Joint Venture &

Acquisition
MERGERS
AND
AQUISITIONS
MEANING OF JOINT
VENTURE
Joint venture is the co operation of
two or more individuals or business
in which each agrees to share
profit, loss and control in a specific
enterprise.
FEATURES OF JOINT
VENTURE
• Joint venture is a short duration special purpose
partnership.
• Joint venture does not follow the accounting concept
'going concern'.
• The members of joint venture are known as co-ventures.
• Joint venture is a temporary business activity.
• In joint venture, profits and losses are shared in agreed
proportion. If there is no agreement regarding the
distribution of profit, they will share profit equally.
• Joint venture is an agreement for polling of capital and
business abilities to be employed in some profitable
venture.
 INTERNAL FACTORS
TO STYLE A JV
• Spreading prices

You and JV partners can share prices associated

with advertising, product or service
improvement, and other expenditures, reducing
your monetary burden.
• Opening Accessibility to
Fiscal Assets:
With each other you plus a JV accomplice may have
greater credit or far more assets to obtain bigger resources
for loans and grants than you could obtain on your own.
• Connection to Technological Assets:

You could possibly want entry to technological assets you

couldnt afford personally, or vice versa. Sharing
progressive and proprietary engineering can increase
items, as well as your individual understanding of
technological processes.
• Improving Obtain to New Markets:

You and your JV partners can combine client and contacts

with each other or even create a jointproducts or services
that accesses new markets.
EXTERNAL FACTORS TO STYLE
A JV
•Develop Stronger Innovative Solution:

With each other you and also a JV companion may be able

to share suggestions to produce a product thats a lot more
competitive within your industry.
• Increase Speed to Market place:

With shared entry to economic, technological, and

distribution means, you along with a JV accomplicecan
get your joint item into the market place quicker and a lot
more efficient.
 ADVANTAGES
• Accessing additional financial resources:
• Sharing the economic risk with co-venturer
• Widening economic scope fast
• Tapping newer methods, technology, and approach you
do not have
• Building relationship with vital contacts
 DISADVANTAGES
• Shared profit – Since you share assets, you also share the
profit.
• Diminished control over some important matters - Operational
control and decision making are sometimes compromised in
joint ventures.
• Undesired outcome of the quality of the product or project.
• Uncontrolled or unmonitored increase in the operating cost
 MERGERS
Mergers happen when two companies agree to legally
combine into one company, melding their management.
 AQUISITIONS
• Mergers and acquisitions are often confused. An
acquisition involves one company buying a controlling
interest in the stock of another company and managing
both companies under one management team, which
might consist of a mix of managers from both companies
or only the managers from the surviving company.
 MERGER ACQUISITION
COMPANYAA
COMPANY COMPANY B COMPANY A COMPANY B

Company A and Company B

together form the new Company A buys Company B
Company C Company A
 TYPES OF MERGERS
• Horizontal mergers: It takes place when the two organizations
producing a similar product combine. E.g.: GAP Inc. control three distinct
companies, Banana Republic, Old Navy and the GAP itself.

• Vertical Mergers: It takes place when the two organizations working at

different stages in the production of the same product, combine. E.g.: Carnegie
Steel company, it control the mill, iron ore mines, coal mines, the ships, the rail
roads, the coke ovens.

• Conglomerate Mergers: It takes place when two organizations

operate in different industries. A conglomerate is a large company that consists of
divisions of often seemingly unrelated business. E.g.: Tata group, Reliance
Industries etc.
 TYPES OF ACQUISITION
• Friendly Acquisition: In this generally poorly performing organization’s board od
directors willingly sells its shares to the acquiring organization.

• Hostile acquisition: In this generally poorly performing organization’s board of

directors opposes to sell of the company. In this situation the acquiring
organization has two options:
1. A tender offer: It represents an offer to buy the stock of the target organization
either directly from the shareholders or through secondary market.
Proxy fight: the acquirer solicits the shareholders of the target organization in
2. an attempt to obtain the right to vote their shares. The acquiring organization
hopes to secure enough proxies to gain control of the board of directors and in
turn replace the incumbent management.
 MOTIVES BEHIND M AND AS
• To provide improved capacity utilization
• To provide better use of the existing sales force
• To reduce managerial staff
• To gain economies of scale
• To smooth out seasonal trends in sales
• To gain access to new suppliers, distributors, customers,
products and creditors
• To gain new technology
• To reduce tax obligations
 REASONS FOR FAILURE OF
MERGERS
• Undue focus on financial aspects– valuing assets, determining the price and due
diligence at the cost of human factor.
• Line employees and managers at all level lose personal effectiveness as a result
of rumors, misinformation and worry.
• Infrequent and irrelevant communication adds to the problem.
• Without clear lines of authority and a clear understanding of where they fit in,
employees and managers are often caught in a web of conflicting objectives and
old loyalties.
• The post merger entity demands a leadership to articulate a vision and inspire
others to join in that vision. But the stress and uncertainties associate with the
merger make the leader focus inwards and play safe.
 DIFFERENCES
• It is faster and easier transaction.
MERGER: • The acquirer does not experience the
• Merging of two organization into one. dilution of ownership
• It is the mutual decision.
• Merger is expensive than hostile
takeover.
• Through merger shareholders than
merger. can increase their net worth.
• It is time consuming and the company
has to maintain so much legal issues.
• Dilution of ownership occurs in merger

