Joint venture

A joint venture is when two or more businesses pool their resources and expertise to achieve a
particular goal. The risks and rewards of the enterprise are also shared.
Reasons you might want to form a joint venture include business expansion, development of new
products or moving into new markets, particularly overseas.
Your business may have strong potential for growth and you may have innovative ideas and
products. However, a joint venture could give you:

more resources
greater capacity
increased technical expertise
access to established markets and distribution channels
Entering into a joint venture is a major decision. This guide gives an overview of the main ways
you can set up a joint venture, the advantages and disadvantages of doing so, how to assess if
you are ready to commit, what to look for in a joint venture partner and how to make it work.

Basic Components of a Joint venture Agreement

The Union

The contract can be viewed as a pre-nuptialagreement

The alliance is the union

The new legal entity can be viewed as the child.

The Separation

Separation is inevitable because JVs generally have a limited life and purpose.

Ownership Considerations

Ownership stake

Management allowances/restrictions

Resource sharing

Legal Considerations

Structure

Liability sharing and insurance

Rights, duties, and restrictions

Increase or decrease in JV scope

Ownership/licensing of intellectual properties

Country/local laws/regulations

Withdrawal from JV

Financial Considerations

Maintenance of accounting records

Control of bank accounts

Obtaining loans

Allocation of profits

Allocation losses

Withdrawal of funds

Tax Considerations

Fiscal year end

Inventory valuation

Capital gains tax

Accounting treatment

Problems Inherent in a Joint Venture

Each party is responsible for the actions of the JV andone another

The best JV agreement cannot insulate the JV andparties from all risks

Types of Joint Ventures

Short-term collaborations
The length of the joint venture is of importance here as it is often that such collaborations will
only take place for a particular project, rather than to create a long lasting business relationship.
Limited-function joint ventures
The powers in a limited-function joint venture are based largely on co-operation or co-ordination
between the joint venture parties rather than a complete merge of businesses.
Full-function joint ventures
A full-function joint venture on the other hand is designed on a much larger scale compared to
the limited function, with the intent to merge the businesses involved to create an autonomous
economic entity, often a new company, in exchange for shares.
Full-scale world wide mergers
This type of joint venture is on the largest scale, which is often with the involvement of
international companies, creating a new company or subsidiary, for example the merger between
Shell and Texaco, to create Equilon to deal with a particular product, namely industrial
lubricants.

The benefits of joint ventures

A joint venture can help your business grow faster, increase productivity and generate greater
profits. A successful joint venture can offer:

access to new markets and distribution networks

increased capacity
sharing of risks and costs with a partner
access to greater resources, including specialised staff, technology and finance
Joint ventures often enable growth without having to borrow funds or look for outside investors.
You may be able to use your joint venture partner's customer database to market your product, or
offer your partner's services and products to your existing customers. Joint venture partners also
benefit from being able to join forces in purchasing, research and development.
A joint venture can also be very flexible. For example, a joint venture can have a limited life
span and only cover part of what you do, thus limiting the commitment for both parties and the
business' exposure.
Joint ventures are especially popular with businesses in the transport and travel industries that
operate in different countries.

The risks of joint ventures

Partnering with another business can be complex. It takes time and effort to build the right
relationship. Problems are likely to arise if:

the objectives of the venture are not totally clear and communicated to everyone involved
the partners have different objectives for the joint venture
there is an imbalance in levels of expertise, investment or assets brought into the venture
by the different partners
different cultures and management styles result in poor integration and co-operation
the partners don't provide sufficient leadership and support in the early stages
Success in a joint venture depends on thorough research and analysis of aims and objectives.
This should be followed up with effective communication of the business plan to everyone
involved.

Problems with Joint Ventures

Management
The management of a business can often lead to conflicts in joint venture as a joint venture
requires the input from both or all of the parties involved. However, it is likely that one party
may dominate the management of the project or of the new company and so tensions may arise
within the joint venture. There may also be confusion as to who the management consists of, it
may be that each party brings in his own management team, or that a new joint venture
management team needs to be created.
Disagreements will also have to be resolved by senior management.
Differences
Although ultimately the parties have the same interest in the joint venture, their objectives for the
outcome may differ; causing conflicts. Joint ventures also require parties to work in close
proximity, which may highlight different working patterns adopted by respective parties. This
can affect the harmony amongst the management team and may make the operation of the joint
venture lengthy and costly.
Competition
Of there is no appropriate clause in the contract or the agreement between the parties when
creating the joint venture, it may be possible for one party to take the market knowledge from the
other party or parties in the joint venture and set up a business in direct competition. This is of
particular significance when the joint venture comes to an end, with each business taking away
from the joint venture what they have learned from each other.

