Trust, But Verify: Our Approach to Due Diligence for Joint Ventures

Due diligence for joint ventures is more important than due diligence in an M&A context and requires an approach that exceeds traditional M&A due diligence.

JANUARY 2022 — No one thinks twice about asking for detailed due diligence before spending vast sums to acquire existing assets or an entire business. After all, investors and corporate board directors alike tend to frown upon management teams that pay a premium in return for inflated sales projections, questionable accounting practices, dysfunctional teams and cultures, and surprise exposure to financial, legal, and reputational risk.

Strange, then, that in our experience some joint ventures (JVs) – which can rival mergers and acquisitions (M&As) in terms of value at stake and potential corporate risk exposure – do not seem to merit the same focus on due diligence. Many companies approach due diligence on potential JV partners as a perfunctory exercise at best, while others seem keen to avoid it altogether – as if partial ownership somehow insulates a company from things going sideways.

It does not.

If anything, we believe due diligence is almost more important in a JV context. Due diligence on a full acquisition is a relatively straightforward process centered on “should we do this deal” and “at what price,” and companies making a mistake in the process have the post-close control to salvage the value of their investment through wholesale change.

Meanwhile, companies that find themselves trapped in a JV with misbehaving partners have limited options beyond exiting, if exiting is even an option. Regulators have made clear ignorance is no excuse and will hold JV partners accountable for bad behavior that appropriate due diligence should have discovered. Good JV due diligence does not just answer whether to do the deal – it helps dealmakers decide how to do the deal in ways that reflect partner strengths and JV weaknesses in governance and operating model design.

This should drive JV dealmakers to place a premium on making sure they know their partner(s) inside and out before saying yes, especially if a partner will be in control.


Our philosophy on JV due diligence is to give JV dealmakers the actionable insight they need to structure the right deal with the right partner. We bring  distinctive experience in anti-money laundering, anti-bribery and corruption, financial auditing, cybersecurity, and deep background investigations, backed by experience structuring thousands of JVs across geographies, industries, and partner types, to help you understand what to do with what you find.

Our approach goes beyond basic questions and document review in search of the real on-the-ground truth, leveraging proprietary databases, extensive experience screening public records and lesser-known sources, and access to discreet local sources in the partner, its community, and relevant subject-matter experts. We do this in ways that exceed traditional M&A due diligence, including (Exhibit 1):

  • Strategic Partner Due Diligence: We help you to truly know your partner(s) from the inside and understand how they are perceived by others, providing a deep understanding of their strategy, interests, and objectives, experience as a partner in other ventures, and reputation with key stakeholders. We also help you build a complete picture of the ownership, control, and connections of the partner and key employees – ensuring full visibility into the presence of sanctioned individuals, politically exposed individuals, and others with risky backgrounds – before they end up as directors on your JV board or officers on your JV management team.      
  • Financial Due Diligence: We provide insight into the financial opportunities, challenges, and risks associated with a potential partner, covering the accuracy of historical financial statements, the quality of financial and accounting functions, and the ownership and history of key assets targeted for inclusion in the JV. We also provide you with confidence the partner has the overall financial health to meet current and future capital obligations to the JV without violating existing debt covenants or contractual limitations.
  • Technical and Operational Due Diligence: Our data, technology, and operational experts help you understand the potential partner’s digital and technological capabilities, the quality of key business functions, and the resulting ability of the partner to deliver promised people, services, and other support to the venture.
  • Cultural Due Diligence: Our team of experts helps our clients assess the business culture, values, and ethics of a potential partner to ensure the cultural integrity of any JV remains intact – and to understand differences that must be bridged in talent management, career development, internal communications, and other key corporate interfaces.
  • Environmental, Social, and Governance (ESG) Due Diligence: We help you understand the ground truth in how your partner manages health, safety, environmental, and community risks – and whether they pay lip service to the issues or truly manage issues, such as anti-bribery and corruption or human rights, in ways that are both effective and aligned with documented procedures. As part of this review, we will help you understand the current regulatory environment and legal exposure / actions against your potential partner, whether there are any antitrust or anti-competition issues and whether they have both regulatory and social licenses and permits to operate.

Exhibit 1: JV Diligence Focus and Differences from M&A

Focus in JVs
Differences from M&A

Strategic Partner Due Diligence

  • Alignment of corporate strategy, interests, and objectives
  • Complementarity of capabilities
  • Reputation with key stakeholders
  • JV experiences and lessons learned
  • Strength / depth of key relationships and market access
  • Organizational structure and ownership / shareholders
  • Owner / board / key management biographies and risks

  • Need for much more extensive strategic partner due diligence overall – critical to closely examine counterparty’s current and future strategy in order to test alignment and to inform venture scope, exclusivity, governance, and organizational design

Financial Due Diligence

  • Overall financial health (e.g., cash flow, liabilities, working capital)
  • Accuracy of financial statements
  • Current financial needs / capital requirements and sources
  • Debts and associated covenants
  • Asset ownership / tracing
  • Quality of finance / accounting functions

  • In JVs, much greater difficulty to get access to counterpart’s overall corporate financials (since counterparty not being fully contributed or purchased), despite substantial need to understand overall financial health of the counterparty and its ability to fund future capital investments for the JV

