The JPAbusiness team has recently received a number of separate requests from clients for advice on joint ventures, including a partial shareholding transaction (for succession, growth and exit).
Over the years we've been involved with setting up and facilitating a number of successful joint ventures, and we have also been called upon to sort out arrangements where things have gone wrong or haven’t been set up with adequate planning and foresight.
Given the recent interest, we’ve decided it’s time to offer some tips for ensuring a successful joint venture arrangement.
First up, though, a definition…
What is a joint venture?
There are generally two broad types:
- Business benefits – Joint ventures that focus on joint business activities and leverage each other's scale and expertise (complementary benefits) to drive mutual growth and synergies
- Business benefits and ownership – This type of joint venture combines the features above with a shared ownership (equity) position and potential for top-up or further buy-out of equity, usually through the issue of options and an agreed valuation, etc. This arrangement provides the synergy benefits for the party or parties, investment of additional capital and an incremental return on risk capital based on the growth in the business.
How to ensure a successful joint venture arrangement
Tip 1: It’s critical that there are complementary benefits and roles for each of the parties in the joint venture. First step is to consider: what’s in it for me? Next step: what’s in it for the other interested party?
Tip 2: You need to very clearly prescribe, from the outset, all arrangements relating to:
- joint business activities
- valuation of the business
- ownership
- shareholder arrangements
- further buy-outs and/or exit.
Tip 3: We mentioned this in Tip 2 but it deserves highlighting: make sure there is a clear plan for how one or both parties can exit, should the need arise.
Tip 4: Issues of control will need to be addressed regarding:
- management (day-to-day)
- governance
- transparency
- business versus personal needs.
Tip 5: It’s often the little issues that lead to a joint venture arrangement breaking down, therefore cultural fit and shared values between the parties are critical. They don’t have to be the same, but there has to be mutual respect from the outset.
Do you need help planning a joint venture?
Joint ventures can provide a great vehicle for business and personal success – they just need to be well planned from the outset.
If you need help planning or negotiating a joint venture, JPAbusiness provides a number of related services, including:
- Independent business valuation
- Negotiation facilitation between joint venture parties
- Commercial joint venture agreement drafting and advice
- Shareholder agreement drafting and advice.
Contact our team on 02 6360 0360 or 02 9893 1803 for a confidential, initial discussion.