Choosing the right joint venture partner

The ideal partner in a joint venture is one that has resources, skills and assets that complement
your own. The joint venture has to work contractually, but there should also be a good fit
between the cultures of the two organisations.

A good starting place is to assess the suitability of existing customers and suppliers that you
already have a long-term relationship with. You could also think about your competitors or other
professional associates. Broadly, you need to consider the following:
How well do they perform?
What is their attitude to collaboration and do they share your level of commitment?
Do you share the same business objectives?
Can you trust them?
Do their brand values complement yours?
What kind of reputation do they have?

Create a joint venture agreement

When you decide to create a joint venture, you should set out the terms and conditions in a
written agreement. This will help prevent any misunderstandings once the joint venture is up and
running.
A written agreement should cover:

the structure of the joint venture, eg whether it will be a separate business in its own right
the objectives of the joint venture
the financial contributions you will each make
whether you will transfer any assets or employees to the joint venture
ownership of intellectual property created by the joint venture
management and control, eg respective responsibilities and processes to be followed
how liabilities, profits and losses are shared
how any disputes between the partners will be resolved
an exit strategy - see ending a joint venture.
Joint Venture Companies in India
1. Green Gas Ltd

Date of establishment 7th of October 2005

Joint venture Holders- GAIL (India ) Ltd & IOCL

Areas of operation- This company is very famous of distributing the oil Gas in Agra and
Lucknow

This is a company with the joint venture between Green Gas Ltd and Indian Oil corporation ltd.
It provides reliable and safe natural gas to all its customers

2. NPCIL-IOCL

Date of establishment 6th April 2011

Joint venture Holders- Nuclear Power Corporation of India Limited, Indian Oil

Areas of operation- Operation and development of nuclear power plant, developing

nuclear energy, generating electricity

This is a joint venture between two renowned companies of India namely Indian oil Corporation
of India as well as Nuclear power Corporation. They have an objective of portraying nuclear
power as a safe energy for people and environment.

3. Petronet VK Limited

Date of establishment 21st May 1998

Joint venture Holders- Gujarat Industry Investment Corporation, Petronet India Limited
, Reliance Industries Limited & Essar Oil Limited, Infrastructure Leasing & Financial
Services Limited.; Canara Bank

Areas of operation- To operate and construct pipeline for transportation of the petroleum
products

This is one of the companies with joint holders as Essar Oil Limited, Canara Bank, Petronet
India Limited etc with the goal of increasing the network of pipeline for transportation.

ACQUISITION
An acquisition is a corporate action in which a company buys most, if not all, of the target
company's ownership stakes in order to assume control of the target firm. Acquisitions are often
made as part of a company's growth strategy whereby it is more beneficial to take over an
existing firm's operations and niche compared to expanding on its own. Acquisitions are often
paid in cash, the acquiring company's stock or a combination of both.

Developing an Acquisition Strategy

Not all firms that make acquisitions have acquisition strategies, and not all firms that have
acquisition strategies stick with them. In this section, we consider a number of different
motives for acquisitions and suggest that a coherent acquisition strategy has to be based on
one or another of these motives. These motives were studied in detail in the last chapter, as
the motives behind merger and motives behind acquisitions are same.
Firms that are undervalued by financial markets can be targeted for acquisition by those
who recognize this mispricing. The acquirer can then gain the difference between the value
and the purchase price as surplus. For this strategy to work, however, three basic
components need to come together.
1. A capacity to find firms that trade at less than their true value: This capacity would require
either access to better information than is available to other investors in the market,or better
analytical tools than those used by other market participants.
2. Access to the funds that will be needed to complete the acquisition: Knowing a firm is
undervalued does not necessarily imply having capital easily available to carry out the

