Struc­tur­ing Joint Risks

The Economic Times - - The Edit Page -

In the fast-paced deal-mak­ing world, joint ven­tures (JVs) are a co­nun­drum. Slow in the mak­ing, of­ten with com­pli­cated struc­tures and shared man­age­ment teams, they seem out of place in a volatile era with buzz­words that hype agility and nim­ble strate­gic moves.

Yet, there they are, more than 1,500 JV deals com­pleted an­nu­ally over the last10 years, in­clud­ing around10% of them char­ac­terised as large ones, with an ini­tial value of more than $250 mil­lion. Their volume seems likely to en­dure: more than two-thirds of ex­ec­u­tives sur­veyed in 2014 re­ported that they ex­pect to do more JVs in the fu­ture.

But JVs are not al­ways em­braced with­out reser­va­tion. In fact, we en­counter many ex­ec­u­tives who ex­press sig­nif­i­cant con­cerns, of­ten when they are wrapped up in the un­cer­tainty of JV ne­go­ti­a­tions. Given how much longer those ne­go­ti­a­tions can last com­pared to tra­di­tional buys, this is both un­der­stand­able and alarm­ing. One global con­glom­er­ate we’ve ob­served ad­vises its USbased head­quar­ters to ex­pect JV talks to last 3-6 times longer than M&A ne­go­ti­a­tions.…

How can health­ier part­ner re­la­tion­ships be built to give fu­ture JVs the best odds of suc­cess? Our re­view of long-stand­ing part­ner­ships iden­ti­fied three prin­ci­ples that made a dif­fer­ence: in­vest­ing more time and ef­fort up front, work­ing harder to cul­ti­vate and sus­tain the JV re­la­tion­ship, and stan­dar­d­is­ing key pro­cesses and learn­ing mech­a­nisms.

From “Ne­go­ti­at­ing a bet­ter joint ven­ture”

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