The conclusion of our study consists of two parts. First, we draw up a summary of the investigation. Next, we discuss the limits and the research perspectives arising from it.
We have devoted our work to the role of French private equity firms (PEFs) in the formation of strategic alliances for the business that they support. The goal of our study was to provide an explanation for this phenomenon. As the intra-/extraportfolio criterion seemed important to us in principle, we chose to distinguish intraportfolio alliances, formed within a single PEF’s investment portfolio, with extraportfolio alliances including alliance partners external to the investment portfolio of the PEF(s) involved. Basing our study on the whole private equity market, we considered the points of view of the PEFs and small and medium-sized enterprises (SMEs) forming alliances.
Although PEFs profess to play a role in building relationships for their portfolio companies through the formation of alliances, no concrete example was publicly accessible. There thus arose a first question of a descriptive nature: that of the real importance of the phenomenon.
Our first introductory chapter allowed us to respond to this initial question. After having identified the problem, we were able to determine that the French private equity market presents environmental conditions, which are in principle favorable to the formation of alliances for the companies supported by private equity. Our own survey carried out among French PEFs who were members of AFIC (Association Française des Investisseurs pour la Croissance, now known as France Invest) allowed us to present the first empirical data on the role of French PEFs in the formation of strategic alliances. Thus, companies supported by French PEFs do form both intra- and extraportfolio alliances. This phenomenon involves at least close to a third of French PEFs who are members of AFIC, which attests to the importance of the phenomenon. The survey allowed us to identify several characteristics as the goals of these alliances, the forms that they take, etc. It shows that intraportfolio alliances have the main goals of developing customer–supplier relationships, exchanging organizational practices and the international development of companies. These alliances, if formalized, mainly take the form of sales agreements. However, a good number of these alliances remain non-formalized. As for extraportfolio alliances, they have as main objectives the development of customer–supplier relationships as well, followed by the joint development of new products/and or services and of the international development of the companies. They are more often formalized than intraportfolio alliances, and mainly take the form of sales agreements.
Unlike the alliances analyzed in the literature relating to the role of venture-capital firms in their formation, which are all formalized, the survey revealed that in the realm of alliances formed between SMEs, which are generally unlisted and supported by private equity, a good number of these alliances remain non-formalized. This finding agrees with the results of studies relating to alliances between SMEs more generally, highlighting the predominance of informal modes of coordination. Our survey allows us to include these alliances in the analysis of the role of PEFs, in contrast to studies which are limited to data issuing from publicly accessible databases, which only identify formalized alliances.
Once this table was compiled, the core of our work consisted of providing an explanation for the phenomenon studied. Thus, beginning from the premise that French PEFs form alliances, we have tried to respond to two major questions. These are the questions: how do French PEFs intervene in the formation of alliances for the companies they support? Why do they intervene in the formation of these alliances? The analysis was carried out in the framework of the efficiency paradigm. There then followed a third question to which we wished to provide a response by means of the first two: by what levers do PEFs intervene in the creation of value, which results in the formation of alliances for the companies they support?
Chapter 2 was then devoted to an in-depth theoretical analysis of the problem, in the goal of constructing an explanatory model. In order to offer a relatively complete analysis in terms of value creation, we had recourse to a conceptual framework based on the complementary use of two main theoretical approaches, the contractual and knowledge-based approaches, resting mainly and respectively on contractual theories and knowledge-based theories of organizations. A third framework, sociological network theories, came to complement this analysis in the framework of the contractual approach and the knowledge-based approach. The joint mobilization of these theoretical frameworks allowed us to raise a certain number of hypotheses concerning the roles played by PEFs in the formation of alliances. Some hypotheses arising from the contractual approach were borrowed from the existing literature in order to test them in the French context and supplemented by our own hypotheses arising from our analysis of the problem. The hypotheses arising from the knowledge-based analysis are new with regard to the literature dealing with our research question. The goal of Chapter 3 was thus to empirically test the proposed conceptual framework.
To test the research hypotheses advanced, we had recourse to a multimethod study of explanatory design, including an econometric study and a multiple case study. The case study brought answers as to why and how PEFs form alliances for their portfolio companies. It mainly allowed us to empirically test our research hypotheses and to test the plausibility of the mechanisms of causality advanced. As for the econometric study, it was mobilized to test the general character of those of our research hypotheses that pertained to all French PEFs. As all of the research hypotheses, arising from both theoretical approaches, were tested within the same empirical study, our study also allowed us to compare the relative weight of variables and to see if the main conclusions advanced by the literature, essentially resting on contractual arguments, held in the French context. Our main results are as follows.