acquisition. Access to capital depends upon the size of the acquirer large firms will have more
access to capital markets and internal funds than smaller firms or individuals and upon the
acquirers track record a history of success at identifying and acquiring undervalued firms will
make subsequent acquisitions easier.
3. Skill in execution: If the acquirer, in the process of the acquisition drives the stock price
up to and beyond the estimated value, there will be no value gain from the acquisition. To
illustrate, assume that the estimated value for a firm is $100 million and that the current
market price is $75 million. In acquiring this firm, the acquirer will have to pay a premium.
If that premium exceeds 33% of the market price, the price exceeds the estimated value,
and the acquisition will not create any value for the acquirer.
While the strategy of buying under valued firms has a great deal of intuitive appeal, it is
daunting, especially when acquiring publicly traded firms in reasonably efficient markets,
where the premiums paid on market prices can very quickly eliminate the valuation
surplus. The odds are better in less efficient markets or when acquiring private businesses.
Prerequisites for Success
While this corporate control story can be used to justify large premiums over the market
price, the potential for its success rests on the following.
1. The poor performance of the firm being acquired should be attributable to the incumbent
management of the firm, rather than to market or industry factors that are not under
management control.
2. The acquisition has to be followed by a change in management practices, and the change
has to increase value. As noted in the last chapter, actions that enhance value increase cash
flows from existing assets, increase expected growth rates, increase the length of the
growth period, or reduce the cost of capital.
3. The market price of the acquisition should reflect the status quo, i.e, the current
management of the firm and their poor business practices. If the market price already has
the control premium built into it, there is little potential for the acquirer to earn the
premium. In the last two decades, corporate control has been increasingly cited as a reason
for hostile acquisitions.

Choosing a Target firm and valuing control/synergy

Once a firm has an acquisition motive, there are two key questions that need to be answered.

The first relates to how to best identify a potential target firm for an acquisition, given the
motives.
The second is the more concrete question of how to value a target firm.

Choosing a target firm:

Once a firm has identified the reason for its acquisition program, it has to find the
appropriate target firm

If the motive for acquisitions is operating synergy, the typical target firm will vary
depending upon the source of the synergy. For economies of scale, the target firm
should be in the same business as the acquiring firm. For functional synergy, the target
firm should be strongest in those functional areas where the acquiring firm is weak. For
financial synergy, the target firm will be chosen to reflect the likely source of the synergy
a risky firm with limited or no stand- alone capacity for borrowing, if the motive is
increased debt capacity, or a firm with significant net operating losses carried forward, if
the motive is tax benefits.

If the motive for the merger is control, the target firm will be a poorly managed firm in
an industry where there is potential for excess returns. In addition, its stock holdings
will be widely dispersed (making it easier to carry out the hostile acquisition) and the
current market price will be based on the presumption that incumbent management will
continue to run the firm.

If the motive is managerial self-interest, the choice of a target firm will reflect
managerial interests rather than economic reasons.

Valuing the Target Firm

The valuation of an acquisition is not fundamentally different from the valuation of any
firm, although the existence of control and synergy premiums introduces some complexity
into the valuation process. Given the inter-relationship between synergy and control, the
safest way to value a target firm is in steps, starting with a status quo valuation of the firm,
and following up with a value for control and a value for synergy.
a. Status Quo Valuation
We start our valuation of the target firm by estimating the firm value with existing
investing, financing and dividend policies. This valuation, which we term the status quo
valuation, provides a base from which we can estimate control and synergy premiums. In
particular, the value of the firm is a function of its cash flows from existing assets, the expected
growth in these cash flows during a high growth period, the length of the high growth period and
the firms cost of capital.

b. The Value of Corporate Control

Many hostile takeovers are justified on the basis of the existence of a market for corporate
control. Investors and firms are willing to pay large premiums over the market price to
control the management of firms, especially those that they perceive to be poorly run. This
section explores the determinants of the value of corporate control and attempts to value it
in the context of an acquisition.
If we can identify the changes that we would make to the target firm, we can value control. The
value of control can then be written as:
Value of Control = Value of firm, optimally managed - Value of firm with current
Management
The value of control is negligible for firms that are operating at or close to their optimal
value, since a restructuring will yield little additional value. It can be substantial for firms
operating at well below optimal, since a restructuring can lead to a significant increase in
value.
c. Valuing Operating Synergy
There is a potential for operating synergy, in one form or the other, in many takeovers.
Some disagreement exists, however, over whether synergy can be valued and, if so, what
that value should be. One school of thought argues that synergy is too nebulous to be
valued and that any systematic attempt to do so requires so many assumptions that it is
pointless. If this is true, a firm should not be willing to pay large premiums for synergy if it
cannot attach a value to it.

