Alternatives to Mergers and

Acquisitions
(Joint Ventures & Franchising)

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.
 DIFFERENCE BETWEEN MERGER, ACQUISITION
& JOINT VENTURE

• Merger = Two companies come together "permanently" for

mutual gains or to reduce competition

• Acquisition = One company buys another company which may

or may not be doing well

• Joint Venture = Two companies come together "temporarily" for

mutual gains for a particular project/job. after the project/job is
completed the joint venture is dissolved.
 GROWTH STRATEGY ALTERNATIVE
JOINT VENTURES
 “Joint venture” is a legal structure available as an acquisition
alternative for today's small and growing companies.
 Structured as partnership or a newly formed co-owned
corporation where 2 or more parties are brought together to
achieve a series of strategic and financial objectives. (short or
long term)
 Careful thought should be given by the companies who are
willing to explore this strategy in terms of selecting a partner
they are looking for and what resources they would be
contributing.
 GROWTH STRATEGY ALTERNATIVE
JOINT VENTURES

Joint Ventures, Cross Licensing and Technology, transfer

agreements are all strategies designed;

To obtain:
1. Exchange of direct capital for equity and intellectual property or
distribution rights.
2. The resources which would otherwise be obtained with the capital
are obtained through joint venturing
3. A shift of the burden and cost of development (through licensing).
 GROWTH STRATEGY ALTERNATIVE
JOINT VENTURES
 Extensive searching for a joint venture partner is required.
 A list of key objectives and goals should be developed and
comparison should be done with those of the final
candidates, understand the corporate culture and decision
making process within each company.
 Be sensitive to the politics, red tape and different
management practices that may be in place in companies.
Over here following issues are to be considered
1. How does it fit with your own processes?
2. What about each perspective partner's previous experiences
and track record with other joint venture relationships?
3. Why did these previous relationships succeed or fail?
4. WHY CONSIDER A JOINT VENTURE OR STRATEGIC ALLIANCE?

 Develop a new market( domestic/international)

 Develop a new product
 Develop/ share technology
 Pool resources to develop a production/distribution facility
 Execute a government contract.
 Strategic Alliance

It’s a formal arrangement between two or more parties to pool resources

to achieve a common set of objectives that meet critical needs while
remaining independent entities.
 Strategic alliances involve exchange, sharing, or co development of
products, services, procedures, and processes. 
Difference Between Joint Ventures & Strategic Alliance

Duration: Medium to Long term Short

Term
Joint Ventures

Joint ventures are structured either at:

1. Horizontal distribution
2. Vertical distribution

 Horizontal Joint Venture is almost alternative to merger, where

two companies are operating at the same level at distribution
 Vertical Joint Venture is where companies and its suppliers or
distributors enter into a deal with each other.
Documentation Involved

 Clearly drafted documentation is required for joint

ventures, which will involve
 Share holder agreement
 The memorandum of article of association of the joint
venture companies
Following strategic issues can be considered before entering into a Joint
Venture

 Legal names of the parties should be clearly stated

along with their purpose
 The status of the joint venture should be clear
 Both parties should be satisfied with the process
 Capital and property contribution of each joint
venturer should be clear, and its detailed description
of profit and loss distribution should be clearly
defined
 Establishment of mutually agreed policy regarding
transferability of shares should be designed
 If joint venture is to set up a new business they must
take the consent of their employees and share
holders
Termination

 It is important to identify at the outset any events

which it is agreed will terminate the joint venture
 Events which terminate the joint venture commonly
include the following
 The expiry of the definite term;
 Insolvency of either party
 Change of control of one of the party
 The violation of terms in the agreement by any
party.
Franchise
“A license that describes the relationship between the
franchisor and franchisee including use of trademarks, fees,
support and control”
It’s a right granted to a person or group to market that company
goods or services under a certain territory or location.
Common Franchise terms
 Franchise agreement – the legal, written
contract between the franchisor and franchisee
which tells each party what each is supposed to
do.
 Franchisee – the person or company that gets
the right from the franchisor to do business
under the franchisor’s trademark or trade name.
 Franchisor – the person or company that grants
the franchisee the right to do business under
their trademark or trade name.
Cont.
 Trademark – the franchisor’s identifying marks,
brand name and logo that are licensed to the
franchisee.
 Royalty – the regular payment made by the
franchisee to the franchisor, usually based on a
percentage of the franchisee’s gross sales.
 UFOC – the Uniform Franchise Offering Circular,
UFOC, is one format for the disclosure document
which provides information about the franchisor
and franchise system to the prospective franchisee
What Is a Franchise?
A franchise is the agreement or license between two legally independent parties
which gives:

• A person or group of people (franchisee) the right to market a

product or service using the trademark or trade name of another
business (franchisor).
• The franchisee has the right to market a product or service using the
operating methods of the franchisor.
• The franchisee has the obligation to pay the franchisor fees for
these rights
• The franchisor has the obligation to provide rights and support to
franchisees.
History of Franchising

 Back in 1850`s when Issac Singer invented the sewing machine.

