Testing the Business Case for Mergers & Acquisitions with a Partnership

Last week I was reviewing Harvard Business Review articles for an upcoming award event, and one of them contained a surprising insight on success rates behind Mergers, and Acquisitions.

The papers I read was called Strategy in the Age of Superabundant Capital by Michael Mankins et al. (Harvard Business Review March-April edition). In this article the authors state that:

“Companies that expand via frequent, smaller deals over many years generate between 8.2% and 9.3% total annual shareholder returns. […as opposed to 4.4% annual total shareholder returns for “big bet” deals…]. And the more deals you do, the better you get at finding and closing the best ones.”

Screen Shot 2018-01-22 at 14.12.26
Exhibit from the Mankins et al. article

This statistic made me think:

If M&A deals with a smaller scope, and higher frequency already deliver a higher capital return, then what could de-risking an M&A deal by testing them out in a partnership experiment actually deliver?

Partnerships are quicker to set up than M&A deals, because they don’t require the formalisation of a new organisational entity, and they are less costly to execute because there’s no financial transaction involved between the partners.

On top of that the Business Model Canvas, and the Partnership Canvas combined, can increase the speed of execution, because the visual tooling creates alignment between partners more quickly, and clearly, and also accelerates iteration speed, and overall agility of the partnership experiments.

Can a partnership experiment thus be a good way to test the thesis behind M&A deals by making it easier to find out how they will play out, and lowering the risk associated with failure of the thesis? What are your thoughts here?

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