How to escape from a joint venture (Part 1)
In business, a joint-venture is the experience most similar to a marriage. The last of your thoughts is to prepare for the time the love is gone.
Indeed, when structuring a joint venture, the parties tend to focus more on the “true love” side of the papers and a bit less on the “divorce” scenarios. Indeed, as far as exit is concerned you can find a vast array of M&A tools available, with exotic appellations: deadlock resolution mechanisms, put & call options, Russian roulettes, Texas shoot-out clauses, buy-you buy-me clauses and other niceties.
But when things go South and your joint venture is located in the other side of the world, you know that going legal is a rough road. And it is not just a matter of money: because of the “true love” phase, you have contributed in the joint venture valuable assets (trademarks, patents, know-how, goodwill, license agreements, supply agreements, distribution agreements, etc.) that you would like to have back in a moment, but this is not going to happen.
The point is that, although you have a set of exit clauses, you do not have a real exit strategy.
“An exit strategy and an exit clause are not the same thing.”
An exit strategy should include the following instruments:
1. A leverage to deter the partner from taking hostile initiatives that would force you to trigger an exit clause. This includes retaining control on strategic assets and strategic contracts.
2. A mechanism to enforce the execution of purchase options.
3. A mechanism to pre-determine the value of your shareholding in case of exit.
4. A mechanism to control the liquidation process, in case liquidation is the last resort.
5. A plan to quickly redeploy strategic assets and contracts and preserve the joint-venture goodwill.
In part 2 we will analyze these 5 tools.
Copyright Giorgio Mariani 2016. All rights are reserved.
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Barrister-at-Law (of Lincoln's Inn) | Associate, Syed Ishtiaq Ahmed & Associates | M&A - Project Finance Practice Group
8 年I appreciate the way you put emphasis on the exist strategy. very informative article for professionals. thanks for sharing. waiting for the part 2.
Legal Affairs & Risk Compliance Director
8 年Thanks for the intro. Can't wait to see part 2. (and 3?)
Legal Advisor
8 年I always enjoy reading your articles.
Senior Accountant at CMG
8 年a lovely article, very interesting! Like the style to demonstrate authentic theory in a "flying heart" way but precisely hit the point!