The KPMG M&A; Market Outlook Survey provides a perfect window into the very mixed levels of optimism that exist in Australian boardrooms.

While almost half of all directors who responded to the survey saw mergers and acquisitions (M&A;) as a key growth initiative for the next three years, only 29 per cent of chief executive officers nominated it as such.

While only 8 per cent of directors saw availability of credit or liquidity as a barrier to M&A;, more than a third of CEOs saw this as an issue. 

And respondents were equally split on whether market valuations would increase, decrease or stay the same. 

Perhaps it's no surprise then that boards and management teams are looking for a more measured approach to deals – 42 per cent of respondents nominated pursuing an alliance, joint venture (JV) or partnering arrangement as a key growth measure, just behind organic growth (which was nominated by 45 per cent of respondents) but well ahead of M&A; (which was nominated by 34 per cent of respondents). 

It's a trend that Meredith Paynter, M&A; specialist and partner at law firm King & Wood Mallesons, has seen firsthand in her work in the food and agribusiness sector, where firms cautious about entering a new market on their own have looked to hook up with a local player who can help smooth the way. 

"There are a few examples where people have gone hard, bought assets, they've overpaid, they didn't have management on the ground, they didn't understand the operating environment and they've been burnt," she told the Deal Market Outlook roundtable co-hosted by The Australian Financial Review and KPMG held in Sydney recently. 

Key drivers

The survey shows that as well as geographic expansion, breaking into new markets is a key driver of the JV trend. 

This point was highlighted by Andrew Godfrey, chief operating officer in Australia for global financial services giant Mercer, who last year inked a JV with Virgin Money to relaunch Virgin Money Super. 

The thinking was simple. With growth in the superannuation sector hitting a plateau, Mercer is hunting for growth options. But its heritage is a business-to-business player and it had never run retail brands. 

"We thought, 'We've actually got to partner with people that have that capability, that can supplement the capability we have in core capabilities around superannuation so we see strong opportunities to grow'."

The process of negotiating with Virgin Money took 18 months, during which Mercer worked with Virgin as a client. This provided an opportunity for the two businesses to "work out whether we could live with each other, whether we could work with each other, and whether we could be successful with each other".

Establishing contribution

As important as getting the cultural fit right is getting agreements in place to govern a JV; it requires a similar level of work to an acquisition or merger. KMPG partner Joanne Lupton, who specialises in JVs, says establishing from the outset how each party will contribute to an alliance is crucial.

"I think the key is having that skin in the game," she says. "It's really that shared risk to get that mutual benefit." The importance of partnerships rather than transactions was also highlighted by roundtable participants Nicky Carp, co-founder of Unified Healthcare Group, and Adrian MacKenzie, private equity legend who formed Five V Capital last year. 

When UHG went looking for capital late last year, it didn't really need the money – what it wanted was the right type of investors who could help increase the business. 

"I think it's the strategic alignment that's so important. So it was about growth and smart people around the table," says Carp.

MacKenzie, who invested in UHG alongside prominent venture firm Square Peg in February says that JVs and alliances have been made easier by technology. 

"The modular nature of technology or business systems means you can plug them together and attack a market, whereas before it was very difficult to do that," he says.