How does a partner’s acquisition affect the value of a firm’s alliance with that partner? While both alliances and acquisitions provide access to external resources, companies typically ignore their interdependencies and tend to manage them separately. Think about examples such as Microsoft’s acquisition of Linkedin, which had a negative impact on its alliance with Salesforce, or the Adobe’s acquisition of Marketo, which instead helped its alliance with Microsoft.
In our research [LINK: https://doi.org/10.1002/smj.3389], we looked at the value of an alliance with a partner that acquires another target, and considered how the similarity between the firm’s and target’s businesses, as well as the complementarity of the businesses, affects this value. Our first prediction is that when a partner acquires a target that has a similar business to that of the firm, this will have a negative impact on the firm’s alliance with that partner because of the increased competitive tension between the parties. We also expect the partner to be more committed to the acquisition target and less willing to invest in the relationship with the firm. Therefore, we anticipate a negative impact on the value of the alliance from the firm’s perspective.
On the other hand, if the partner acquires a target whose business is complementary to that of the firm, we expect to see more synergies coming out of this acquisition. In this case, the relationship between the firm and the partner can serve as a channel for leveraging additional resources, because the partner has an incentive to merge the businesses of the firm and the target. Thus, the greater the complementarity between the firm’s and the acquired target’s businesses, the more value we can expect to see following the acquisition for the firm’s alliance with that partner.
Finally, we consider how the relational embeddedness between the firm and the partner – i.e., the extent to which they have built interpersonal relationships through a series of alliances in the past – may affect the value that is created following the acquisition. Our hypothesis is that an embedded relationship will mitigate the negative impact of business similarity between the firm and the partner’s acquisition target and enhance the value of complementarity between the firm’s and the target’s businesses.
Our sample includes 361 public firms that formed 590 alliances with 91 US-based, public software partners, which in turn acquired 164 public target firms between 2000 and 2016. We used an event study methodology to examine the firm’s stock market return during the announcement of the partner’s acquisition.
The results showed that business similarity between the firm and the partner’s target does reduce the firm’s alliance value after the acquisition, as expected. On the other hand, we also observed the positive effect of business complementarity on the firm’s alliance value. However, contrary to our prediction, relational embeddedness between the firm and the partner seems to increase the loss attributed to business similarity, while reducing the benefits of business complementarity.
So our study reveals that a partner’s acquisition can either enhance or undermine the value of the alliance to the firm, depending on the degree of business similarity and complementarity between the firm and the partner’s target. It also provides interesting insight into the role of relational embeddedness. Embedded relationships imply a close and trusting relation: one would not expect a trusted partner to acquire a target that directly competes with the firm. Moreover, in an embedded relationship, firms tend to share sensitive knowledge with its partners, which may threaten their competitive position. That’s one reason why relational embeddedness increases the loss ascribed to business similarity.
Curiously, the benefits of business complementarity are also limited when the firm and the partner have an embedded relationship. One explanation for this is routine rigidity. In an embedded relationship, the firm and the partner tend to develop relation-specific routines that can become rigid over time, making it difficult to take advantage of new opportunities. In general, this study makes important progress in understanding the implications of the interplay between alliances and acquisitions as well as partners’ initiatives beyond the scope of the alliances.
Our research shows that the corporate initiatives of companies with which you are associated, such as your alliance partner, do matter for the value of your company. These initiatives can in fact destroy value in your company. They can also be the source of new opportunities for synergy with the alliance partner and the alliance partner’s acquisition target. However, in order to create these synergies, you may want to explore the routines you developed with your partner, because these routines may need to be changed and adapted to the new situation.
While most research has pointed to the positive effects of relational embeddedness in alliances in terms of increased knowledge transfer and efficiency, our study shows a darker side. If your partner acquires another target and you have an embedded relationship with your partner, those relation-specific routines may be inflexible and unable to accommodate the new opportunities that arise together with a new partner in this triad constellation. So an important contribution of our study is to really think about these relation-specific routines and how they can be changed and adapted to take advantage of these new opportunities.