ACCESSING

RESOURCES
FOR GROWTH
FROM
EXTERNAL
SOURCES
By:
Riddhi Shrof
Soham Sathe
Harsh Heda
Prabudh Bansal

FLOW OF THE
PRESENTATION
Franchising
Joint Ventures
Acquisitions
Mergers
Leveraged Buyouts
Overcoming Constraints by Negotiating for more Resources

FRANCHISING

 Right to use a firms business model and brand for a prescribed

period of time.
A Franchisee gets exclusive rights for local distribution
to independent retailers
A Franchisor gets their payment of royalties and
conformance to standard operating procedures

Franchisee

Franchisor

Product Acceptance

Expansion Risk

Management Expertise

Cost Advantages

Capital Requirements
Operating and Structural
Controls

DISADVANTAGES

Other franchisees could give the brand abad

reputation

Allprofits(a percentage of sales) are usually shared

with the franchisor.

Theinflexiblenature of a franchise may restrict your

ability to introduce changes to the business to respond
to the market or make the business grow.

TYPES OF FRANCHISES
Dealership or Product Franchises: Common in cases of

automobile manufacturers.

Method of doing business or business format franchises:

Includes large fast food chains like Mcdonalds, KFC, etc.

Services Franchises: When a company is already operating a

same business and then becomes a part of a large franchise

FRANCHISING OPPORTUNITIES DUE

TO ENVIRONMENTAL CHANGE
Good Health
Time Saving or Convenience
Environmental consciousness
The second baby boom

INVESTING IN A FRANCHISE
Factors involved in making a decision:
Unproven vs Proven Franchise
Financial Stability of the franchise
Potential Market for new franchise
Profit potential for a new franchise

FEDERAL TRADE COMMISSIONS

FRANCHISE
RULE
1. The Franchisor and any Parents, Predecessors, and Affiliates

2. Business Experience
3. Litigation
4. Bankruptcy
5. Initial Fees
6. Other Fees
7. Estimated Initial Investment
8. Restrictions on Sources of Products and Services
9. Franchisee's Obligations
10. Financing
11. Franchisor's Assistance, Advertising, Computer Systems, and Training

FEDERAL TRADE COMMISSIONS

FRANCHISE RULE
12. Territory
13. Trademarks
14. Patents, Copyrights, and Proprietary Information
15. Obligation to Participate in the Actual Operation of the Franchise

Business

16. Restrictions on What the Franchisee May Sell

17. Renewal, Termination, Transfer, and Dispute Resolution
18. Public Figures
19. Financial Performance Representations
20. Outlets and Franchisee Information
21. Financial Statements
22. Contracts
23. Receipts

JOINT VENTURE
A Separate Entity in which two or more parties pool their resources to

perform a specific task.

A partnership between two or more parties.

Generally, for a finite time.
Partners involved Businesses, public sector, universities.

TYPES OF JOINT VENTURE

Between Two or more private sector companies: Technology & Asset Sharing
New Market Access
Cost Cutting(Financial burden)
Innovation
Strategic Move Against Competitors
Diversification

Industry-University Agreement :-

Research based

Industry aims at obtaining the patents and the

proprietary rights from its research investments

Institutions share the patents for the financial returns

Whereas, researchers want to make the knowledge

available through publishing the research paper

 International Joint Ventures: Access to new international market

Resource Savings
Technology Sharing
Innovation
Drawbacks:
Diferent Objectives of JV partners
Cultural Diferences
Government Policies
Eg. Maruti-Suzuki, Hero Honda

FACTORS IN JOINT VENTURE

Chemistry Between the managers

Degree of Symmetry between the partners on the objectives and the level

of resources being provided

Realistic Expectations from the JV

Proper Timing for JV is must.

