Success in Joint Ventures

Across industries, M&A activity has fallen sharply from the recent peak in Q4'21 and generally remains below pre-pandemic levels. With higher cost of capital, strategic and financial buyers are being far more selective. Many are holding back, waiting for valuations to fall and more clarity on the future of their markets. This is why acquirers are turning increasingly to joint ventures. In fact, top executives in KPMG’s annual CEO survey rank joint ventures on equal footing with traditional M&A as a growth strategy in the next three years.

But joint ventures are not just an alternative to traditional M&A when markets are challenging, they are also a useful tool for companies that need a more flexible, agile, and lower-risk way to pursue strategic goals. However, they are also very complex and, therefore, underutilized. In this paper we examine how companies can set up joint ventures to navigate the complexity and overcome common pitfalls. Successful JVs start with careful design:

• Be strategic-centric, rather than partner centric 
• Keep governance nimble and empower JV management
• Design a JV operating structure with the best of both parents
• Create equitable NewCo economics and profit-sharing
• Remember: It’s never too soon to discuss exit terms
• Proactively define the JV’s culture

Companies that have followed these principles have been able to launch successful joint ventures that achieved the goals of the parents.