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.Read More
Consider a large purchasing JV in which management continued to pitch to the Board what management considered to be an eminently reasonable acquisition, not realizing that the Board was still unsure of the JV’s strategy upon which the acquisition’s logic was based. In a financial services JV, Board agendas were structured to showcase each department, with the end result being a parade of PowerPoint presentations from each member of the management team, with limited time for Board Directors to ask questions. Board members provided subtle hints that they wanted more strategic discussion, but management continued to charge forward, presenting page after page. Similarly, in a natural resource JV, management failed to connect the dots when a Board member asked for further study of a proposed capital investment. They did not realize that the Director was actually not supportive of the investment, but did not say so directly because it may trigger a discussion about conflicts of interest as the Director’s company was expanding its own capacity in the region.
WE HAVE SAID IT BEFORE: Being a JV CEO is one of the toughest jobs in modern business. Not only must JV CEOs handle all the classic challenges of running a company – often in fast moving, emerging industries and markets – but they must also deal with a set of issues that emanate from the unique ownership structure of a joint venture. By definition, joint ventures have multiple owners, and these owners often have some level of operational interdependence with the venture, and often have imperfectly aligned financial and strategic interests, corporate cultures, and expectations.Read More
THE ROSTER OF NON-EQUITY ALLIANCE success stories is diverse and eye-catching, and includes Accenture-Cisco, Pfizer-Amgen, Starbucks-Barnes & Noble, and KLM-Northwest Airlines (Exhibit 1). But step back from these bright lights, and the truth is darker. Over the years, there have been many different studies on the success rates of alliances – some by us, many by others. Each asks slightly different questions and has slightly different results. But, on average, the odds of being happy with an alliance are no better than a coin flip, and few are without their headaches.Read More
AS CROSS-BORDER partnerships and investments become increasingly important for major corporations combating slow growth and depleted resources in their traditional markets, so too has the need to manage country risk in emerging markets. Many of the largest U.S. and European companies already receive 20 to 40% of their sales from joint ventures with foreign partners, a figure that is likely to rise. Royal Dutch Shell, Vodafone, and General Motors have significant portions of their portfolios committed to joint ventures in emerging markets.
MANAGING A JOINT VENTURE can be the most exciting job you will ever have, but it is also pound-for-pound one of the toughest jobs in business. As we watch the continuing stream of new joint venture announcements – whether that be Monsanto entering into a new joint venture with Remington Holding Company LLC to drive innovation and investment in the global sorghum market; or Russian oil major Rosneft signing a JV agreement with BP to explore oil reserves in the Russian Federation – it is easy to see the allure of joint ventures in the eyes of those who will be asked to run them.Read More