Making the Most of Joint Ventures

Farmer Cooperatives ConferenceMike Jackson

December 6, 2010

Agenda

2

JV Overview

Why a JV?

Your “Dream” JV Partner Profile

Selecting a JV Partner

Structure and Execution

Best Practices for Venture Success

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

4

Why a JV?

Fundamentally, expand/grow volume/profits

• 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)

6

Carefully Consider JV Pro’s and Con’s

7

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

Selecting a JV PartnerMost 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

9

Tax and liability issues drive JV structure

11

Commonly used JV structures:1. Corporations2. General Partnerships3. Limited Partnerships4. Limited Liability Company

Each is appropriate in a given situation

The JV agreement must detail venture expectations and goals!

• 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

12

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

14

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

 

15

Best Practices for JV Success

16

• 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

19