From 1870 to 1911, John D. Rockefeller built what was arguably the single most impressive business organization in history: Standard Oil. Mr. Rockefeller’s business strategy was to vertically integrate every aspect of the oil business (exploration, development, logistics, marketing) to assure an ongoing competitive advantage. His vehicles were not just mergers and acquisitions, though there were plenty of both along the way. Rather, they were interlocking series of trusts, partnerships and alliances designed for flexibility and control.
Why Traditional M&A Is Becoming Less Important
From 1870 to 1911, John D. Rockefeller built what was arguably the single most impressive business organization in history: the Standard Oil Company. Mr. Rockefeller’s business strategy was to vertically integrate every aspect of the oil business—exploration, development, logistics, and marketing—to assure an ongoing competitive advantage. His vehicle was not just mergers and acquisitions, though there were plenty of both along the way. Rather, it was an interlocking series of trusts, partnerships, and alliances designed for flexibility and control. No one’s expecting or advocating a return to Standard Oil’s monopolistic behavior. But some elements of what Rockefeller created may be coming back into vogue. M&A of the future will consist of a potpourri of joint ventures, minority investments, alliances, and incubator-type investments. This form of dealmaking will take a variety of forms. Google (along with its parent, Alphabet) is known for importing talent through acquisition, and Google is a very prolific acquirer. Best-in-class players like Intel, through technology partnerships, and Tyson, through new-product incubators, have developed the tools to incorporate many different flavors of deal making. Discovery, the South African insurer, has formed strategic alliances with leading insurers around the world to license its Vitality platform—a quick, low-cost way to gain access to new markets. Discovery also gets access to all the data from these users, allowing it to improve Vitality. Or consider the online companies Alibaba and Tencent in China. Both participate in e-commerce through a variety of mechanisms, including partnership (Tencent and JD.com), acquisition (Alibaba and Ele.me), and partial equity ownership (Tencent and grocery store Yonghui). Tencent has expanded its partnership with JD.com stepwise, beginning with an equity investment, moving into data sharing for better customer insight, and then making joint investments totaling more than $6 billion in e-tailor VIPshop and mall operator Wanda Commercial. Like Rockefeller, the dealmakers of the future will seek whatever arrangements allow their companies to build capabilities, rather than total-control buyouts.