Water Street Insights

TAKING A JOINT VENTURE public can be a powerful way to unlock value for owners. For most JVs, preparing for an IPO is measured in years, not months. The requirements for an IPO are ones that necessitate Board alignment and deliberate action – as well as some adjustments in the JV operating model. In a previous insight, we outlined a set of practical guidelines for when – and when not – to IPO a JV. In this insight, based on our assessment of successful JV IPOs, we share the five building blocks boards and corporate parents should put into place when preparing to take a JV public (Exhibit 1).

THERE ARE MORE THAN 2,000 JVs with significant profitability, strong management, and over $500 million in assets. Many of these could comfortably exceed the initial minimum listing requirements of various stock exchanges. For instance, the NASDAQ Global Market has initial   minimum listing requirements of $11 million in pre-tax income in the last fiscal year or two of last three fiscal years, $55 million in stockholders’ equity and $45 million in market value of publicly held shares. As balance sheets get squeezed, and as JVs mature, more corporate parents are beginning to think about the IPO option for their joint ventures.

JOINT VENTURES usually bring together companies from different countries and industries, of different sizes, and with different ownership structures – e.g. state-owned enterprises vs. listed companies vs. family-owned or privately-held companies. As a result, JV CEOs and Boards have to deal with enduring cultural and organizational differences among the parent companies, while also building a common culture in the venture – challenges not faced in M&A transactions or within wholly owned companies. As one CEO said, “It’s like being a peace negotiator or an arbitrator of a high-stakes legal case – except the negotiations never end.”

AT WATER STREET, we believe that in order to succeed at joint venture governance, JV boards must focus on getting seven things “right.” In previous Insights, we have highlighted the seven specific mandates joint venture Boards can adopt to manage the unique challenges that JVs face. This insight focuses on how to start the journey towards better JV governance and on how one organization was able to successfully put into practice these seven “rights.”

AT WATER STREET, we believe that in order to succeed at joint venture governance, JV boards must focus on getting seven things “right.” As the seventh part in an eight part series, we analyze what good self-governance looks like for JV Boards (i.e., the ways a Board continuously evaluates itself as a group and as individual directors). The performance of the JV Board has a large impact on the performance of the JV itself, yet very often the Board is not as effective as it could be – even as reported by Board members themselves. This insight illustrates ways JV Boards can deliberately and consistency assess their performance to ensure the JV is properly managing risk, identifying and capturing strategic initiatives in a timely manner, and promoting alignment between the shareholders and management team.

AT WATER STREET, we believe that in order to succeed at joint venture governance, JV boards must focus on getting seven things “right.” As the sixth part in an eight part series, we turn our focus to the right information flows between the board and the JV management team. This insight illustrates the challenges associated with information flows in JVs and introduces a successful strategy to ensure alignment on key initiatives and proliferation of information.