Although the number of joint ventures decreased during the global crisis in 2008, it has been growing since 2009. Between 2009 and 2013, the average growth rate was 4% per year, 33% higher than M&A transactions in the same period. In 2014, there was an increase of 16.2% in joint ventures, which proves that entrepreneurs have been entering into strategical and operational alliances with other companies seeking to take advantage of opportunities to grow, expand market share or just to keep the business running.
A successful JV can leverage operational income and create value for shareholders. The main goals which drive the entrepreneur to make a transaction like this are (i) rapid entrance into the market, (ii) increased bargaining power with suppliers, (iii) increased production, and improvement in scale and efficiency, (iv) increased sales and distribution channels and (v) transfer of technology and expertise between companies.
When shareholders plan inorganic growth, however, they can be reluctant to carry out a merger or an acquisition at that point. Carrying out a JV could help them in this matter. In some cases, a JV could deliver the same results as an M&A transaction whilst avoiding some common issues, like (i) massive investment in the company, (ii) shareholder disagreement, (iii) integration inefficiencies and (iv) process and cultural clashes.
Therefore, relevant issues should be previously defined and clarified to capture all the synergies and opportunities provided by a JV agreement. Some points seem to be obvious, however defining and sorting them is not. The list could be long, but just to illustrate the work to be done, here are the main questions to answer:
- What is the main target of the JV?
- How is the target defined and achieved?
- Who are the best partners to create a JV with and why?
- What goals must the new company achieve?
- What are the main risks?
- What is the most suitable capital structure?
- What is the Enterprise Value of the company now, and what it would be after a successful JV?
Imeri has advised and completed several JV transactions, achieving our clients’ goals. For example, we have advised a media firm which aimed to establish a market presence in a strategic region where they weren’t currently operating. The JV enabled our client to establish a sales channel through a partnership with a competitor there. In this case, Imeri was responsible for finding several target companies. In another case, we oversaw a three-company transaction for the purpose of forming a joint purchase agreement aimed at enhancing their bargaining power with suppliers, reducing costs and allowing the businesses to remain relevant in a consolidating sector.
We can advise the entrepreneur, no matter what sector they are in, before and/or during the JV implementation and guarantee its success from beginning to end, from the point of view of all stakeholders, including shareholders, employees, and clients.
If you have any doubts or want to learn more about Joint Ventures, please contact us to schedule a brief meeting with our partners.