FEBRUARY 2022 — Joint ventures (JVs) have been with us for a long time, and they are not going away. Some of the most successful and iconic companies in the world – Airbus, Saudi Aramco, Verizon Wireless, Visa, and Mastercard – started as JVs. Another, The United Space Alliance, a 50:50 JV between Boeing and Lockheed Martin, was responsible for launching the Space Shuttle in the 1990s and 2000s. That bottled Frappuccino you just drank is from a multi-billion dollar joint venture between Starbucks and PepsiCo. The electricity for your house – whether from natural gas, offshore wind, or solar – is likely from a joint venture, as is the gasoline in your car. And if you use Google Earth for navigation, you’re relying on a JV between Google and NASA.
JVs have been around forever, and are currently surging in prevalence. More material JVs and non-equity partnerships have been formed in the past year than in any of the prior five years. Why is the joint venture so popular as a corporate form? There are numerous reasons why dealmakers and companies shake hands on new JVs (Exhibit 1).
EXHIBIT 1: Reasons to Enter into Joint Ventures
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JVs are not without their challenges and risks, of course. Right from the start, JV partners need to negotiate key deal terms like the JV’s scope, voting rights, and exit rights. Partners may become entangled in debates about how to value contributions, including intangibles such as brands, intellectual property, and market relationships. Or they may not be able to agree on the business plan and investment assumptions. Once the JV is up and running, there can be other challenges, like managing conflicts of interest among partners who are also competitors, managing competitively sensitive information, and aligning on strategy.
Many of these unique JV challenges and risks can be minimized through effective business planning, strong due diligence, well-drafted JV agreements, and strong ongoing JV governance and management.
Ankura can help you design JVs for success. We work with clients to around the world to develop partnering strategies and business plans, evaluate country risk, identify and assess potential partners, evaluate transaction structures, value contributions, model financials, design and negotiate contractual terms, and help plan and manage launch. We also work with existing joint ventures to grow and restructure, including addressing issues with governance and partner misalignment on strategy and financials. Want to learn more about how to effectively use JVs and keep them running smoothly? Contact us.
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