliances” for short). Yet few merging companies devote as
much time and effort to integrating alliances as they do to com- Whoever you choose, remember that he or she must also be
bining personnel, processes, technology, and physical facilities. given the authority, resources (both money and people), and
The potential price: damaged relationships, confused customers, time he or she will need to deal with the unique challenges
possible legal and regulatory complications, and an erosion of alliances pose. Simply finding out who has what alliances with
the marketplace leverage the alliances were meant to provide in whom, for example, can be tricky in an environment where one
the first place. or both merging companies might have lacked central alliance
coordination, relationship owners may have been terminated
The good news is that a little foresight and planning can go a during post-transaction restructuring, and most people are too
long way toward getting your newly merged entity’s alliances worried about the changes to the internal business to spare
under control. Here are six tips that can help you overcome much thought on alliances. If your alliance network is especially
some common alliance-related pitfalls in a post-transaction complex, you might consider deploying a dedicated team to help
integration. coordinate and staff the project.

1. Pick someone to lead the charge 2. Investigate legal and risk issues sooner
The single most helpful thing you can do for your new entity’s al- rather than later
liance portfolio is to designate, as early as possible, a senior-level
Pre-transaction due diligence rarely includes reading all the fine
executive to be responsible for alliance integration. The reason
print in both companies’ alliance agreements. Now that you’ve
is simple. Like every other part of the business, alliances must be
officially merged, your legal and risk management professionals
integrated with the new entity’s strategic direction in mind. A
will want to carefully examine each alliance agreement for any
senior executive can not only provide that guidance, but make
issues they might have missed before the transaction was closed.
and enforce the necessary decisions along the way. On a more
You’ll also need to evaluate your alliance contracts against the
pragmatic level, assigning a “point person” to alliances, even if
only on an interim basis, is an excellent way to safeguard against
their falling off the radar in the rush to Day One.
Getting organized
Who’s the right person for the job? If one or both legacy com- Who are all of your company’s alliance partners? What
panies had an alliance leader, you might simply select one of about the alliance partners of the company you’re integrat-
them to continue in that role. The choice is less clear, though, if ing with? If you don’t have a consolidated inventory of all
the legacy companies left alliance management largely up to the your alliances and their objectives, now would be the time
business units or even individual relationship owners. to create it. This is not always an easy task, and there will
Depending on the number and significance of your alliance likely be some debate as to whether a relationship is actual-
relationships, the person you select to lead alliance integration ly an alliance. Our advice: Cast the net wide, talk with many
should be both senior and respected in the merged organization. people in both legacy organizations, and circulate the list of
Additionally, he or she should be able to cross functional and alliances you’ve identified to everyone you have talked with
business boundaries within your company as well as at the alli- – they’re bound to suggest a few more.

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new entity’s legal and risk approach and, if necessary, renegoti- 4. Communicate early and often – even if
ate contracts with alliance partners you wish to keep.
there’s no new information
Because alliances tend to be more complex and more interde- The typical integration plan devotes an entire team to manag-
pendent than simple vendor-buyer relationships, expect to spend ing communications with employees, analysts, investors, and
correspondingly more time and effort on sorting out alliance- customers – every stakeholder group except, almost always, the
related legal and risk issues. Alliance agreements often test the company’s alliance partners. Yet your alliance partners are just as
boundaries of what organizations are willing to explore, and hungry for information as any analyst, customer, or employee,
if the integration process isn’t properly handled, a merger or and they’re likely to be just as important to your new entity’s
acquisition may strain an already delicately balanced relationship success. In most cases, your alliance partners did not ask to be
to the breaking point. part of a merger integration process, and it’s only natural for
What’s more, because each alliance is unique, each must be ex- them to have concerns and questions about the possible impact
amined individually for contractual nuances that may affect your on their own businesses.
current relationship and future plans. Be especially alert for any Getting the right message to your alliance partners takes both
changes that may be needed to what each company is willing to strong central coordination to facilitate message consistency and
put at risk, as well as the criteria for defining and measuring per- a certain amount of flexibility in how the messages are delivered
formance. Intellectual property issues are also often a significant to individual partners. If your company, like most, has an “up-
area of concern. And don’t forget to discuss what will happen front” communications policy with regard to the integration, you
to the alliance in the event of another merger, acquisition, or might begin with an initial message expressing management’s
divestiture. Laying the ground rules now will make things much commitment to alliances in general (if this is true), while ac-
easier for both of you the next time around. knowledging that the restructuring will have an as-yet-unknown
impact on a number of alliance relationships. It’s important to
3. Tie alliance rationalization to product keep each alliance partner informed as to its status with the
new entity even if – in fact, especially if – that means sending
and service rationalization repeated “no new news” bulletins. The longer it takes to decide
The primary purpose of most alliances is to help develop, an alliance’s ultimate fate, the more important it is to keep the
promote, and/or sell a company’s products and services. A very communications flowing, if only to reassure your alliance partner
effective way to rationalize alliances after a merger, therefore, is that it hasn’t been forgotten.
to map them to the combined entity’s new product and service
mix and decide how the alliance portfolio needs to change to Individual relationship owners play a vital role in the communica-
support it. tion process. They’re the first people your alliance partners will
turn to for answers, and they’re the ones usually best placed to
In practice, surprisingly few merging companies succeed in con- tailor the delivery, if not the content, of your messages to each
necting product/service rationalization and alliance rationaliza- partner. Assuming they’re doing a good job, it can be helpful to
tion. Some may need to streamline their alliances before they preserve legacy relationship owners to give your alliance partners
have time to finalize the new product and service mix; others a sense of continuity. If you transfer or terminate a relation-
may simply overlook the need to link the two processes. To the ship owner, be sure to give the alliance partner plenty of notice
extent they rationalize alliances at all, many companies base as well as an immediate replacement contact. In all cases, it’s
their decisions on factors more appropriate to routine alliance important to educate the relationship owners as to the messages
“housekeeping” (whether one alliance duplicates another, the you want to convey and arm them with the information to an-
cost and returns of maintaining a particular relationship, and so swer your partners’ questions. The point is not to micromanage
on) than to the broader question of supporting the new entity’s the communication process itself, but to give your relationship
marketplace strategy. owners the tools and knowledge they need to deliver a consis-
tent message.
Housekeeping, of course, is fundamental to any well-run alliance
portfolio. But when you’re making major changes to your prod-
uct and service mix, it’s far better to tie any alliance adjustments 5. Renegotiate performance metrics and
to the changes in the goods and services they support than to
rationalize alliances in isolation. Examining alliances alongside
alliance partner compensation
your new product and service roadmap allows you to readily Most alliance agreements include performance-monitoring provi-
identify and eliminate duplicative and no-longer-needed alli- sions that specify how each party will measure the alliance’s ben-
ances. More importantly, it can give you an important time-to- efits and, if necessary, redistribute the gains. As the new entity’s
market advantage by uncovering areas where alliances can fill in alliance strategy takes shape, some of the arrangements carried
“white spaces” in your product and service mix. over from the legacy companies may no longer be appropriate.