ACQUISITIONS
A strategy through which one firm buys a controlling, or 100% interest in
another firm with the intent of making the acquired firm a subsidiary business
within its portfolio
Reasons:
Increased Market Power
Overcoming Entry Barriers
Lower risks compared to developing new products
Innovation
Diversification

TYPE OF ACQUISITIONS
Horizontal Acquisition
Flipkart acquired Myntra

Vertical Acquisition
Luxottica acquired RayBan, Sunglass Hut.

Conglomerate Acquisition
HUL with diferent product lines and diferent customer base for each product.

DISADVANTAGE OF
ACQUISITION
Marginal success record

Overconfidence in ability

Key employee often lose

Overvalued

STRUCTURING THE DEAL

Common means of acquisition
Direct purchase of firms entire stock
Bootstrap purchase

Locating acquisition candidate

Accountants
Bankers
Business Associate
Brokers

MERGERS

Fig: Merger Motivations

PROS AND CONS

Pros
Economies of scale
R&D
Avoid duplication
Speed to market

Cons
High cost involved
Integration issues
Unrelated diversification

LEVERAGED BUYOUTS (LBO)

Borrowed fund to purchase an existing venture for cash

Great amount of external funding required

Long term debt financing

High financial risk

Characteristics of a Good LBO Candidate

Strong, predictable operating cash flows with which the leveraged company can service and pay

down acquisition debt

Well-established business and products and leading industry position
Moderate CapEx and product development (R&D) requirements so that cash flows are not

diverted from the principle goal of debt repayment

Limited working capital requirements
Strong tangible asset coverage
Seller is motivated to cash out of his/her investment or divest non-core subsidiaries, perhaps

under pressure to maximize shareholder value

Strong management team
Viable exit strategy

PROS AND CONS

Interest payments on debt are tax deductible, while dividend payments on

equity are not. Thus, tax shields are created and they have significant
value.

Large principal and interest payments can force management to improve

performance and operating efficiency.

Increase in fixed costs from higher interest payments can reduce a

leveraged firms ability to weather downturns in the business cycle.

OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES

NEGOTIATION WITH OTHER

PARTY
Two primary tasks

ASSESSMENTS MADE BY
AN ENTREPRENEUR
Assessment 1: What will you do if an agreement is not reached

Best alternative to negotiated agreement

Helps in determining reservation price

Assessment 2: What will the other party

to the negotiation do if an agreement is
not reached?
Difficult to assess the reservation price
Provides good idea of bargaining zone
Focuses on distributive stage but not
integrative stage

Assessment 3: What are underlying

issues of this negotiation? How
important is each issues to you?
Achieving relationship that is most
desirable for the entrepreneur by trading
of aspects of less importance for those of
greater importance.
Example: Benefits of Joint Venture

Assessment 4: What are the

underlying issues of this
negotiation? How important is each
issue to other party?
Greater opportunity to achieve
integration- make size of pie bigger
Information is known to both parties,
then it is likely that the outcome will be
mutually beneficial

STRATEGIES FOR NEGOTIATION

BUILD TRUST AND SHARE

INFORMATION

Requires both parties to have information about each

other underlying issues

Building trust is an important aspect as it may impact

the long tem performance of the firm

ASK LOTS OF QUESTIONS

Opportunity to learn and find trade ofs

necessary for integrative agreements.

No answer itself provide answer to lots

of questions

MAKE MULTIPLE OFFERS SIMULTANEOUSLY

Numerous possible ofers based on diferent levels on

diferent dimensions.

Send signal to other party that the entrepreneur is flexible.

USE DIFFERENCES TO CREATE

TRADE OFFS THAT ARE SOURCE OF
MUTUALLY BENEFICIAL OUTCOMES

Differences in terms of expectations, risk preferences and time

preferences.

Example: Difference in expectations

REFERENCES
https://www.youtube.com/watch?v=kmYqlFgrgF8
http://www.i-soldit.com/how-it-works/
http://www.newlifeauctions.com/dropof.html
http://www.cfo-connect.com
https://en.wikipedia.org