March 18, 2013
While volume of Mergers and Acquisitions (M&A) transactions continue to lag behind the historical highs seen before the Great Recession, the popularity of joint ventures as a strategic tool for business expansion and managing risk has surged. Joint ventures have become particularly popular as a means for cautiously, yet proactively, entering emerging markets such as China.
In many ways a joint venture is a fascinating and complex animal that calls for a diverse set of skills from legal counsel to the participants. A joint venture requires establishing a new business entity and tending to all of the activities needed to get the business up and running. This includes contributions of cash and other assets, establishment of a governance structure and creating systems for day-to-day operation of the joint venture business. Lawyers often get caught up in drafting and negotiating joint venture documents, and collecting information to file reports with regulatory agencies, but it is essential for them to step back and take a broader view of what’s going on and what their clients are attempting to accomplish.
As part of the Business Counselor Advisor Series for Business Law Currents, I recently laid out my “Top Dozen” list of issues for attorneys to discuss with the clients contemplating a joint venture. This list, based on years of studying “best practices” in the area, challenges attorneys to delve into the business objectives of the client. The client should be prodded to look into the future and describe a vision for what the joint venture will look like three to five years down the road. It’s the lawyers’ responsibility to ask crucial questions regarding the relationship between the parties such as:
- What will they each contribute?
- How will the joint venture be managed?
- What path should be created for exiting the joint venture?
Addressing these key issues early on will help to aid the success of the joint venture into the future.