THE ACQUISITION PROCESS

The acquisition process is often viewed for analytical purposes as a five stage procedure. These
stages have been designated as (1) Goal (and Stategy) Definition, (2) Selection and Review of
Targets, (3) Forecast Evaluation, (4) Analysis, and (5) Management Review and Decision
[Allison, 1984]. For purposes of this article, however, it is suggested that the process more
readily reflects a sixth stage, which is categorized as (6) Negotiating the Acquisition [Anderson,
1987]. A detailed examination of each of the six stages with an emphasis on the management
accountant's contribution in light of ethical principles, is pertinent to a complete understanding of
the acquisition process.

Stage One: Goal (and Strategy) Definition In the first stage the acquiring company must set
forth its goals, objectives and stategic plan which should include alternatives to the proposed
acquisition. This is done during the strategic planning process when the firm attempts to match
its organization with the changing environment. As the business environment changes, the
organization is exposed to a variety of threats to its economic stability and opportunities to
expand its markets. Some organizations adapt to their changing environment by implementing
changes in their structure. These changes may influence the firm's relationship to its environment
and have an impact on the firm's effectiveness; or, the changes might instead relate to the
external operations of the firm and effect its efficiency [Armitage, 1990].

Stage Two: Selection and Review of Potential Targets The second stage of the process involves
screening of target companies. The management accountant can aid in targeting potential merger
or takeover candidates by identifying firms with with undervalaued assets resulting from
conservative accounting policies. In addition, the management accountant may choose to employ
available multivariate models based on a series of accounting ratios in a firm's efforts to identify
the best acquisition candidates. Computer models, using data from annual reports, SEC filings,
etc., could then be used to generate a set of financial projections based upon different
assumptions made about such factors as the hurdle rate, capital investment level and profitability
of the candidate. The candidate's expected performance would be shown in terms of cash flow
and standard financial statements

Stage Three: Forecast Evaluation The third stage of the process involves the evaluation of the
target company's financial forecasts. These projections are especially important if the acquiring
firm is considering alternative acquisitions. The management accountant uses these financial
forecasts to furnish the basis for comparing prospective acquisitions and arriving at the ultimate
decision to chose or reject an individual firm. Before the forecasts can be effective, they must be
carefully analyzed, especially if the necessary data to formulate the forecasts has been provided
by the target firm. All assumptions inferred from the data must be identified and assessed as to
their elements of risk, accuracy and reasonableness.

Stage Four: Analysis Once the financial statements have been evaluated and deemed to be
acceptable, the fourth step of the acquisition process is reached. This step consists of the analysis
of the financial projections and the subsequent evaluation of the acquisition relative to other
investment opportunities. Its internal rate of return is calculated by the management accountant
and then compared to any internal financial requirements.

Stage Five: Management Review and Decision The final step in the acquisition process is the
review of the reports generated by the management accountant and his team by upper level
management. With the help of these reports and the input of the management accountant, upper
level management can focus on the purchase price that would be required to achieve a specified
internal rate of return or a required payback period.

Stage Six: Negotiating the Acquisition The decision to acquire a company requires a great deal
of analysis, expertise and intuition, each aspect of which includes an appropriate consideration of
ethical principles. Once a decision has been made, the manner in which negotiations are
conducted will have significant implications upon the successful integration of the two
companies. While negotiating, it must be recognized that each company will have a differing
opinion as to the value of the firm to be acquired. The individuals who are involved in the
negotiations are the same people who must accept responsibility for attaining the benefits
projected in the valuation process.

MERGERS

A merger is a corporate strategy of combining different companies into a single company in

order to enhance the financial and operational strengths of both organizations.
Voluntary amalgamation of two firms on roughly equal terms into one new legal entity. Mergers
are effected by exchange of the pre-merger stock (shares) for the stock of the new
firm. Owners of each pre-merger firm continue as owners, and the resources of the
merging entities are pooled for the benefit of the new entity. If the merged entities
were competitors, the merger is called horizontal integration, if they were supplier or customer of
one another, it is called vertical integration.

