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As a business owner who deals with finance and bank loans, you may come across the term ‘consortium’. A consortium is a group of two or more members (often companies, but the term can also be applied to individuals) that work together to achieve a common goal. For example, it can enable you to pool resources with other companies to raise capital, develop new products or intellectual property, expand into new markets, or generate profits for your business. As such, it can be valuable to understand how consortiums can help your business, particularly with large-scale projects. This article will explain:
- what is consortium financing;
- how it differs from loan syndication or a joint venture; and
- other everyday contexts in which business owners use consortiums.
What is a Consortium?
A consortium is a group of two or more members working together to achieve a common goal, such as funding a large project. Often, entities in a consortium pool their resources without merging in any other way. This means there is no change in ownership for each individual business. Each company will remain separate. This differs from a merger or acquisition, where two companies typically combine to form a single entity. As a result, entities within a consortium maintain their independence.
In a finance context, consortiums usually occur when a company does not want to finance an entire project on its own. This can be for several reasons, including the following:
- large-scale nature of the project; and
- a financing institution or bank wants to spread the risk of its investment by funding a portion of a venture rather than the entire project.
Private Equity Consortiums
Private equity houses use consortiums since they allow the firm to buy ownership stakes in larger target companies. Similarly, using a consortium structure is preferable for each investor as they:
- limit their risk by sharing the investment with other consortium members; and
- This opens up the opportunity to pool their expertise as more investors are incentivised to help the target company.
Once it is clear that the consortium financing is going ahead, the parties to the deal will typically enter into a preliminary consortium agreement. This agreement covers issues including:
- syndication rights, usually concerning when syndication occurs;
- withdrawal rights, for example, on the condition that there are problems at the merger approval stage;
- exclusivity provisions that prevent individual consortium members from pursuing the target company independently; and
- fees and expenses involved in the agreement may vary depending on whether the transaction or project is successful.
Once the consortium agreement passes, the parties to the agreement will sign a share purchase agreement. The share purchase agreement will outline their respective:
- shareholding in the target company;
- corporate governance issues; and
- exit conditions.
Other Types of Financing
As a business, being aware of other types of financing is beneficial if a private equity fund is interested in acquiring your company.
Loan Syndications
Unlike consortium financing, loan syndication usually refers to a deal in an international transaction involving multiple currencies. A lead bank will arrange the deal’s conditions and organise the creditors’ syndicate. Consequently, the borrower must pay the bank a fee in exchange for this service.
On the other hand, a consortium does not typically involve a lead bank. Instead, the private equity house collates the consortium of lenders itself.
Joint Venture Agreements
A joint venture agreement can also appear like a consortium. A joint venture is an arrangement in which the parties to the agreement create a new entity (usually a company, if this is an incorporated joint venture) to accomplish a specific task. As a result, they have their own legal structure.
Business owners typically use joint ventures to:
- leverage collective resources;
- cut costs;
- combine expertise; and
- access a new or foreign market.

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Key Takeaways
A consortium is a structure in which multiple entities collaborate towards a common goal, typically by pooling their resources. The term often arises in a private equity context where a consortium of financial institutions is used to fund large-scale projects and acquisitions. Ultimately, understanding a consortium deal and how it differs from other forms of financing can be helpful if your business chooses how to finance its future projects.
If you have any questions about a consortium, our experienced business lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers to answer your questions and draft and review your documents for a low monthly fee. Call us today on 0808 196 8584 or visit our membership page.
Frequently Asked Questions
What is a joint venture?
A joint venture is when two or more individuals or businesses enter into a collaboration for the purpose of a specific project or task. This may involve establishing a new entity, such as a new company for this business venture, which is referred to as an incorporated joint venture.
What is a private equity house?
Private Equity houses are investment management companies that specialise in acquiring, investing in, and managing businesses.
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