NOVEMBER 2021 – JV CEOs ASSERT they have the toughest job in business. And many operating executives confess they would choose exile in Siberia over a joint venture rotation. These attitudes are not surprising, especially given how often JVs fail to deliver on shareholders’ strategic, financial, or operational expectations. Ankura’s research on joint venture performance has consistently shown at least half of JVs fail on one or more of those counts. For example, two-thirds of JV CEOs report their owners are misaligned on long-term strategy and the annual budget, and just under half of cross-border JVs fail to meet the strategic and financial expectations of at least one partner. Even more sobering is that 31% of large, material joint ventures are terminated in the first five years. While some degree of failure is inevitable in business, JVs can also fall victim to other maladies created by their unique ownership structures. The good news: These maladies are generally preventable with proper planning and guidance from teams like ours.
Ankura has served hundreds of JVs and conducted dozens of research studies over the years, giving us a front-row seat to the multitude of creative ways that JVs implode and providing insight into how to inoculate against those outcomes. Our findings led us to 10 common causes for JV failures, ranging from misalignment on venture strategy to culture clashes to an inability to grow and evolve the JV.
Some of these causes are more likely to occur early in the life of the JV; others tend to emerge as the venture reaches middle age. Keeping these failures at bay requires focus across the venture lifecycle, putting the onus on dealmakers, JV board directors, and JV CEOs alike for diagnosis and treatment. The good news is that there are ways to keep these causes at arm’s length. For example, JV partners can avoid inadequately defined operational interfaces with parent companies by defining the JV operating model early and detailing JV-partner relationships so the economics and demands of such relationships are understood prior to venture formation. Similarly, JV partners can avoid over-valuing strategic objectives for the JV by developing a thorough and realistic business case prior to signing. See Exhibit 1 for a more complete list of how to combat common causes of JV failure and potential solutions.
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Forming a risk-free JV is tough work and perhaps impossible. With these common causes in mind, dealmakers can be more confident in the future success of their JVs. For a deeper dive into the top 10 common reasons for JV failure and their solutions, read the complete article, Why Joint Ventures Fail, And How to Prevent It.
Have any questions? Contact our team at Ankura.
We understand that succeeding in joint ventures and partnerships requires a blend of hard facts and analysis, with an ability to align partners around a common vision and practical solutions that reflect their different interests and constraints. Our team is composed of strategy consultants, transaction attorneys, and investment bankers with significant experience on joint ventures and partnerships – reflecting the unique skillset required to design and evolve these ventures. We also bring an unrivaled database of deal terms and governance practices in joint ventures and partnerships, as well as proprietary standards, which allow us to benchmark transaction structures and existing ventures, and thus better identify and build alignment around gaps and potential solutions. Contact us to learn more about how we can help you.
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