The merger or acquisition of a business does not always eliminate the bought-out company. In fact, a merger may only be a temporary partnership between two companies looking to achieve a shared goal. The business model during a merger or acquisition depends greatly on the goals and needs of each company. A company looking to purchase a business may have different aims than a company only seeking a temporary joint venture.
Strategic Joint Venture Agreements
A strategic joint venture is an agreement between two separate companies to work together toward identifiable goals. A partnership agreement also refers to this type of business arrangement. The two companies entering into the venture do not merge into one business entity. Each organization remains legally separate in terms of structure, employees and leadership. This allows both companies to remain autonomous from one another while still pooling collective resources to accomplish a common business goal.
Joint Venture Business Model
The business model in a joint venture stresses the strengths of each organization while working to mitigate the areas where each company has weaknesses. For example, a company with a strong product development department may look to partner with a corporation that has a well-developed distribution network to reach more customers. Each company gains something from the partnership: The business with a strong product is able to bring that item to more market areas, and the company distributing the product is able to charge a fee for gaining access to the shipping network. Both businesses can advertise the temporary partnership to generate a positive buzz in target market areas.
Business Acquisition Definition
A company acquires another business by purchasing it from the firm's owners. This may occur in a variety of ways depending on the ownership structure of the company. For example, a business buys a corporation through the acquisition of the corporation's stock. In a business acquisition, the purchased company may disappear altogether into the purchasing company. When this occurs, leadership and managerial personnel within the purchased business don't survive the acquisition process still employed. The purchasing company may also elect to keep the business running as a separate entity or shut the company down completely. What action the purchasing company performs depends on the business model going forward.
Acquisition Business Model
The business model of an acquisition or merger is highly subjective depending on the strengths and weaknesses of the purchased company. If a purchased company has a recognizable name or brand with customers, a purchasing company could decide to keep that business running and use the brand recognition to stimulate sales. Conversely, if the business simply has product patents the purchasing company wants, the purchasing company will keep the patents and dismantle the business. A bought-out company may also have an attractive research and development department or marketing division that the purchasing company will absorb into its own business structure while eliminating the remainder of the company.