IN A PREVIOUS ARTICLE, Clearing the Fog of Negotiations: The JV Positioning Sheet Defined, we defined a Positioning Sheet, in it’s simplest form, as a table or spreadsheet developed by the deal team that defines, for each major transaction term, the Company’s preferred position, lead fallback position, alternative ways to structure that transaction term, and walkaway positions. As a living document to be updated across the negotiation of a Term Sheet and subsequent deal documents, the Positioning Sheet is a powerful and easy way to keep a structured inventory of potential deal terms, and to maintain internal alignment on the Company’s preferred and fallback positions.
Consider it the Term Sheet’s forgotten twin.
The purpose of this note to explain how and when to create a Positioning Sheet. This note also makes the case that, if done well, a Positioning Sheet can also potentially serve as corporate-level guidance on major clauses in future negotiations of similar ventures.
A full Positioning Sheet is generally best created after developing a set of deal options and agreeing on the preferred construct, but before drafting the Term Sheet or other interim deal document, such as an HOA or MOU (Exhibit 1).
Exhibit 1: Structured Corporate Guidance
During the deal options generation and selection process, the deal team is not ready to work 30-plus terms in parallel. Rather, it should be focused on generating 3 to 5 high-level deal constructs, which tend to be differentiated by a small handful of critical terms, such as product or market scope (e.g., single asset, country, or product collaboration vs. broader growth play), corporate form (e.g., joint venture vs. licensing agreement), ownership, and what activities are performed inside the venture versus performed by the parent companies.
Once the Company and counterparty have aligned on the high-level construct, it is time for the deal team to create the Positioning Sheet. The Positioning Sheet then becomes the basis for developing a Term Sheet that can be shared with the counterparty.
We were recently reminded of the costs of creating a Positioning Sheet too soon. Working on a 50:50 Chemicals joint venture, we developed a Positioning Sheet prior to our client fully aligning with the counterparty on the high-level deal construct. Our client had a strong preference to be the Operator of the JV, which was to operate on the site of one of its existing chemical complexes. Once the counterparty was fully engaged in the discussions, however, it became clear that it would only proceed with the negotiations if a separate joint venture organization was created, albeit one that would be principally staffed by secondees. This change in the operating model caused a fundamental reworking of the Positioning Sheet, since the construct and terms for a single-partner operated venture are quite different from establishing a JV organization.
Why and how to update. Initially, a Positioning Sheet is created to help with the drafting of the Term Sheet. But its greatest value comes in serving as the active ledger of the negotiations – that is, a place where new ideas and existing terms get recorded, refined, and shifted from one column to another as the negotiation unfolds. As the designated owner of the Positioning Sheet, the deal team project manager is responsible for updating the document following each round of counterparty negotiations or other input, including from internal working sessions, and advice from legal, tax, finance, and other advisors. In direct negotiating sessions, it can be useful for the Positioning Sheet owner to have a copy in his or her paperwork, and use it as a structured place to write down ideas as they arise during the ways discussions. When the time is right – whether during or between negotiating sessions, the Positioning Sheet is an organized repository to look for to unstick negotiations by offering alternatives, including making concessions to the counterparty in one area in exchange for concessions to the Company in another area.
CORPORATE TOOL AND GUIDANCE
Today, many companies have joint venture strategies – a plan to use a particular type of joint venture to pursue a certain set of opportunities. For example, Telecom, Consumer, and Retail companies like Vodafone, Unilever, and Walmart use joint ventures as a means to access new emerging markets, such as China, India, and Mexico. Chemical companies like BASF, Bayer, and American Cyanamid regularly enter into single-site manufacturing joint ventures, often operated by one partner, as a way to generate scale and secure supply of low-cost offtake. Similarly, Alternative Energies and Pharmaceutical & Biotech companies regularly enter into JVs with technology companies to develop and commercialize new technologies. And upstream Oil & Gas companies routinely form single-partner unincorporated JVs to explore for and develop new reserves.
When companies enter into a string of similar agreements, the Positioning Sheet can serve a broader corporate purpose. Initially a device to support an individual transaction, the Positioning Sheet can be easily converted into a tool to support future negotiations and leverage prior thinking. The simplest way to do this is to ...