ACQUISITIONS:
• Buying one organization by another.
• It can be friendly take over or a hostile
takeover.
• Acquisition is less expensive than
merger.
• Buyers cannot raise their enough
capital.
MERGERS AND ACQUISITION
DEALS
 Page 1

Joint Venture:- Success

“ Joint Ventures and Alliances can
deliver more shareholder value
than Mergers and Acquisitions
can, but getting them off the
ground can trip you up in
unpredictable ways”
--- Harvard Business
JV - What?

A contractual agreement joining together two or more parties for the purpose
of executing a particular business undertaking. All parties agree to share
in the profits and losses of the enterprise.

•Shared contribution of equity

•Shared authority, control and responsibilities
•Shared Revenues & Losses
•Shared Assets

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 Advantage
Participating in joint ventures has the following advantages:

•Helps an organization to enter in to new markets or new product lines

•Access to increased resources and improved expertise & technology
•Helps to build credibility with a particular target market by choosing a well
established and credible partner in that market
•Reduces risk involved in business due to sharing of losses and expenses.
•Exiting from the business in case of failure is easier as compared to solely
owned businesses.
•Partners in Joint Ventures get preference in buying out the shares of other
partners and take over the company.

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 Disadvantag
Entering into Joint Venture agreements may pose certain threats or disadvantages to the
participating organizations:

•It is time consuming and difficult to set up a Joint Venture and poses many
challenges.
•The objectives of the JV may not be clear and understood by all if the partnering
organizations do not state and communicate them clearly.
•Differences in the cultures and management styles of the organizations may lead to
a lack of cooperation and coordination.
•Lack of thorough research and feasibility studies in the beginning of the JV may lead to
failure of the JV.
•The individual partners may not treat the JV as an integral part of their business and
may lead to lack of attention being given to the JV
•There can be an imbalance in levels of expertise, investment or assets brought into
the venture by the partners Page 27
Steps in formation of Joint Venture

Partner Feasibility Incorpor

Planning
Search Study -ation

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Planning
The Planning Stage involves decision making on the following issues:

•Specify the Goals and Objectives

•Determination of the product and market
•Market Analysis
•Technology Decisions
•Financial Requirements
•Foreign Exchange analysis
•Human resource and skill requirements
•Revenue Predictions
•Cost benefit Analysis
10. Personal SWOT
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Analysis
Partner
FINDING THE JV IDEA OR PARTNERS (Important from Examination Stand-
point)

The following considerations have to be made while selection partners for JV

•Financial resources of the prospective partners

•Technological know how and capabilities
•Presence in the target market
•Organizational culture and management style
•Type of organizational structure adopted
•Credibility study
•Ranking of the prospective partners based on above mentioned criteria
•Selection of partners for the feasibility study

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 Feasibility
Predication of the culture and structure of the Joint Venture
Analysis of partners comfort with and adaptability to the new technology and
culture of the JV
Analysis of the authority, responsibility and financial gains and loss sharing
among the prtners
Market analysis and viability of the JV
Analysis of the sustainability of the JV in times of uncertainty
Cost Benefit Analysis
Environmental Analysis of the JV in the market
Growth Predictions

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Incorpo
A JV can be brought about in the following major ways:

•Foreign investor buying an interest in a local company

•Local firm acquiring an interest in an existing foreign firm
•Both the foreign and local entrepreneurs jointly forming a new enterprise

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Critical Success Factors in
a Joint Venture
1. Good communication, cooperation and coordination among partners
2. Common goals and shared vision among partners
3. Dedication towards the success and long term sustainability of the JV
4. Proper sharing of profits and benefits among partners
5. JV should work towards the benefit of all the partners
6. Proper planning and research prior to the incorporation of the JV Page 11
DOWNSIDES OF JVs
(Important from Exam
Stand-point)
1. Lack of understanding between the partners
2. Lack of patience and motivation among partners
3. Entry of a wholly owned subsidiary of a partner in the same business and
market (E.g.. Hero Honda)
4. Benefits lower than the expectations
5. Operational Difficulties due to geographical location of the partners

6. Differences and conflicts between partners on various issues.

Incompatibility of the culture and management styles of the partner

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Successful Joint Ventures
VOLVO – EICHER JV TATA – DOCOMO

Failed Joint Ventures

Chrysler – Diamler AG Yamaha – Escorts

JVs Leading to Takeover by one partner

Hero Honda (Takeover by Hero Group)

Virgin – TATA ( Takeover by TATA)

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Launching and running a world class JV is a complex and demanding task. If
done right JV promises a better ROI than mergers and acquisitions.

 It is necessary for all executives involved to understand the unique demands of

JV and invest in early planning

 Right investments during launch phase will reap big rewards

“If you get the launch right, the rest will take care of
itself”

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