HOW IT WORKS (EXAMPLE):

A merger usually involves combining two companies into a single larger company. The
combination of the two companies involves a transfer of ownership, either through
a stock swap or a cashpayment between the two companies. In practice, both companies
surrender their stock and issuenew stock as a new company.
There are several types of mergers. For example, horizontal mergers may happen between two
companies in the same industry, such as banks or steel companies. Vertical mergers occur
between two companies in the same industry value chain, such as a supplier or distributor or
manufacturer. Mergers between two companies in related, but not the same industry are called
concentric mergers. These mergers can use the same technologies or skilled workforce to work in
both industry segments, such as banking and leasing. Finally, conglomerate mergers occur
between two diversified companies that may share management to improve economies of
scale for both companies.
A merger sometimes involves new branding or identity of the merged companies. Otherwise, a
merger may lead to a combination of the names of the two companies, capitalizing on the brand
identity of both companies.
WHY IT MATTERS:
Mergers may result in a stronger company with combined assets, competencies, and markets. At
the same time, mergers may result in a dilution of the financial strengths of one of the
companies, particularly if the new company results in the issuance of more stock across the
same asset base of the two merged companies. Finally, mergers often fail because of the clash of
corporate cultures between the two companies, a reluctance to restructure redundant management
and operations, incompatibilities of the technologies used by the companies, and disruptions in
the workforce.

Because mergers are difficult to implement, most ultimately take the form of an acquisition, that
is, the purchase of a weaker company by a stronger company.

Types of mergers
there are many types of mergers and acquisitions that redefine the business world with new
strategic alliances and improved corporate philosophies. From the business structure perspective,
some of the most common and significant types of mergers and acquisitions are listed below:
Horizontal Merger
This kind of merger exists between two companies who compete in the same industry segment.
The two companies combine their operations and gains strength in terms of improved
performance, increased capital, and enhanced profits. This kind substantially reduces the number
of competitors in the segment and gives a higher edge over competition.
Vertical Merger
Vertical merger is a kind in which two or more companies in the same industry but in different
fields combine together in business. In this form, the companies in merger decide to combine all
the operations and productions under one shelter. It is like encompassing all the requirements and
products of a single industry segment.
Co-Generic Merger
Co-generic merger is a kind in which two or more companies in association are some way or the
other related to the production processes, business markets, or basic required technologies. It
includes the extension of the product line or acquiring components that are all the way required
in the daily operations. This kind offers great opportunities to businesses as it opens a hue
gateway to diversify around a common set of resources and strategic requirements.
Conglomerate Merger
Conglomerate merger is a kind of venture in which two or more companies belonging to
different industrial sectors combine their operations. All the merged companies are no way
related to their kind of business and product line rather their operations overlap that of each
other. This is just a unification of businesses from different verticals under one flagship
enterprise or firm.

successful mergers in India as follows:

Tata Chemicals took over British salt based in UK with a deal of US $ 13 billion. This is
one of the most successful recent mergers and acquisitions 2010 that made Tata even more
powerful with a strong access to British Salt's facilities that are known to produce about 800,000
tons of pure white salt annually.

Merger of Reliance Power and Reliance Natural Resources with a deal of US $11 billion
is another biggest deal in the Indian industry. This merger between the two made it convenient
and easy for the Reliance power to handle all its power projects as it now enjoys easy availability
of natural gas.

Airtel acquired Zain in Africa with an amount of US $ 10.7 billion to set new benchmarks
in the telecom industry. Zain is known to be the third largest player in Africa and being acquired
by Airtel it is deliberately increasing its base in the international market.

ICICI Bank's acquisition of Bank of Rajasthan at aout Rs 3000 Crore is a greta move by
ICICI to enhance its market share across the Indian boundaries especially in northern and
western regions.

Fortis Healthcare acquired Hong Kong's Quality Healthcare Asia Ltd for around Rs 882
Crore and is now on move to acquire the largest dental service provider in Australia, the Dental
Corp at about Rs 450 Crore.

Corporate merger and acquisition is defined as the process of buying, selling, and integrating
different corporations with the desire of expansion and accelerated growth opportunities. This
kind of association in any form plays an integral role when it comes to business and economy as
it results in significant restructuring of a business.
The key objective of corporate mergers and acquisitions is to increase market competition. This
can be done in various ways using different methods of merger like horizontal merger,
conglomeration merger, market extension merger, and product extension merger. All the types
work towards a common goal but behold different characteristics suited to get the best outcome
in terms of growth, expansion, and financial performance.
In many significant ways, this kind of restructuring a business proves to be beneficial to the
corporate world. It greatly helps to share all resources, skills, talents, and knowledge that
eventually increases the wisdom bar within the company. This can further help to combat the
competitive challenges existing in the market.

Further to that, elimination of duplicate departments, possibility of cross selling, reduction of tax
liability, and exchange of resources are other big time benefits of corporate merger and
acquisition. This not only helps to cut the extra cost involved in the operation and gain financial
gains but also help to expand across boundaries and enhance credibility. This in the long run help
increase revenue and market share, fulfillment of the only desire that drives the growth of M&A.

