Making the Most of Joint Ventures
Farmer Cooperatives Conference
Mike Jackson
December 6, 2010
Agenda
JV Overview
Why a JV?
Your “Dream” JV Partner Profile
Selecting a JV Partner
Structure and Execution
Best Practices for Venture Success
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JV Overview
• Strategic alliance between two or more entities
• Various legal structures
• Based on a specific business/project
• Common goals and objectives
• Specific purpose and duration
• Share risks and rewards
• Financial, intangible, management and control
• Protects core asset ownership
• Contractual agreements: create and unwind
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Why a JV?
Fundamentally, expand/grow volume/profits
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Extend or maintain market position
Strengthen R&D/innovation
Improve distribution channels
Generate economies of scale
Diversify product offerings
Improve competitive position
Enter related businesses or new geographic markets
Spread risk (mainly on large investments)
Carefully Consider JV Pro’s and Con’s
Advantages
• Flexibility: limited life span and specific roles reduce commitment and
business exposure
• Divesture: creative way for companies to exit non-core businesses
• Acquisition: prelude to an eventual acquisition or cut its losses if the
expected synergies do not materialize
Disadvantages
• Failure: Historically, JV’s have a high failure rate
• Reputation risks: Partner’s actions can adversely affect the reputation
of the JV and the parent companies
• Market Sharing: Less costly than acquiring but must also share profits
• Competitive Risks: Possible creation of a serious competitor
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Selecting a JV Partner
Most often, the ideal JV partner has complementary resources,
skills and assets
Most important, look for cultural fit:
 Company performance
 Collaborative attitude and level of commitment
 Trustworthiness
 Complementary brand values
 Reputation with Customers and Suppliers
 Finances and credit
 Existing JV/partnerships
 Management team/philosophy
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Tax and liability issues drive JV structure
Commonly used JV structures:
1. Corporations
2. General Partnerships
3. Limited Partnerships
4. Limited Liability Company
Each is appropriate in a given situation
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The JV agreement must detail venture
expectations and goals!
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Scope and purpose of the JV
Identification of the participants
Identification of the business enterprise and its intended scope
Term of the agreement
Capital contributions/calls
Technology/IP contributions and related protective clauses
Accounting methods
Management of the business
Administrative matters
Confidentiality agreements/ Non-Compete Agreements
Dissolution terms
When to Unwind a JV
• An unrecoverable breach of the joint venture agreement
• Extended failure to meet business objectives
• Achieving the core purpose for the venture
• Purpose for the JV/partner goals change
• Disagreement on fundamental management issues
• Cultural and management style clashes
• Lack of leadership or commitment
• Inadequate capitalization by one or both partners
• Insolvency of one of the partners
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Plan the Divorce Before the Wedding!
The JV agreement must clearly specify the grounds for termination, the
rights of each partner in the event, mode of dissolution and dispute
resolution.
Items to be resolve during a JV dissolution:
• Distributions: Share Capital/Technology/IP
• Transfer of Ownership: Put/Call Rights, Right of First Offer/Refusal
• Dispute Resolution: Mediation/Litigation/Arbitration
• Cost and Termination Fees
• Termination of licenses and other intra-corporate agreements
• Regulatory Considerations
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Best Practices for JV Success
• Establish clear, strategic leadership
• Detailed plan for operations, resources and
contingencies
• Objectives are clear, communicated and relevant
• Align partner objectives/expectations
• Balance levels of expertise, investment or assets
brought into the venture by the different partners
• Integrate cultural and management styles
• Create a atmosphere of cooperation
• Be flexible, recognize inevitable venture evolution
• Evaluate success on more than the numbers
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