{"id":1302,"date":"2024-05-22T08:05:07","date_gmt":"2024-05-22T06:05:07","guid":{"rendered":"https:\/\/blog.iese.edu\/family-business\/?p=1302"},"modified":"2024-07-08T12:55:30","modified_gmt":"2024-07-08T10:55:30","slug":"strategic-alliances-in-family-firms-7-financial-recommendations","status":"publish","type":"post","link":"https:\/\/blog.iese.edu\/family-business\/2024\/strategic-alliances-in-family-firms-7-financial-recommendations\/","title":{"rendered":"Strategic alliances in family firms: 7 financial recommendations"},"content":{"rendered":"<p>The <strong>Family Business Reflection Forum<\/strong> co-organized by IESE&#8217;s Chair of Family-Owned Business and the Instituto de Empresa Familiar continues to give us plenty to talk about.<\/p>\n<p>In the <a href=\"https:\/\/blog.iese.edu\/family-business\/2024\/growth-strategies-how-alliances-can-boost-the-performance-of-family-owned-firms\/\" target=\"_blank\" rel=\"noopener\">first of this three-part series<\/a>, Prof. <strong>Marta Elvira<\/strong> highlighted the core benefits of strategic alliances as engines for growth, which Prof. <strong>\u00c1frica Ari\u00f1o<\/strong> brought to life in the <a href=\"https:\/\/blog.iese.edu\/family-business\/2024\/design-management-and-dynamics-of-successful-strategic-alliances\/\" target=\"_blank\" rel=\"noopener\">second article <\/a>by sharing some real-world success stories.<\/p>\n<p>In the last of this series, we\u2019ll shine the spotlight on another key issue when considering a strategic alliance: the <strong>financial aspect<\/strong>.<\/p>\n<h2><span style=\"color: #ff0000\"><strong>The FRICTO framework<\/strong><\/span><\/h2>\n<p>During the event, I had the pleasure of moderating a session with three expert panelists: <strong>Jaime Hern\u00e1ndez Soto<\/strong>, founding partner of MCH Private Equity, <strong>Jorge Lucaya<\/strong>, founding partner of AZ Capital, and <strong>Hugo Serra<\/strong>, CEO of GCO (Grupo Catalana Occidente).<\/p>\n<p>Preparing the panel discussion brought back memories of my time as a <strong>professor of finance <\/strong>and advising MBA students on what to keep in mind when modifying a<strong> company\u2019s capital structure<\/strong>. In these cases, we always used the acronym FRICTO as a guide:<\/p>\n<h2><span style=\"color: #ff0000\"><strong>F<\/strong><\/span>lexibility<br \/>\n<span style=\"color: #ff0000\"><strong>R<\/strong><\/span>isk<br \/>\n<span style=\"color: #ff0000\"><strong>I<\/strong><\/span>ncome<br \/>\n<span style=\"color: #ff0000\"><strong>C<\/strong><\/span>ontrol<br \/>\n<span style=\"color: #ff0000\">T<\/span>empo<br \/>\n<span style=\"color: #ff0000\"><strong>O<\/strong><\/span>pportunity<\/h2>\n<h2><span style=\"color: #ff0000\"><strong><br \/>\nSeven insights from three distinguished panelists<\/strong><\/span><\/h2>\n<p>Event attendees were mainly owners of family-controlled firms, so the <strong>discussion was more strategic in tone than financial<\/strong>. Even so, I&#8217;ve taken the liberty of using the FRICTO framework to underline the panelists&#8217; recommendations.<\/p>\n<p><span style=\"color: #ff0000\"><strong><br \/>\nFLEXIBILITY<\/strong><\/span><\/p>\n<p><strong>1 \u2013<\/strong> <strong>Identify your target companies<\/strong> <strong>and be patient<\/strong>. When the time is right, start talking. This dialogue may plant the seeds for a solid partnership, which doesn\u2019t need be limited to the exchange of shares.<\/p>\n<p><strong>2 \u2013 Never forget the option of disinvesting<\/strong>. Not every partnership will be a success. If things aren\u2019t working out, the sooner we course-correct, the better.<\/p>\n<p><span style=\"color: #ff0000\"><strong>RISK<\/strong><\/span><\/p>\n<p><strong>3 \u2013 Strategic direction<\/strong>. Family businesses aspire to leave a positive legacy, so the most critical consideration in this type of acquisition is its impact on long-term strategy. To this end, acquisitions must satisfactorily address the following questions:<\/p>\n<ul>\n<li>Does the acquired company add value?