Following are some of the known advantages of merger and acquisition:

The very first advantage of M&A is synergy that offers a surplus power that enables
enhanced performance and cost efficiency. When two or more companies get together and are
supported by each other, the resulting business is sure to gain tremendous profit in terms of
financial gains and work performance.

Cost efficiency is another beneficial aspect of merger and acquisition. This is because any
kind of merger actually improves the purchasing power as there is more negotiation with bulk
orders. Apart from that staff reduction also helps a great deal in cutting cost and increasing profit
margins of the company. Apart from this increase in volume of production results in reduced cost
of production per unit that eventually leads to raised economies of scale.

With a merger it is easy to maintain the competitive edge because there are many issues
and strategies that can e well understood and acquired by combining the resources and talents of
two or more companies.

A combination of two companies or two businesses certainly enhances and strengthens

the business network by improving market reach. This offers new sales opportunities and new
areas to explore the possibility of their business.

With all these benefits, a merger and acquisition deal increases the market power of the
company which in turn limits the severity of the tough market competition. This enables the
merged firm to take advantage of hi-tech technological advancement against obsolescence and
price wars.

Cost of merger And acquisition

Mergers and acquisitions are strategic business deals that are executed only after comparing its
cost with the potential benefits to know the viability of the proposition. In an acquisition deal, the
acquiring company estimates the cost of acquiring the other company to gauge how profitable
will be the takeover in the long-run.
Many methods are available to calculate the cost of mergers and acquisitions. However, the
common ones are the Replacement Cost Method and the Discounted Cash Flow Method.
Replacement Cost Method is ideally used for manufacturing firms that have a number of byproducts. These by-products like machinery, furnaces, tools, etc. can be re-used by the acquiring
company in the course of business. Therefore, the total cost of the by-products is compared with
the cost of replacing them with the new ones at market price to determine the profitability of the
deal. However, this method is unsuitable for human resource-intensive firms.
Discounted Cash Flow Method involves discounting future cash flow projections, from the
newly formed company, to its present value. If the present value is higher than the actual cost of
merger, then the merger is viable. The present value is calculated using the weighted average cost
of capital.
All these methods are different approaches to determine the value of the target company. Both
the buyers and the sellers bid their own valuation. The buyers tend to bid a lower price whereas
the sellers give a higher valuation. After negotiations, a final price is decided and finalized

Process of merger and acquisition

Merger and acquisition process is the most challenging and most critical one when it comes to
corporate restructuring. One wrong decision or one wrong move can actually reverse the effects
in an unimaginable manner. It should certainly be followed in a way that a company can gain
maximum benefits with the deal.
Following are some of the important steps in the M&A process:
Business Valuation
Business valuation or assessment is the first process of merger and acquisition. This step includes
examination and evaluation of both the present and future market value of the target company. A
thorough research is done on the history of the company with regards to capital gains,
organizational structure, market share, distribution channel, corporate culture, specific business
strengths, and credibility in the market. There are many other aspects that should be considered

to ensure if a proposed company is right or not for a successful merger.

Proposal Phase
Proposal phase is a phase in which the company sends a proposal for a merger or an acquisition
with complete details of the deal including the strategies, amount, and the commitments. Most of
the time, this proposal is send through a non-binding offer document.
Planning Exit
When any company decides to sell its operations, it has to undergo the stage of exit planning.
The company has to take firm decision as to when and how to make the exit in an organized and
profitable manner. In the process the management has to evaluate all financial and other business
issues like taking a decision of full sale or partial sale along with evaluating on various options
of reinvestments.
Structuring Business Deal
After finalizing the merger and the exit plans, the new entity or the take over company has to
take initiatives for marketing and create innovative strategies to enhance business and its
credibility. The entire phase emphasize on structuring of the business deal.
Stage of Integration
This stage includes both the company coming together with their own parameters. It includes the
entire process of preparing the document, signing the agreement, and negotiating the deal. It also
defines the parameters of the future relationship between the two.
Operating the Venture
After signing the agreement and entering into the venture, it is equally important to operate the
venture. This operation is attributed to meet the said and pre-defined expectations of all the
companies involved in the process. The M&A transaction after the deal include all the essential
measures and activities that work to fulfill the requirements and desires of the companies
involved.

