Mergers, joint ventures and other forms of collaboration can be powerful elements of a business strategy, potentially transforming your business prospects.
Careful planning and thorough due diligence are essential for any merger or joint venture. You'll also need to take into account the restrictions competition law places on cartels and other anti-competitive agreements.
Mergers and joint ventures - key issues
A successful merger or joint venture allows two businesses with complementary strengths to achieve more together than either could on its own. For example, a business with valuable intellectual property might collaborate with a company with the financial muscle and marketing presence to make the most of it.
From the outset, you'll need to consider what kind of collaborative arrangement you are looking for. You might continue to operate as separate businesses while working together, form a separate joint venture or merge the two businesses completely.
Unless you are planning a full merger, you'll also need to think about what each business will contribute, how the collaboration will be managed, how profits will be taken and so on. A well planned joint venture will include clear arrangements for handling disputes between the partners as well as for the eventual termination of the joint venture agreement.
Mergers and joint ventures - negotiation and due diligence
Putting together a merger or joint venture typically involves protracted negotiations as the partners get to know each other, gradually revealing more detailed information and working towards a deal. It may involve non-disclosure agreements, a memorandum of understanding once you have agreed key terms, and substantial due diligence checks: much the same process as when you are buying a business.
Your legal team will be able to assess the different options for structuring the business - such as forming a separate joint venture company - and the tax consequences. They will also need to assess the key legal issues and what arrangements need to be put in place. A joint venture may involve transfers of assets, intellectual property and employees, renegotiation of contractual arrangements with suppliers and so on.
Competition law and cartels
A merger or joint venture may require regulatory approval if the businesses have significant market share.
More broadly, joint ventures and other forms of business collaboration can raise competition law issues. Agreements to fix prices, share markets, limit supply or rig bids are all criminal cartel offences. There are however limited circumstances where businesses are allowed to collaborate in ways that might reduce competition. For example, in general the partners in a joint venture are allowed to agree not to compete with it.
If you are in any doubt, you should ensure that you take - and follow - legal advice. Substantial fines can be imposed on businesses that take part in a cartel, while the individuals involved may face disqualification as a director or even imprisonment.