First, French PEFs do intervene in the formation of strategic alliances for the businesses they support. Why? From the point of view of the PEFs, intervention in the formation of alliances seems motivated by a desire for differentiation on the private equity market by providing an additional service to the companies they support, apart from managerial assistance and providing capital. In the specific case where the PEF takes the legal form of a joint-stock company and where the State or a region is present in its capital, this type of investor may also encourage the practice of forming alliances, so as to generate commercial synergies within a single region. From the point of view of the SMEs forming alliances, the presence of a PEF enables them, on the one hand, to detect growth opportunities that can be implemented through the formation of alliances. On the other hand, PEFs can help them to overcome the difficulties that these companies encounter in forming alliances.
The multiple case study allowed us to confirm the plausibility of certain mechanisms of causality, allowing us to respond to the question of “how” PEFs intervene in the formation of alliances. These mechanisms may be passive or active, attesting to the PEFs’ intentionality in the formation of alliances in the sense that there is an “active” desire for the creation of value. As stated at the beginning of the book, the terms “passive” and “active” and, respectively, “unintentional” and “intentional” may seem too extreme. They are used to designate action for the creation of value which, in the context of the contractual approach, does not operate through the creation itself of value (in an “active” or “intentional” manner) but through the reduction of losses in value resulting from the presence of costs (of transaction and agency). In contrast, in the framework of the knowledge-based approach, the focus is on the creation itself, active and intentional, of growth opportunities and, thus, sustainable organizational benefits. These mechanisms were detailed in the previous paragraphs that present the results of the study.
In a very synthetic manner, PEFs may or may not be the origin of ideas for alliances. In both cases, they are able to realize the transaction by detecting opportunities for the formation of alliances. Ideas for alliances may come to them through the means of privileged access to information of a strategic nature, such as the seats they hold on strategic boards or the portfolio companies they support. The types of alliances they enable to be formed are in part dependent on their competences and experiences. According to the PEF’s specialization, this may induce more frequently the formation of certain types of alliances. Finally, in order for the transaction not to fail, the PEF may, on the one hand, act as a mechanism allowing the establishment of a relationship of trust between prospective alliance partners and, on the other hand, assume a cognitive coordination role, allowing the reduction of risks of mutual incomprehension between partners at their first exchanges.
Altogether, the results of the study highlight that the knowledge-based arguments are more often confirmed than those of a contractual nature, while stressing that the combination of the two provides a more general explanation of the phenomenon. Our study also allows us to see if the main arguments present in the literature remain valid in the French context. Some published hypotheses, such as an increased number of relationships for the supported SMEs with well-known partners on the markets when the PEF has weak reputational capital, or a negative impact of the number of alliances formed on the formation of a new alliance by an SME supported by private equity, have, however, not been corroborated for the French market by our study.
Our work thus seems to contribute to the literature with inputs at four levels: conceptual, theoretical, methodological and empirical. On the conceptual level, our interest was drawn to the role of PEFs while focusing on the field of private equity in its totality, without restricting our interest to a specific area such as venture capital or corporate venture capital. This first point enables us to contribute to the literature by studying whether the phenomenon is specific to the venture-capital component or if it is generalizable to the whole field of private equity. Throughout the study we distinguish between intraportfolio alliances, formed within the investment portfolio of a single PEF, and extraportfolio alliances, which include at least one company outside of the investment portfolio of the PEF. Finally, our analysis considers successively the point of view of the SMEs forming the alliance and that of the PEF.
Our main results at this level show, first of all, that the phenomenon of the contribution of PEFs to the formation of alliances is generalizable to all PEFs, thus beyond the domain of venture capital. Second, we find that the roles of PEFs are more intensive during the formation of intraportfolio alliances than of extraportfolio alliances. However, contrary to Lindsey’s study [LIN 08], it does not follow that there is a more frequent formation of intraportfolio alliances. Third, the certification role played by well-known PEFs proposed by the literature is mainly verified in the context of extraportfolio alliances. When intraportfolio alliances are formed, the presence of a single PEF as a common actor between the alliance partners is enough to establish a link of trust between them and thus facilitate alliance formation. The study also shows that reputation includes two components: the general reputation of PEFs as investors, and the specific reputation of the PEF compared to its peers. The component which is always involved is the first. The second is often not evaluable by company managers and thus potential alliance partners unless they are already familiar with the PEF. Thus, the fact that on the private equity market, a PEF may be more well-known than another, does not necessarily impact on the formation of alliances. What is important in all cases is the general image of a PEF as a specific type of investor.