About Mergers and acquisitions

Mergers and acquisitions is a team of skilled, talented, and experienced industry professionals
which revolutionizes corporate strategies and set new benchmarks in the business world.
With our team of qualified professionals we offer a cost-efficient and dynamic solution to your
needs and requirements with regards to merger and acquisitions. We take care of all the stages in
the process starting from business valuation to operating the venture. Whether it is acquiring a
new business, disposing off your business, merging with another company, structuring new
entities, initiating joint ventures, or any kind of amalgamation of companies, our team is
committed to offer a supportive hand during all the stages. With an assurance of smooth
transactions and focus on optimized benefits, we offer value added solutions to all deals.
The prime objective of our company is to create a niche of core competencies and improve
transform the organizational culture to a better and improved form. We design and develop
systems in accordance to the changing face of business across all industrial sectors. In our
services and in our philosophies we keep ourselves aligned to the changing scenario.
We at Mergers and acquisitions are committed to extend our relationship with clients beyond the
professional horizons to provide them high level of satisfaction and assurance.

What is Mergers and acquisitions

Mergers and acquisitions is one of the best processes of corporate restructuring that has gained
substantial prominence in the present day corporate world. Restructuring usually means major
changes and modifications in the corporate strategies and beliefs. This shift in strategic alliances
is done with a desire to have an edge over competitors, eventually creating a new economic
paradigm.
Businesses across the corporate world have only two options in hand to expand their operation
and gain substantial profits. One way is to grow through internal expansion by means of
introducing new technologies, altering the course of operations, enhancing work performance,
and establishing new lines of products or services. Through this business grow gradually over
time but the new strategy of external expansion has completely changed the business sector
across the world. This external expansion takes place in the form of merger, acquisitions,
takeovers, and amalgamations, dramatically supporting the globalization of businesses.
Merger, acquisitions, takeovers, and amalgamations have become essential components of

business restructuring. The process brings separate companies together to form a larger
enterprise and increase economies of sale. The increasing popularity of it is attributed to highend competition and breaking of trade barriers. This expansion is either done through absorption
or consolidation. Absorption is a condition in which two or more companies come together to
perform operations in an existing company whereas in case of consolidation, companies come
together and create a completely new entity for their combined operations.
In the present day business world, the procedure is hugely being used across various industrial
segments including telecommunication, hospitality, pharmaceuticals, and information
technology. All the industrial progresses are based on external expansion and look ahead to
expand their customer base, gain credibility, and break all barriers in the market segment.

Joint venture
A joint venture is when two or more businesses pool their resources and expertise to achieve a
particular goal. The risks and rewards of the enterprise are also shared.
Reasons you might want to form a joint venture include business expansion, development of new
products or moving into new markets, particularly overseas.
Your business may have strong potential for growth and you may have innovative ideas and
products. However, a joint venture could give you:

more resources
greater capacity
increased technical expertise
access to established markets and distribution channels
Entering into a joint venture is a major decision. This guide gives an overview of the main ways
you can set up a joint venture, the advantages and disadvantages of doing so, how to assess if
you are ready to commit, what to look for in a joint venture partner and how to make it work.

The benefits of joint ventures

A joint venture can help your business grow faster, increase productivity and generate greater
profits. A successful joint venture can offer:

access to new markets and distribution networks

increased capacity
sharing of risks and costs with a partner
access to greater resources, including specialised staff, technology and finance

Joint ventures often enable growth without having to borrow funds or look for outside investors.
You may be able to use your joint venture partner's customer database to market your product, or
offer your partner's services and products to your existing customers. Joint venture partners also
benefit from being able to join forces in purchasing, research and development.
A joint venture can also be very flexible. For example, a joint venture can have a limited life
span and only cover part of what you do, thus limiting the commitment for both parties and the
business' exposure.
Joint ventures are especially popular with businesses in the transport and travel industries that
operate in different countries.

The risks of joint ventures

Partnering with another business can be complex. It takes time and effort to build the right
relationship. Problems are likely to arise if:

the objectives of the venture are not totally clear and communicated to everyone involved
the partners have different objectives for the joint venture
there is an imbalance in levels of expertise, investment or assets brought into the venture
by the different partners
different cultures and management styles result in poor integration and co-operation
the partners don't provide sufficient leadership and support in the early stages
Success in a joint venture depends on thorough research and analysis of aims and objectives.
This should be followed up with effective communication of the business plan to everyone
involved.

Choosing the right joint venture partner

The ideal partner in a joint venture is one that has resources, skills and assets that complement
your own. The joint venture has to work contractually, but there should also be a good fit
between the cultures of the two organisations.