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Your alliance partners, too, may decide that the changes to your Corporate-level alliance leaders should have at least three impor-
organizational structure call for adjustments in the way the alli- tant responsibilities. The first is to periodically review the com-
ance is monitored and compensation awarded. pany’s entire alliance portfolio to assess its value and strategic
alignment, weed out rogue alliances and otherwise unproductive
The first step is to establish a clear alliance strategy for the relationships, and perform other basic housekeeping duties. The
merged organization and set goals against which to judge each second is to proactively identify opportunities to add, modify,
alliance’s performance. If you’re lucky, one or both of the legacy end, or redirect alliance relationships to better support the
companies will have a well-defined alliance strategy to use as company’s objectives. And the third – least visible but perhaps
a starting point. If not, you can start by asking yourself exactly most important – is to create an infrastructure that helps every-
what you want to accomplish through alliances, how you’ll one at your company treat alliances in a way that’s consistent
know if you are succeeding, and how much alliance-related risk with your overall alliance strategy. Among other things, this can
your company is willing to tolerate. The answers will point you involve establishing formal policies around why, when, and with
toward an organization-wide alliance strategy that can inform whom alliances can be formed; assigning dedicated relation-
performance measurement and compensation practices for each ship managers to your most important alliances; and publicizing
relationship. existing alliances and their purposes among your employees to
Even with an overarching alliance strategy, expect your alliance- prevent duplication and encourage alliance utilization.
related metrics and compensation procedures to vary much To sum up: your strategic alliances are, well, strategic – and it
more widely than the metrics and compensation schemes within pays to treat them that way. A post-transaction integration can
your company’s four walls. Alliances with different strategic be a fine opportunity to not only streamline the alliance portfo-
purposes will require different metrics and procedures, and lio, but also install the leadership and management processes
each alliance relationship will have a slightly different way of to keep your alliance activities on track, today and for the long
achieving the desired result. So don’t worry if you can’t develop term.
a single set of metrics to regulate an inherently heterogeneous
group, as long as you can be confident that every alliance has Douglas Tuttle
the right measures and procedures to monitor and reward its Principal
particular contribution. Deloitte Consulting LLP

Contacts
6. Don’t quit while you’re ahead
Alan Alpert
Once you finish integrating your alliances – having rational-
Partner, Deloitte Tax LLP
ized your relationships, resolved any outstanding legal and risk
212-436-3469
issues, updated contracts, and aligned the entire portfolio with
[email protected]
your merged company’s strategy – it’s time to think about how
you’re going to keep your alliances network synchronized with Punit Renjen
the business’ evolving goals. Fortunately, the work you’ve done Principal, Deloitte Consulting LLP
to integrate your alliances gives you a solid foundation on which 206-716-6285
to build an ongoing alliance management program. You may [email protected]
choose, for instance, to formalize top-level alliance account-
ability by appointing a “chief alliance officer” or equivalent. Key Douglas Tuttle
contributors to the alliance integration process could also be Principal, Deloitte Consulting LLP
given permanent alliance oversight responsibilities. 617-437-2212
[email protected]

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