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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JOINT VENTURE PARTNERSHIPS have a significant say in the structure, actions, and strategy of a venture. Management also has a voice in the direction of the joint venture. But what partners and management often fail to understand is there is another, silent party at the table influencing the outcome of key decisions: the status quo. In fact, the status quo (i.e., current state) plays a dramatic role in the life of a joint venture. It affects the deal terms the parties agree to and minimizes changes to the venture once operating (Exhibit 1).
STATUS QUO IN NEGOTIATIONS
During initial deal negotiations, the “status quo” is determined by the party who provides the first draft of a term sheet or joint venture agreement. The other partner is highly likely to “anchor” on the valuations and other contractual provisions in this initial draft.
SECONDEES PLAY a key role in many joint ventures: some 80% of joint ventures have secondees in top management roles (e.g., COO, CFO) and 55% have a seconded CEO (
Exhibit 1). Parent companies use secondees for various reasons – for instance, to provide critical skills and capabilities, to accelerate initial staffing in experienced roles, or to secure added transparency, assurance, and influence over venture activities.
But companies often fail to adequately define and align on how secondees will be managed once in the joint venture. This can lead to secondees unable to answer a seemingly simple question: Who’s my boss?
It doesn’t have to be this way. Read More
But companies often fail to adequately define and align on how secondees will be managed once in the joint venture. This can lead to secondees unable to answer a seemingly simple question: Who’s my boss?
It doesn’t have to be this way. Read More