<\/li>\n<li>How does it add value?<\/li>\n<li>Will there be a good fit between both entities?<\/li>\n<\/ul>\n<p>If the answer to any of these questions is unclear, better think twice.<\/p>\n<p><strong><span style=\"color: #ff0000\">INCOME<\/span><\/strong><\/p>\n<p><strong>4 \u2013 Fit over financing<\/strong>. When it comes to the balance sheet, assets\u2013not liabilities\u2013are what matter. In economic booms of high liquidity, companies should resist the urge to acquire just because they\u2019ll get easy financing.<\/p>\n<p><strong><span style=\"color: #ff0000\">TEMPO<\/span><\/strong><\/p>\n<p><strong>5 \u2013 Properly time the transaction.<\/strong> For acquiring firms, the prospect of quickly building up industry presence is exciting, yet can lead to disastrous consequences if lacking a strategic foundation.<br \/>\n<strong><br \/>\n<span style=\"color: #ff0000\">CONTROL<\/span><\/strong><\/p>\n<p><strong>6 \u2013 Mergers present more challenges than acquisitions.<\/strong> Establishing the exchange equation isn\u2019t easy for several hard-to-manage issues, including the difficulties inherent in defining shared future project, merging two corporate cultures, determining the management team, and balancing different corporate governance bodies.<\/p>\n<p>While there are examples of successful mergers, these are always more challenging to achieve than effective acquisitions.<\/p>\n<p><span style=\"color: #ff0000\"><strong>OPPORTUNITY<\/strong><\/span><\/p>\n<p><strong>7 &#8211; Pay attention to price<\/strong>. Paying more than the acquired company is really worth will have consequences in the medium or long term. Don\u2019t get carried away and keep a cool head!<\/p>\n<p>Numerous other insights emerged from the panel discussion but I\u2019ve centered on these <strong>s<\/strong>even FRICTO-inspired recommendations for the sake of space. I hope they have given you some food for thought!<\/p>\n<p><em>Homepage image: <\/em><a href=\"https:\/\/www.pexels.com\/photo\/business-meeting-4342498\/\" target=\"_blank\" rel=\"noopener\"><em>Edmond Dant\u00e8s \u00b7 Pexels\u00a0<\/em><\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Family Business Reflection Forum co-organized by IESE&#8217;s Chair of Family-Owned Business and the Instituto de Empresa Familiar continues to give us plenty to talk about. In the first of this three-part series, Prof. Marta Elvira highlighted the core benefits of strategic alliances as engines for growth, which Prof. \u00c1frica Ari\u00f1o brought to life in [&hellip;]<\/p>\n","protected":false},"author":194,"featured_media":1318,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[352,981],"tags":[119683,804,119682],"class_list":["post-1302","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business","category-leadership","tag-financial-strategy","tag-growth","tag-strategic-alliances","megacategoria-mc-family-business"],"acf":[],"aioseo_notices":[],"_links":{"self":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1302","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/users\/194"}],"replies":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/comments?post=1302"}],"version-history":[{"count":17,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1302\/revisions"}],"predecessor-version":[{"id":1304,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/posts\/1302\/revisions\/1304"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/media\/1318"}],"wp:attachment":[{"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/media?parent=1302"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/categories?post=1302"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/blog.iese.edu\/family-business\/wp-json\/wp\/v2\/tags?post=1302"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}