Negotiating A Joint Venture Agreement
This separation between the time spent and the resulting value reinforces harmful habits. Deal conditions are important, but they are difficult to perceive and negotiate properly, without a clear articulation of broader topics such as deal objectives, market considerations and walking points. Negotiators who do not have this basis are ill-prepared to discuss the terms of the deal. Costs can often be measured on time. For example, negotiations slow down considerably when negotiators focus on certain preconceived terms of agreement, while other solutions could also work, or if they negotiate all kinds of considerations instead of dealing with the most likely ones. Costs can also be measured by long-term damage to the joint venture. If negotiators fail to explore the deeper motivations of a potential partner or fully consider regulatory germs, companies may end up with contractual terms that do not resolve an agreement adequately – and can result in significant costs. The third route – payments or income – is a variation of the financing or salary staged. Instead of allowing the partner at 50% with a higher valuation to defer its financing commitments, a profit-out allows the same partner to collect asymmetric economic flows from the company over time, regardless of the same participation. Companies often structure compensation transactions when the valuation of certain under-piloted assets is highly uncertain.
Take EVO-PKO as an example: EVO Payments bought a 66% stake for $113.5 million in the eService purchase of PKO Bank Polski. As part of the 20-year joint venture agreement, the partners anticipated that eService would expand into other Central and Eastern European countries, a possibility that would significantly increase the value of the contributory business activity. As a result, the eService agreement offered a gain opportunity based on future performance. Parties to a joint venture may also consider setting up a system of confidentiality agreements so that all information disclosed in the negotiations, creation and operation of the joint venture is not used at a later date to the detriment of those parties. Negotiators who understand a partner`s motivation, needs and skills will be in a better position to establish a strong and honest relationship with common and explicit expectations. Extensive research can highlight things that might not necessarily appear during the negotiations, but could influence the partner`s participation in the joint venture. For example, an energy company avoided a possible misstep after studying a partner company`s relationship with distributors before investing in a local production plant. This analysis showed that the CEO of the partner company intended to use his own distribution company to exclusively direct products to a lucrative distribution area. After the energy group intensified its concerns, its partner nevertheless sued the company, but did not use the CEO`s distribution company. It is important that each participant receives separate legal advice to choose the best structure, as there will be questions about individual liability and tax consequences. In general, it can be registered (a company governed by a shareholders` pact) or without a legal personality (a contractual agreement governed by a joint enterprise agreement).
It is important to look at how and to what extent each member of the company funds the business. Can the parties use their interest in the joint venture to finance that business or their own business? How are losses, profits, commitments and responsibilities distributed? Similarly, a direct acquisition is preferable when it is possible to acquire a target business or asset and the synergies are large enough to recover the expected control premium.by