Business companies go on cooperation with other companies for many purposes, mainly because of a desire to increase income, competitiveness in the market, to increase their influence or acquire new clients, sometimes all together, and sometimes for other reasons. And depending on these reasons, they also choose the method of cooperation, of which there is also a sufficient number in business practice. Organizations mainly resort to three types of them: mergers and acquisitions, partnerships, or joint ventures, but what are their differences, purpose, and benefits? In this article, we will find out.

What are M&A transactions?

A merger and acquisition is a complex, multi-step process that requires a lot of time, effort, and expense on the part of the company. You must be prepared for all possible risks, as well as know how to prevent them.

In simple terms, a merger and acquisition is a process where two or more companies merge with each other to form a new organization. Sometimes it implies equal responsibilities and opportunities for both companies, and sometimes one company acts as a subsidiary and subordinates the other.

M&A comes in several types:

Vertical – this is when both companies operate in the same field but in different industries, that is, one company acts as a supplier of products to the other company, and in this way, they increase their market share and expand their customer base

Horizontal – when companies (it often happens that competing companies) working in the same direction unite their efforts, thus, increasing their influence on the market and enhancing their competitiveness and income.

M&A processes involve due diligence, the deal process, and subsequent integration. It can take a long time before a deal is completed, up to as long as 1 year.  But if you don’t think an M&A deal is an option for you, then you can pursue a joint venture or partnership deal to achieve your goals.

Partnership

Technically, a partnership deal is still considered a merger, but in reality, this deal can take place without any investment or financial transactions. In this type of agreement, each partner gets their share of ownership, which is equal to the value that they contribute to maintaining this partnership. As a result, you create a powerful new business based solely on the strengths of both partners. Typically this type of transaction is common for businesses that provide different services, and have a lot of experience so they form a common customer base. Any company can use this type of transaction, but most often it applies to IT and telecommunication companies.

Joint Venture.

A joint venture is considered a more informal type of contract, but you still need to legally certify the document to get it done. A joint venture is a transaction between two independent companies that split the same business in two, with all revenues, losses, and management divided equally.  This venture is either a separate physical building, for joint operations, that exists without any relation to the other business interests of either party or exists simply by word of mouth. This type of contract is considered the easiest to enter into or terminate. It can be either short-term or long-term, depending on the purpose the companies are pursuing. As a rule, as soon as the goal has been achieved, the contract is canceled.

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