 In order to distribute its products out of his geographical area and
to provide training to consumer Singer start making Franchise,
 McDonald Largest Network of

Franchises
In 1955 Ray Kroc took over a small chain of food franchises
and built into todays most successful fast food franchises in
the world, now known as McDonalds which has now largest
number of Franchises worldwide.
Franchise agreement

Franchisor
 Owns trademark or
name.
 Provide support like
advertising & training.
 Receives fee.
Franchisee
 Uses trademark.
 Expands business with
franchisor’s support.
 Pays fees.
Types of Franchises
1. Product distribution franchises: simply sell the franchisor’s products and
are supplier-dealer relationships.
Examples: Some familiar product distribution franchises include.
✔ Pepsi
✔ Exxon
✔ Ford Motor Company
Cont…..
2. Business format franchises: It not only use a
franchisor’s product, service and trademark, but also
the complete method to conduct the business itself,
such as the marketing plan and operations manuals.
Business format franchises are the most common type
of franchise.

 Popular franchising opportunities are in these

industries:
◆ fast food
◆ retail
◆ service
◆ restaurants
Types of Franchise
Arrangements
1. A single-unit (direct-unit) franchise is an agreement
where the franchisor grants a franchisee the rights to
open and operate ONE franchise unit. This is the
simplest and most common type of franchise.

2. A multi-unit franchise is an agreement where the

franchisor grants a franchisee the rights to open and
operate MORE THAN ONE unit.

There are two ways a multi-unit franchise can be

achieved:
✔ an area development franchise
✔ a master franchise.
 Cont…
 In area development franchise, a franchisee
has the right to open more than one unit during a
specific time, within a specified area. For
example, a franchisee may agree to open 5 units
over a five year period in a specified territory.

 A master franchise agreement gives the

franchisee more rights than an area development
agreement. In addition to having the right and
obligation to open and operate a certain number
of units in a defined area, the master franchisee
also has the right to sell franchises to other
people within the territory, known as sub-
Advantages & Disadvantages of Franchising
Advantages:
✔ Increase number of outlets with minimum capital.
✔ A franchise provides franchisees with a certain level of
independence where they can operate their business.
✔ Name Recognition.
✔ A franchise increases your chances of business
success because you are associating with proven
products and methods.
✔ It offer quality and consistency because it is mandated
by the franchise agreement.
✔ Proper and effective marketing tactics.
✔ Training and management facilities.
 Advantages & Disadvantages
of Franchising
Disadvantages:
 Not completely independent.
 Operates according to the procedures and restrictions
set by the franchisor in the franchise agreement.
 Franchise fee, royalties and advertising fees.
 A damaged, system-wide image can result if other
franchisees are performing poorly or the franchisor
runs into an unforeseen problem.
 The term (duration) of a franchise agreement is usually
limited while it can be renewed on the bases of the
franchisee performance.
Beginning Your Search

WHAT ARE YOUR OPTIONS WHEN YOU BEGIN

YOUR BUSINESS?
 Start a new business
 Buy a new franchise
 Buy an existing franchise
Starting A New Business
Advantages Disadvantages
+ usually lower start-up cost – requires more time
and energy
+ independence and creative freedom – high risk of failure
+ freedom with location and procedures – takes longer to
become profitable
+ no inherited problems from – financing may be more
an existing business difficult to obtain
 Buying A New Franchise

Advantages Disadvantages
◆ reduced risk of failure ◆ costs more (fee, royalties, supplies)
◆ proven methods and products ◆ smaller profit margins
◆ start-up assistance ◆ lack of independence and freedom
◆ collective purchasing power ◆ a franchisor’s problem may become your problem
◆ research and development
◆ association and synergy with other franchisees
◆ easier to obtain financing
Buying An Existing Franchise
Some General Guidelines

 What Business to start?

 What are your experiences, skills and market know-
how
 What and Who are your target market? Customers and
Vendors
 Make Profit potential your most important consideration
In order to Start a Business You Have to have Money!
In order to Stay in Business You Have to make Money!