Why would a firm use an alliance a joint venture and a merger acquisition?
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A joint venture, merger, and acquisition are three misunderstood and misused words in business. All three involve joining companies, but there are important differences to distinguish. Show
In this article, we’ll explain the key differences to assist in the best decision for your business. Growing Your Business Through Acquisition, Mergers and PartnershipsMergers, acquisitions, and partnerships expand your company. Whether a business wants to grow its reach, gain market share, or increase shareholder value, one of these strategies may be beneficial. A business can gain competitive advantage by using one of these strategies. With two businesses coming together, you’ll combine your knowledge and expertise. More financial assets from combining can open the door to more business opportunities. Often, these are things that you wouldn’t have if you were to stay as a singular business entity. What Is a Merger?A merger willingly unites two individual businesses into one new business. With a merger, businesses can combine staff and resources. With the right type of merger, you can expand your reach as a business. As stated above, you may also gain market share by doing so. Types of MergersThere are several different types of mergers that can take place. Choosing the right one depends on the goals of the two businesses. The most common types of mergers are:
Conglomerate Merger:This happens when two companies operate in different activities, industries, or locations. These two businesses may come together and operate under one name. It often happens when two businesses want to gain market share. If it makes sense for the shareholders from a value perspective, then the merger may take place. It’s an excellent opportunity to increase value, recognition, or performance while saving costs. Congeneric Merger:A congeneric merger, or product extension merger, is the merging of two or more companies with complementary products. These are businesses that are within the same market. They share similar factors, such as marketing, technology, products, or production. Market Extension Merger:Businesses that sell the same products but are within different markets may unify in a market extension merger. The two formed businesses have access to a larger audience and a bigger market. Horizontal Merger:Companies operating in the same industry may come together in a horizontal merger. Often, companies exploring a horizontal merger have fewer competitors. But, with fewer competitors, the competition is often stiff. Horizontal mergers allow businesses to create one larger entity with more market share. Vertical Merger:A vertical merger can take place among businesses that produce services, parts, or products within the same industry. These two businesses’ end products are at two different levels of the supply chain. When the entities merge, they can combine both operations. It’s a great option to reduce costs for each business. Reasons for Entering into a MergerThere are many reasons why two or more companies may want to enter into a merger. The main reason is that a merger will benefit both companies. It needs to benefit both companies because, as stated before, a merger is a willing unification of two business entities. Some of the typical reasons for entering into a merger are: When a merger takes place, two businesses now legally operate as one. All business resources, staff, and financial assets are combined. Once this happens, the business’s scale of operations can increase.
What Happens in an Acquisition?During an acquisition, one company acquires or purchases over 50% of another company’s shares. This makes them the largest shareholder and allows them to gain control of the secondary company. Once a business is acquired, the larger company can then make decisions about the newly acquired company as they see fit. They no longer need the approval of the secondary company’s remaining shareholders. It’s important to note that a merger is the unification of two businesses willingly. An acquisition consolidates two businesses. This can happen regardless of the acquired business’s approval or disapproval. Acquiring a business without its shareholders’ approval is known as a hostile takeover. Types of AcquisitionsWhile there are numerous types of acquisitions, three are more common than the rest. Those three types of acquisitions include
Team Acquisition:This allows the acquiring business to increase the pace of their hiring. Rather than spending time and costs to find employees, a business may acquire another business to utilise its talent. This is especially the case if the acquired company holds important staff members that cannot be replaced. Product Acquisition:Many businesses may overlap in their industry. If one business’s roadmap includes producing a certain product or service, yet another business is already completing that said product or service, then they may make an acquisition. Strategic Acquisition:For many companies, a product or service may be able to be reproduced. But, it may not be able to be reproduced at the caliber of another product or service in the industry. In this case, a strategic acquisition may occur. Reasons for Making an AcquisitionJust like mergers, there are many reasons why a business may want to acquire another. Still, the end goal is to better at least one of the original businesses. Once the acquisition takes place, the acquired business may also see plenty of improvement and benefits. Some of the main reasons for making an acquisition include:
What Is Joint Venture?A joint venture is an arrangement between two or more businesses to combine their resources. They choose the route of a joint venture agreement to accomplish a specific business task. Joint ventures, unlike mergers or acquisitions, are often temporary. Once the specific task is complete, the joint venture is dissolved. Types of Joint VenturesThere are different types of joint ventures to choose from depending on the goals of the business. These are
Business Partnerships:A business partnership joint venture is also called a limited liability partnership. It is an option for cases where limited cooperation may not be the best choice. The two business owners combine their resources to achieve their business goal. Limited Cooperation:One business agrees to work with another business in a specific, or limited, way. The two partnering businesses will agree to a joint venture agreement. The contract establishes the terms and conditions of the project between the two of them. Separate Joint Venture Business:For some businesses, creating a separate joint venture company might be the best option. This allows for each partner to own equal shares in the company. They can work together to agree on how to manage the separate joint venture business. Reasons for Entering into a Joint VentureRather than creating a new business, a joint venture allows for two separate businesses to remain independent of one another. They have the advantage of pooling their resources together without spending more on capital. Once the goal is achieved, the joint venture agreement dissolves and the two businesses maintain their independent status. Choosing the Right One for Your BusinessDetermining the best route between a joint venture, merger, or acquisition depends heavily on the goals of a business. With a trusted advisor, choosing the right one for your business can be a simple task. At Holmes, we can help you decide which option to choose for your company so your needs are met. Find out more about how we can help your business. Why would a firm use an alliance?A company may enter into a strategic alliance to expand into a new market, improve its product line, or develop an edge over a competitor. The arrangement allows two businesses to work toward a common goal that will benefit both. The relationship may be short-term or long-term.
Why choose a strategic alliance over a merger or acquisition?Advantages of business alliances include access to and sharing of skills, products, and markets at a lower overall cost without the need for M&A. Disadvantages are limited control in some instances, profit sharing, and potential loss of trade secrets and skills to competitors.
How does strategic alliance help in forming strategy for joint ventures mergers and acquisitions?Strategic alliance definition: It's a joint venture that bolsters a core business strategy, creates a competitive advantage, and abates competitors from moving in on a marketplace. It allows individual companies to achieve more together than they would have on their own. In other words: Coopetition.
What is a benefit of alliances and joint ventures over mergers and acquisitions quizlet?-Advantages of an alliance over an acquisition include: sharing costs, learning skills, more easily reversed. Alliances are generally easier to manage and are generally more successful than acquisitions.
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