Syndication refers to a group of individuals or business entities working together to achieve a set goal(s). In business, the goals vary. The most common goal is to acquire capital and use the combined power of the group in exercising that capital for a better than average rate of return.
This gets back to a basic business principle of the ‘whole’ is greater than the sum of its parts (members). Working together, the group is capable of greater success.
The following sections identify the five most common industries of syndication in business and illustrate how effective the syndication process works in that respective industry.
The syndication process in real estate is effective in building large multi-unit complexes especially in housing. Typically a group of investors form a limited partnership with the sole purpose of investing in a multi-family housing project like apartment complexes. The investment group pools its money and contributes capital to another limited partnership whereby a general partner is responsible to carry out the construction and operation of the business. Over time the real estate investment generates income and returns that income to the limited partnership and the limited partnership distributes the funds to the respective original members.
Back in the 60’s, 70’s and 80’s, these syndicated partnerships were effective in building over 40,000 apartment complexes in the United States. Congress assisted in the expansion of multi-family housing by offering tax credits to these syndicated partnerships. The syndication formation allowed the group of investors to take advantage of tax credits and tax savings. In addition, the larger initial investment allowed the operating partnership (the entity owning the complex) to borrow money at significantly reduced interest rates due to the decreased risk for the lender.
In today’s economy, the syndication is instrumental in developing business parks and commercial facilities. The power of the group reduces the exposure for lenders and often allows the local government to offer bonds which are tax free income. The key here is that syndication facilitates large construction projects.
Publication or Journalism
Much of our modern day press information is acquired via syndication. A group of writers or illustrators agree to participate in an agency format. The agency distributes the information to many newspapers, periodicals and internet. The syndicated agency is paid for this service and in turn pays its members their respective earnings. The best example of this form of syndication is comic strips. A comic creator joins a syndication and then has access to several thousand publishers at the same time. This is how Charles Schultz and his PEANUTS cartoon strip became so popular back in the 50’s and 60’s.
One of the best known writer’s syndication is United Press International.
Hearst Corporation owns over 25 television stations and has interests in several cable TV networks including A&E and ESPN. The modern day reality TV shows utilize syndication to gain access to the millions of viewers. In effect the syndication not only funds the program venture, but in turn provides the series to the respective member networks; thus controlling the revenue stream to maximize profits.
Other examples are in the music industry. The large record studios are investments of the syndication that in turn discover artists and then distribute the artist’s music to the end user. To entice the listener to purchase the music, these syndicates utilize radio stations throughout the United States. The most influential companies in syndicated music include Warner Music and Sony Entertainment.
To effectively capitalize large projects or finance the initial public stock offering (IPO’s), banks or investment companies will syndicate the sale. They gather together several banks or underwriters (insurance companies, brokerage firms, large capital investors) to reduce the risk exposure and fully fund the investment. This is quite common for huge IPO’s. Goldman Sachs funded the $1.8 billion Twitter IPO back in November of 2013. The stock opened for sale on November 7, 2013 at $26.00 per share. At the end of the day, it was selling for $44.90.
Where there is a need or want, somebody is going to try and fill that void. Even more so when profit is to be made. The sins of mankind are no different. The crime industry exercises the same business principles as the legal entities. One of the primary differences is that the information associated with the syndication is kept secret.
Syndication is a French word meaning a form of union or trading association. In crime, there are significant benefits in profit associated with a larger group than at the individual level. This is how the Mexican cartels are successful in generating profits. They formed not only the end selling market system they got involved in distribution and growing of the respective drugs. In effect, they have achieved total vertical corporate structure to successfully meet the wants and needs of their customers.
Syndication in crime exists in all areas of sins gambling, prostitution, and finance. By cooperating with others, mob bosses can achieve greater financial success. Remember, the word syndication means working together to achieve a goal. Act on Knowledge.
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There are four key principles used with value investing. Each is required. They are:
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- Patience – Allow time to work for the investor.
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Join the value investing club and learn about value investing and how you can easily acquire similar results with your investment fund. Upon joining, you’ll receive the book Value Investing with Business Ratios, a reference guide used with all the decision models you build. Each member goes through three distinct phases:
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