BOH Guide: Project Development Stages
That companies enter into various types of agreements, partnerships, and projects with other parties is not surprising and not at all unusual. While investors typically favor organic growth since such growth is easier to predict and forecast, synergistic partnerships can boost a company’s business growth prospects.
So when you read press releases and corporate disclosures saying that company XYZ entered into an agreement with company ABC that potentially alters the growth trajectory of both parties, expect there to be a “knee-jerk” reaction in the stock’s price. But for the move in price to be sustainable, there should be follow up news flow about the partnership otherwise momentum will naturally decay and investors’ interest will wane. At least until we get more clarity about the proposed project and or venture.
To help you differentiate between different types of agreements, you need to think in terms of Project Development Stages. Below are some of the terms you will normally encounter in corporate disclosures.
(1) Memorandum of Understanding
(2) Memorandum of Agreement
(3) Joint Venture Agreement / Joint Venture Company
(4) Start of Project
The earliest stage is a signing of a Memorandum of Understanding (MOU). MOUs are signed to express that there’s meeting of the minds between two or more parties to explore and pursue a mutually beneficial venture. To use a crude analogy, nag-kaka ligawan pa lang, di pa required to be exclusive to one another.
The next stage is usually a Memorandum of Agreement (MOA). Eto medyo serious na. Not only does such a document expressly state that they are interested in working together, in this document there are already timelines on how to proceed, deliverable, commitments, and terms of the partnership. In other words, at this point, mag-ON na yung mga project proponents. Sila na and getting ready to proceed to the next level.
Things get very interesting at the Joint Venture Agreement (JVA) stage. This is the implementation phase of the venture, kinasal na kayo, nag papatayo na ng bahay, bumili na ng kotse, may shared bank account na, hatian expenses na, and both working towards a common goal of a happy life.
The start of project usually sabay na ito with the Joint Venture Agreement stage so it need not be formally announced. Not sure if tama pa rin yung analogy (yes, panindigan ko na yung analogy) pero eto siguro yung may pamilya na kayo, nag aalaga ng anak, nag papaaral, nag uuber duties, and basically worrying every single day na nagawa mo na lahat to prepare your kid for the world. LOL
Yan to me are the project development stages we should keep in mind when we read disclosures that contain MOUs, MOAs, and JV terminologies as well their accompanying press releases.