JV Dealmaking: When to Kick the Can Down the Road

By Tracy Branding | Tuesday, February 25, 2020
IMAGINE YOU HAVE been tasked with negotiating a joint venture agreement. Months of grueling negotiations have consumed significant resources and have led to agreement between your company and the counterparty on all but a couple of items. These items will require significant work to resolve and are critical to the JV’s financing and operations. But year-end is approaching, your target for signing up the JV, and the fatigued deal teams could use a win. The counterparty wants to sign a JV agreement with the terms agreed to date and decide on the open issues in ancillary agreements later.

What do you do?

Should you sign the agreement based on agreed on terms and defer the remaining issues, perhaps finding resolution between signing and close or even to after closing? Or should you hold out and not sign any agreement until all issues are resolved?
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Consolidation Joint Ventures: Why to Consider These Deals

By Lois D'Costa | Tuesday, August 13, 2019

SOMETHING BIG SEEMS TO BE happening at corporate lunch counters the world over. We’ve recently been involved in a series of client conversations involving the formation of new consolidation JVs – that is, ventures to combine mature businesses into a jointly-owned entity. The oil and gas industry, beset by low oil prices but unable to conclude as many mergers and asset sales as it would like, is looking in earnest at such structures for the first time in a generation.

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How Due Diligence Differs for M&A and Joint Venture Deals

By James Bamford | Thursday, July 18, 2019

JOINT VENTURE AND M&A due diligence are superficially similar. Both follow the same basic process, starting when a preferred counterparty is identified and confidentiality agreements are signed, and usually concluding just prior to the signing of definitive agreements.  Both use similar advisors to investigate similar topics: Accounting firms lead financial due diligence; industry specialty consultancies perform parts of technical and operational due diligence; law firms drive legal and compliance due diligence. And both serve the same core purposes: To confirm that the company is getting what it expects from the counterparty, and to more deeply understand the counterparty’s assets and capabilities to inform transaction choice and key deal terms.

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Valuation of Joint Ventures: 4 Steps to Handling Hard-to-Value Contributions

By Gerard Baynham | Thursday, May 30, 2019

COMPANIES ROUTINELY FIND themselves in painful joint venture negotiations, reaching “walk-away points” and failing to close deals because of hard-to-value contributions, differences in key assumptions, or valuations that do not support the desired ownership or control split. Relief lies in a paradox: While JVs often introduce more complex valuation challenges than other transactions, the flexibility inherent in JVs simultaneously offers dealmakers a range of techniques “to take valuation issues off the table” or otherwise help the counterparties get to yes.

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Strategy Under Scrutiny

By James Bamford | Tuesday, April 30, 2019

IN MANY JOINT VENTURES – including those in semiconductors, financial services, media, healthcare, and natural resources – the owners are also the JV’s customers, channel, suppliers, users, or otherwise actively participate in the same markets as the venture (Exhibit 1).

Intel, Samsung, and AMD all own shares in semiconductor manufacturing joint ventures where, as owners, they are the JV’s major and sometimes only customers. Banks like JP Morgan Chase, HSBC, and Credit Suisse have all been part of joint ventures to develop and operate advanced technology and transaction processing platforms where success hinges upon owner adoption of the JV’s products or services. Mining companies like Rio Tinto and Anglo American routinely find themselves in JVs that are geographically proximate to their owners' wholly-owned infrastructure or operating assets, creating the potential synergies and conflicts. And oil companies like BP, Chevron, and ExxonMobil are all in JVs that are so financially material that they as shareholders have a fiduciary duty to deeply understand the venture’s strategy, market assumptions, performance, and financial controls.

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Financial Modeling for Joint Ventures: The Total Venture Economics Approach

By James Bamford | Tuesday, April 16, 2019

EARLY RESULTS OF OUR recent study on how companies perform across different aspects of the JV dealmaking process has revealed fairly pedestrian performance all around, with critical gaps across key functions within core JV transaction workstreams. With respect to financial modeling, for example, we find that companies struggle to create a dynamic model of what we call “Total Venture Economics.” And since a complete picture of Total Venture Economics is needed to dynamically and deeply inform negotiations regarding partner contributions, JV valuation, service pricing, and other economically driven deal terms, it is no surprise that the dealmakers we surveyed also reported dissatisfaction with their ability to structure those terms – especially those related to partner contributions to the JV (Exhibit 1).

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