Technical and Operational Due Diligence

  • Management competencies and track record
  • Quality of technical / operational functions (e.g., R&D, sales)
  • Quality of contributed assets / IP
  • Value chain / supplier strength
  • Cybersecurity / data management practices and performance

  • In JVs, need to look at counterparty capabilities relative to own company – and draw implications for how the parties can best complement one another to structure contributions, governance, organization, service agreements, etc.
  • In JVs, need to extend due diligence beyond “contributed” assets; essential to examine critical capabilities and assets that will remain “in” the counterparty and provided “to” the JV

Cultural Due Diligence

  • Business culture, values, ethics
  • HR policies and practices
  • Corporate social responsibility policies and programs
  • Talent management and development philosophies
  • Decision-making styles
  • Communication styles

  • In JVs, need to understand target culture of new jointly owned business – and whether it can be developed by drawing on existing shareholder cultures or will need to be different (and therefore shielded from parent company expectations, requirements, etc.)

ESG Due Diligence

  • Compliance program strength
  • HSE practices and performance
  • Regulatory environment / actions
  • Litigation history
  • Anti-trust / anti-competition issues
  • Permits and licenses to operate

  • In JVs, due diligence focused on directly contributed businesses, assets, and skills – but also should investigate assets, capabilities, and activities remaining in counterparty, which could directly impact JV performance or indirectly impact company reputation (e.g., reputational impact on company if partner is corrupt)

© Ankura. All Rights Reserved.

Our JV due diligence approach also calibrates the areas of focus and levels of depth for the kind of JV under consideration (Exhibit 2). For example, consolidation JVs combining existing assets need financial due diligence comparable to an M&A transaction, requiring confidence with the valuation of the assets and the underlying financial statements. By contrast, greenfield JVs, launching a new business from the ground up, require less focus on partner financial statements and more effort on understanding the quality of partner contributions and the relative capability of each partner to provide key functions and services to the JV.   

Exhibit 2: Different Due Diligence for Different JVs

Consolidation JVs
  • Two or more companies consolidate existing businesses (“merger at BU level”) into a JV to reduce costs, gain scale, expand scope
Common Diligence Challenges:
  • Lack of focus on assets, services, or capabilities remaining with the partner that could impact the JV
  • Inexperience performing relative evaluation of contributed capabilities – and designing optimal scope, exclusivity, governance, and organization

Buy-In JVs
  • New partner buys into an existing JV (replacing and / or diluting partners) or buys into a wholly-owned asset to create a JV
Common Diligence Challenges:
  • Belief that cost / time of diligence not warranted given size of investment
  • Reluctance to pry into “sensitive” topics – partner / JV culture, ways of working, capabilities, etc. – especially if minority non-controlling partner

Greenfield Start-Up JVs
  • Two (or more) companies contribute assets, capital, know-how to launch a new jointly owned business, build a new asset, etc.
Common Diligence Challenges:
  • Belief that diligence not really required since no existing business in place to “check”
  • Limited access to partner’s corporate financials to understand overall health and ability to contribute
  • Reluctance to pry into “sensitive” topics – partner / JV culture, ways of working, capabilities, etc.
Non-Equity Partnerships
  • Two (or more) companies contractually commit to coordinated activity and shared benefits, but no new entity is created
Common Diligence Challenges:
  • Belief that cost / time of diligence not warranted given lack of cash contributions or creation of new company
  • Reluctance to ask questions to avoid need to reciprocate (i.e., trying to keep partner at arms length)

© Ankura. All Rights Reserved.

Companies interested in raising their game on JV due diligence can leverage our capabilities in a variety of ways:

  • End-to-End Process: We can run an entire JV due diligence process, leveraging our proprietary capabilities and experience to give you an outside, independent view on your potential partner’s strengths and areas of concern – and what that means for how you structure your JV.
  • Targeted Support: If you have an area of concern when dealing with an unfamiliar partner type, industry, or geography, we can amplify your existing JV due diligence process with targeted support using a subset of our skills (e.g., a forensic audit or a cybersecurity assessment).
  • Capability Building: We can leverage our experience to help you design a bespoke internal JV due diligence capability, whether for a single material transaction or as part of a broader corporate process that can be tailored and scaled for different scenarios.

To talk more about the right due diligence for your JVs, contact James Bamford or Josh Kwicinski.

How We Help: Transactions

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.

About the Authors

James Bamford

James Bamford is a Senior Advisor at Ankura based in Washington, DC. He joined Ankura with the firm’s 2020 acquisition of Water Street Partners, which he co-founded in 2008. Water Street Partners has been independently ranked as the number one global advisor on joint ventures since 2017. Prior to Water Street, he was global co-lead of the Joint Venture & Alliance Practice at McKinsey & Company.

Joshua Kwicinski

Joshua Kwicinski is a Managing Director based in Washington, DC. He has more than a decade of experience in advising on all aspects of the partnership lifecycle, including deal strategy, transaction structuring, ongoing governance, and restructuring/exit. He has advised senior executives and dealmakers at both a corporate and individual JV level across a range of industries, including oil and gas, metals and mining, aerospace and defense, financial services, biotechnology, and others.


Leave a comment

Your email address will not be published. Required fields are marked *

Subscribe to the

Joint Venture Alchemist Newsletter

Sign up below to receive the latest joint venture updates from Ankura.

"*" indicates required fields