At the theoretical level, the main contribution of our work to the literature consists of mobilizing the knowledge-based approach as a complement to the contractual approach. Our analysis thus adopts the dual or synthetic approach of the contractual and knowledge-based approaches. Work in the literature mainly mobilizes contractual theories enabling the analysis of the role of PEFs in a perspective of reducing losses of value arising from the presence of transaction and agency costs. The channel of intervention is disciplinary. In complementing this analysis with the mobilization of the knowledge-based approach, we can analyze the role of PEFs in the formation of alliances in a perspective of creation of value on a cognitive/knowledge-based basis. Thus, our results show that PEFs may be the actual origin of the idea of an alliance. Having privileged access to certain information, resources and competences held by other actors, and through combining them with their own expertise and competences, they are able to detect growth opportunities for the companies they support and to seize them through the formation of alliances. In fact, these alliances will in part depend on the expertise and the competences of the various PEFs. Thus, we show that sectoral PEFs tend more to form intrasectoral or intersectoral alliances. PEFs that favor international investments intervene more frequently in the formation of cross-border alliances. Finally, the literature shows little interest in the question of what PEFs’ interest are in the formation of alliances. According to our findings, the service of building relationships within alliances arises from a desire for a strategy of differentiation on the private equity market.
Apart from the knowledge-based explanations advanced, our work confirms the interest in a joint use of contractual and knowledge-based approaches, thus a dual or synthetic approach to explaining the phenomenon studied. Although the knowledge-based hypotheses were more frequently corroborated than the contractual hypotheses, both provide complementary explanations. In our case, the interaction of the theories is such that the contractual approach seems to be at the service of the knowledge-based approach. In order to be able to implement the projects for alliances detected, allowing growth opportunities to be grasped, an intervention in the context of the contractual argument on the part of the PEFs may be necessary for the alliance not to fail. As indicated, this result supports the argument of Cohendet and Llenera [COH 05, p. 181], according to which for companies acting in uncertain environments, the knowledge-based dimension is more valuable than the contractual dimension, which puts itself at the service of the first approach.
On a methodological level, our study distinguishes itself from the existing literature by the adoption of a multimethod study, comprising an econometric study and a multiple case study. Compared to previous work on the same research question, our approach allows us, beyond testing the research hypotheses with the help of an econometric study, to verify the plausibility of the mechanisms of causality advanced. It thus leads to relativizing the roles of the mechanisms of causality advanced by the literature, but until now not put to the empirical test. We have learned more from this about the mechanism of reputation constituted by PEFs and its impact on the formation of alliances, such as we have explained above. It also teaches us that the possibility of a disciplinary intervention by PEFs is not to be interpreted as a controlling role or a role of an arbitrator in the strong sense, allowing the punishment of uncooperative behaviors, but rather a weakened disciplinary role. PEFs thus intervene as counselors, allowing them to grease the wheels rather than by punishing.
Concerning the design of the methods used, we had recourse in the econometric study to the function by intervals (“intreg”), particularly appropriate when the dependent variable is by nature continuous but its observations can only be recorded in the form of intervals. This relatively recent function remains, at present, still little used. As for the case study, it was used in an explanatory design, aiming to test the hypotheses arising from the different theoretical currents that were mobilized. Although the possibility of using case studies in this context is explicitly mentioned in the literature, these are more often used in an exploratory or descriptive design, which sometimes still provokes misunderstandings as to the use of a case study for such a goal (to test hypotheses). In this sense, our study contributes to the methodological research showing the possibility and interest of using this tool in such a perspective.
On the empirical level, our study relates to the French private equity market. This market has not been previously studied in the light of the roles of PEFs in the formation of alliances. This allows us to study the relevance of the literature’s hypotheses in a new context and their robustness. The study in fact shows that some arguments are not substantiated in the French context. Finally, for France, our study provides data that, up until now, were not publicly accessible. These data allow us to enrich our knowledge of private equity and also of alliances in the area of SMEs and unlisted companies.
Beyond contributions to the literature, on the managerial level, our work confirms on the scientific level the role that PEFs claim to play in the formation of alliances. The study allows us to highlight the relational service provided by this type of investor.
