Follow this advice when negotiating

a joint venture agreement

1) Do you and your prospective joint-venture partner share the same strategic
objectives?

The time to find out whether the strategic objectives of each party align is before
negotiations start. Not having the same strategic objectives is a significant reason
that JVs fail.

2) Know what you are trying to accomplish

What would success look like? If you don’t know where you want to go, you will never
get there. Is this the right strategic direction for your company?

What are the minimum outcomes you must achieve? If you cannot achieve them, are
you prepared to walk away from the table? If not, perhaps you have not yet properly
defined your minimum outcomes.

3) Develop a game plan before negotiations start

Do you need this deal more than the other party, or do they need it more than you?
Are you dealing from strength, or are you in a weaker position? Are the concessions
you need to make in your company’s short and long-term best interests?

Every negotiation requires compromise and trade-offs. Therefore, it is important to

determine the issues that are deal-breakers for you. Try to determine which issues
are deal-breakers for the other side, and decide if you can agree to them.

4) Does your prospective partner have similar values and ethics as your
organization?

Spend sufficient time doing due diligence on your prospective partner. Do you and
your prospective partner embrace similar values and tone at the top? Do the
organizations share similar cultural norms and do they have similar operating
philosophies? Will you like working with this partner when the JV is up and running?

If values, tone and culture are not compatible, the time to know is before discussions
get too far down the road. End the discussions if the differences cannot be bridged.

5) Study and understand your counterpart

Understand the negotiating style of the lead negotiator on the other side of the table.
What is their reputation and track record in past negotiations with you and with
others? Can they be trusted to meet their commitments?
Listen to the other party and ask questions to further understand what they want to
accomplish. Communicate what you want to accomplish. Identify where your goals
overlap and where they don’t so you can work to close the gaps.

6) Does your prospective JV partner have the wherewithal to meet the necessary
financial obligations?

Will your partner be committed to investing in future operational improvements as

well as invest in future JV growth opportunities?

How is your prospective partner financing their portion of the joint venture? How
much equity are they investing vs. debt?

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If the other party is a subsidiary of a larger company, does the subsidiary have a
sufficiently strong balance sheet to meet their financial obligations under the
agreement? If not, you should determine if you need a guarantee from the parent
company.

7) Will the JV be a 50/50 partnership, or will one partner have a majority ownership
interest?

I have participated in joint ventures holding majority, minority and 50/50 ownership
positions. I prefer majority ownership to ensure operational control of the joint
venture, even when the appointment of the CEO rotates between the partners in the
JV.

It is not always possible to get your prospective partner to agree to your desire to
have a majority ownership position and the best that can be achieved is a 50/50
ownership interest. Or, your partner may insist on a majority interest. If you are
going to hold a minority ownership position, ensure your interests are protected by
the terms of the JV agreement on minority rights, which you should make as
exhaustive as possible.

One reason for structuring the JV with majority/minority ownership positions is due
to a difference between the JV partners’ financial capacity to make the initial
investment or to fund future growth initiatives.

8) Avoid negotiating with yourself

Once you make an offer, wait until the other side responds with a counteroffer or
acceptance. If you put another offer on the table before a counteroffer is made, the
other side will view this as a weakness and try to exploit it to their advantage.

To avoid not receiving a counteroffer, ensure that your offer is credible. If it isn’t, the
other side may just ignore it and not make a counteroffer, prematurely ending
negotiations.

9) Does the joint venture agreement include a satisfactory divorce process?

What are the terms governing the termination of the JV? Some JV agreements
include a “shootout clause,” in which one party makes an offer that must be accepted
or alternatively topped by the other party.

A shootout clause is potentially dangerous for either party and therefore, if included
in the JV agreement, it is rarely exercised. In divorce negotiations in which I have
participated, the threat of either party using the shootout clause drove both parties to
enter into good-faith negotiations with each other and reach agreement on the terms
of exit without the use of that clause.

A joint venture permits each partner to accomplish goals that individually they could
not accomplish by going it alone. If done right, the partnership is long-lived and
successful for both parties.