M&A NOTES: Is Carrot and Stick Better Than Buying a Company?

April 9, 2026 Edition.

Welcome to this edition of M&A NOTES, which focuses on the many aspects of business Mergers & Acquisitions.

In this edition:

Article: Is Carrot and Stick Better Than Buying a Company?
New book: M&A THIS WAY! Available here: https://mergeacq.ai/ma-book/

Article: Is Carrot and Stick Better Than Buying A Company?

Subcontracting can be an alternative to M&A or building a business. Sometimes it works, sometimes it isn’t a good idea….

Building your own business tales time, sometimes years. Buying a company can be costly and risky if you skimp on the due diligence or miss something. Perhaps a carrot and stick approach is enough?

The Financial Times commented that Apple would dangle big supply contracts and invest in a subcontractor’s new production line in return for ownership of related IP which it studied and used elsewhere too. (IP is short for intellectual property).

In this way, it was possible to scale up rapidly by transferring IP from one subcontractor to many others. The carrot was the supply contract. The stick was the control over IP acquired, in that case, when investing in equipment.

Was Apple being saucy?

Below is our review of it all.

Comments:

Below are some additional comments on subcontracting versus M&A or joint venture.

Financial viability: Investing in a subcontractor’s production line may be cheaper than acquiring than acquiring all the subcontractor’s activities or all its shares (stock).
Not always a good idea: In our experience, we are aware of another group that infringed a subcontractor’s patents when it transferred production to a separate subcontractor. A US court awarded substantial damages. Beware.
Psychology: Such cases can end in friction between the production prime contractor and its subcontractors if/when relationships sour. Some would argue that all is fair in war and business. Others, including some major multinationals, are keen to do the right thing, saying it pays off for them in the long run – a win-win approach.
Control: Generally, engaging in a subcontract arrangement or a joint venture (JV) results in less control for each party than outright ownership. A JV Committee is generally set up, but this serves mainly as a communication channel. The question is whether control over IP is also legally acquired. If so, what were the parties and their lawyers thinking?
Integration: The dominant party must integrate its supply chain, so that all works smoothly and profitably. Proper management is needed for all integration aspects.
Tax: Joint ventures sometimes present tax issues – does a foreign JV party have a taxable permanent establishment (branch) in other countries concerned? That is a bigger issue if the JV parties share profits than agree fixed subcontract fees. But if IP is acquired, that can trigger capital gains tax for the party concerned and transfer pricing issues for all parties concerned. Specialist tax advice is vital.
To sum up: Building your own business – organic growth – is an alternative to subcontracting, M&A or JV, but it takes time. Time is a precious commodity. Subcontracting can be carrot and stick.
Additional Aspects:
The above is a short general article, many more factors matter. Please email: [email protected] for M&A advice and assistance.

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The above article is based on: “M&A THIS WAY!”

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Ingredients of an M&A deal
M&A motives and negotiation strategy
M&A process and preparation
Structuring an M&A deal
Valuation aspects

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Footnote:

As always, consult experienced advisors in each country at an early stage in specific cases. We can help arrange introductions.