To summarize these contributions in a few major points, they result:
There follows at the level of results:
Finally, the application to the French sector shows that some hypotheses presented in the literature do not apply in this context.
Our study has a number of limitations on the theoretical, conceptual and methodological levels. These limits are the point of departure for perspectives for future research. At the theoretical level, our analysis could thus be enriched by the mobilization of other theoretical frameworks. On the conceptual level, we proceeded to a study of PEFs as an isolated mechanism in the formation of alliances. It might be interesting to widen the scope of analysis by considering the role of PEFs in the formation of alliances in interaction with other actors supporting their portfolio companies. This would mean mainly including the network of contacts of the PEF directly linked to the portfolio company (other PEFs co-investing in the SMEs, other types of investors like banks or their networks, the Public Investment Bank, etc.). Furthermore, it might be interesting to refine the analysis by distinguishing, for example, between the roles of PEFs in forming alliances according to the stage of development of the company being supported (start-up, venture capital, growth capital, turnaround capital, etc.). On the methodological level, the main limit of our study is linked to that of the econometric study we conducted. Aside from the weak size of our sample, the questionnaire intended for the SMEs did not succeed.
From these limits, several prospects for research arise. On the conceptual level, we have just proposed certain paths. At the empirical level, our survey would deserve being re-conducted among managers of companies supported by private equity. More generally, it might be interesting to expand the survey to other European countries that possess a developed private equity market, such as the UK or Germany, which are nevertheless characterized by certain national specificities. This would provide us with more observations and allow us to carry out an econometric study on a larger sample.
At the theoretical level, it is possible to enrich the theoretical reflection with other frameworks. One point of departure, arising directly from our own analysis, would consist of mobilizing sociological network theories to provide answers going beyond the efficiency paradigm, in particular by considering power relations. These theories might enrich on the conceptual level the analysis of research perspectives that we have presented. In suggesting explanations other than those based on efficiency, they would allow in particular a better understanding of the role of PEFs in the formation of alliances in terms of a quest for social legitimacy [MEY 77], of coercion or power through influence or dependence [CHA 06].
Thus, one possible argument in this perspective could be the following: PEFs might promote the formation of alliances to increase the autonomy of the companies they finance. This would allow them to reduce the mortality rate of their portfolio companies, more frequent for young innovative companies [STI 65, BUR 95a]. These companies are subject to the full force of market competition while they generally require time and resources to be able to develop. In order to survive, to gain autonomy and to be able to assert their interests, three resources are critical according to Stinchcombe [STI 65, p. 161]. These are being capable of exerting coercion if necessary, possessing capital and legitimacy in respect of its environment. One way for companies to acquire these resources and to escape from the authority and dependence of the market is to take part in sustainable interorganizational relations, such as alliances [BUR 95a, p. 235]. By uniting, they may gain power on several levels. On the one hand, they may strengthen their bargaining power with respect to other market actors, for example, with key suppliers. On the other hand, they can supply each other within customer–supplier relationships or jointly develop resources whose cost and time of development would be too high if they had remained isolated. Companies thus reduce their dependence on resources held by other market actors. They increase their power of control over their environment and thus gain autonomy and freedom. Within an alliance, it is the social organization that determines the rules of the game [BUR 95a, p. 236]; companies are there not subject to the competitive rules of the market. This may allow them to gain the time required for their development [BUR 95a, p. 227]. At the same time, the more companies survive and enter into negotiation with other actors, the more they gain legitimacy [BUR 95a, pp. 218–219].
From the point of view of PEFs, these may also have an interest in forming alliances within their investment portfolio in terms of power or control. On the one hand, by increasing the degree of autonomy of their portfolio companies, they increase their control over the sustainability of these companies, and thus over the profitability of their investments. On the other hand, the establishment of co-operation in the form of alliances between the companies they finance allows them to retain control over the distribution of gains identified through this cooperation, which will then remain within their investment portfolios.
Finally, to go further in our reflection on the research question, it might be interesting to analyze the question of whether alliances may be a prerequisite to external growth by acquisition and, if so, in what cases. While the literature generally sees alliances and acquisitions as two alternative modes of external growth, works analyzing alliances as a preliminary stage for external growth by acquisition are rare. The field of private equity, and in particular European or French private equity, within which most exits from supported SMEs do not take place on the stock market but by acquisition, seems to constitute a fruitful field to study this question.