A good starting place is to assess the suitability of existing customers and suppliers that you
already have a long-term relationship with. You could also think about your competitors or other
professional associates. Broadly, you need to consider the following:
How well do they perform?
What is their attitude to collaboration and do they share your level of commitment?
Do you share the same business objectives?
Can you trust them?
Do their brand values complement yours?

What kind of reputation do they have?

Create a joint venture agreement

When you decide to create a joint venture, you should set out the terms and conditions in a
written agreement. This will help prevent any misunderstandings once the joint venture is up and
running.
A written agreement should cover:

the structure of the joint venture, eg whether it will be a separate business in its own right
the objectives of the joint venture
the financial contributions you will each make
whether you will transfer any assets or employees to the joint venture
ownership of intellectual property created by the joint venture
management and control, eg respective responsibilities and processes to be followed
how liabilities, profits and losses are shared
how any disputes between the partners will be resolved

an exit strategy - see ending a joint venture.

THE ACQUISITION PROCESS

The acquisition process is often viewed for analytical purposes as a five stage procedure. These
stages have been designated as (1) Goal (and Stategy) Definition, (2) Selection and Review of
Targets, (3) Forecast Evaluation, (4) Analysis, and (5) Management Review and Decision
[Allison, 1984]. For purposes of this article, however, it is suggested that the process more
readily reflects a sixth stage, which is categorized as (6) Negotiating the Acquisition [Anderson,
1987]. A detailed examination of each of the six stages with an emphasis on the management
accountant's contribution in light of ethical principles, is pertinent to a complete understanding of
the acquisition process.

Stage One: Goal (and Strategy) Definition In the first stage the acquiring company must set
forth its goals, objectives and stategic plan which should include alternatives to the proposed
acquisition. This is done during the strategic planning process when the firm attempts to match
its organization with the changing environment. As the business environment changes, the
organization is exposed to a variety of threats to its economic stability and opportunities to
expand its markets. Some organizations adapt to their changing environment by implementing
changes in their structure. These changes may influence the firm's relationship to its environment
and have an impact on the firm's effectiveness; or, the changes might instead relate to the
external operations of the firm and effect its efficiency [Armitage, 1990].

Stage Two: Selection and Review of Potential Targets The second stage of the process involves
screening of target companies. The management accountant can aid in targeting potential merger
or takeover candidates by identifying firms with with undervalaued assets resulting from
conservative accounting policies. In addition, the management accountant may choose to employ
available multivariate models based on a series of accounting ratios in a firm's efforts to identify
the best acquisition candidates. Computer models, using data from annual reports, SEC filings,
etc., could then be used to generate a set of financial projections based upon different
assumptions made about such factors as the hurdle rate, capital investment level and profitability
of the candidate. The candidate's expected performance would be shown in terms of cash flow
and standard financial statements

Stage Three: Forecast Evaluation The third stage of the process involves the evaluation of the
target company's financial forecasts. These projections are especially important if the acquiring
firm is considering alternative acquisitions. The management accountant uses these financial
forecasts to furnish the basis for comparing prospective acquisitions and arriving at the ultimate
decision to chose or reject an individual firm. Before the forecasts can be effective, they must be
carefully analyzed, especially if the necessary data to formulate the forecasts has been provided
by the target firm. All assumptions inferred from the data must be identified and assessed as to
their elements of risk, accuracy and reasonableness.

Stage Four: Analysis Once the financial statements have been evaluated and deemed to be
acceptable, the fourth step of the acquisition process is reached. This step consists of the analysis
of the financial projections and the subsequent evaluation of the acquisition relative to other
investment opportunities. Its internal rate of return is calculated by the management accountant
and then compared to any internal financial requirements.

Stage Five: Management Review and Decision The final step in the acquisition process is the
review of the reports generated by the management accountant and his team by upper level
management. With the help of these reports and the input of the management accountant, upper
level management can focus on the purchase price that would be required to achieve a specified
internal rate of return or a required payback period.

Stage Six: Negotiating the Acquisition The decision to acquire a company requires a great deal
of analysis, expertise and intuition, each aspect of which includes an appropriate consideration of
ethical principles. Once a decision has been made, the manner in which negotiations are
conducted will have significant implications upon the successful integration of the two
companies. While negotiating, it must be recognized that each company will have a differing
opinion as to the value of the firm to be acquired. The individuals who are involved in the
negotiations are the same people who must accept responsibility for attaining the benefits
projected in the valuation process.