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Maximizing Corporate Value through Mergers and Acquisitions: A Strategic Growth Guide by Patrick A. Gaughan

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Chapter 8

Joint Ventures and Strategic Alliances as M&A Alternatives

The focus of this book has been on how companies can achieve growth through strategic mergers and acquisitions (M&A). When we analyze the benefits a company may derive from an M&A, one has to also consider whether there are lower-cost alternatives that could achieve the same goals. As we will see, joint ventures and strategic alliances are often much less expensive alternatives to M&A. However, they have significant limitations. In some instances, such as in the pharmaceutical industry, they can possibly work even better than M&A. In other instances, their limitations are too great to allow for the desired benefits to be realized. Therefore, it is useful to go over a brief discussion of these M&A alternatives.

In a joint venture, two or more companies combine certain assets and work together to achieve a particular business objective. Unlike M&A, where the time horizon is indefinite, in a joint venture the time period is usually defined and limited in duration. In some cases, however, such as in acquisition by private equity firms, the bidder has in mind a desired time period within which to exit the deal and flip the target.

The companies involved in a joint venture maintain their own separate business operations and continue to exist apart as they did before the joint venture. This venture is then formally created as a business entity such as a separate corporation or partnership. A formal agreement among the ...

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