What’s the Best Way to Structure a Joint Venture?

The advantages JVs offer can come with challenges that make joint venture agreements more difficult to negotiate.


FEBRUARY 2023 Overall, JVs offer many potential benefits. Depending on context, they may allow companies to access capabilities, enter new or restricted markets, share risk, pool capital, and capture revenue, cost, or accounting synergies. But these advantages come with challenges that can make JVs more difficult to negotiate than, say, acquisitions or licensing agreements. At its essence, running a successful JV transaction process is about getting to a “good yes” or a “quick no.” In our experience advising on more than 400 JV transactions over the last three decades, we believe that success is built on five essential elements.

Five Essential Elements
Each of the following elements introduces critical questions in the design, structuring, and negotiations of a new joint venture.

  1. Deal Rationale: Is a JV really needed, and how will it support strategic and financial objectives? Consider whether a JV is the best vehicle to meet the company’s goals, or whether an alternative structure, such as a licensing agreement, non-equity partnership, or acquisition would be easier, more flexible, provide greater control, or better optimize tax and accounting benefits. Answering this question starts with being very clear about the company’s and counterparty’s financial and strategic goals, including capability building, market flexibility, and need for consolidation.
  2. Partner Fit: Do the partners bring needed capabilities, compatibility, and commitment? Examine whether potential partners bring needed capabilities, assess whether they are compatible with your organization’s values and culture, and determine whether they are committed to the JV. All of this demands conducting a different type of due diligence – what we call strategic partner due diligence – that goes beyond the typical commercial and legal due diligence of ordinary deals to look more deeply at the counterparty’s strategy, market pressures, track-record and behaviors in prior partnerships, and internal culture.
  3. Deal Options: Has the deal team considered several transaction concepts? Deal teams too often rush into negotiating a specific deal structure (often one that mirrors a prior deal done by a company CEO or senior business sponsor), but don’t take sufficient time to frame a range of viable alternative deal concepts to determine which is best. In our experience, there are often 3-5 viable alternative deal concepts that contain different answers on deal dimensions like venture scope, exclusivity, ownership, control, and financing. These transaction concepts are worth framing out and evaluating prior to negotiating around the preferred concept.
  4. Financial Arrangements: Have the economic terms been structured in a way that fairly reflects initial contributions and that will align the partners post-close? Assess whether there is fair value for initial contributions and whether value-sharing terms align partner interests. When it comes to creating strong and aligned financial interests, companies might consider using a range of contractual mechanisms, which include shared revenue pools, variable ownership interests linked to the performance of parent contributions, earn-ins, milestone payments, rights to expand the venture’s scope or structure when performance milestones are achieved, earn-outs, or negative rights and disincentives (such termination of exclusivity) if performance fails to meet certain thresholds.
  5. Governance and Evolution: Has a workable decision-making and oversight structure been developed, and will it be robust as the JV evolves? Have you determined which governance elements need to be addressed – not just “standard” contract terms? Are you limiting the number of termination issues? It will be essential to put an effective dispute resolution process in place, with rapid escalation.

    Our research suggests that JVs that are restructured and materially change their ownership, scope, or operating model are more than twice as successful as those that remain essentially unchanged. Yet virtually every JV gets “stuck” at critical inflection points – when the external market or the parent-company ambitions have changed, or after the JV accomplishes its initial objectives. Building in the capacity and flexibility to evolve at these points should be on the must-do list for dealmakers. 

Major Terms in a JV Agreement

major terms in a jv agreement infographic

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To learn more, read the full White Paper.

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.

David Ernst

David Ernst is a Senior Advisor at Ankura with more than 35 years of experience advising on strategy, transactions, restructuring, and governance matters. David is recognized as a global expert in the field of joint ventures. He has advised dealmakers and senior client executives across a range of industries, including oil and gas, chemicals, metals and mining, semiconductors, consumer goods, and health care. During his career, he has advised on more than 250 venture transactions in 33 countries, involving more than $300 billion in value, and has also served more than 100 existing joint ventures on governance and restructuring.


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