April 25, 2020 at 2:59 pm #109640
As I work through the M&A materials I can’t help but consider if the same principles and approach can be used for Joint Ventures (JV) when we are making operator changes and no ownership changes. In joint ventures we will either have a sperate entity setup to operate the company or one of the majority owners will operate it. At this time we are looking to move one of our JV companies from being operated by a separate entity to being operated by our organization.
Like a M&A this is being planned to gain synergies between operating sites and functional teams. By sharing expertise across operating sites we are able to take advantages of each site’s best practices and R&D work. By consolidating our functional teams we will be able to reduce overhead. The success criteria for this work is clearly outlined so the end target is understood by the entire team working the integration.
As I reflect back on the Change Management topics Culture is one that is very important, the two organizations are very different culturally so understanding this difference and ensuring the executive teams are making conscious decisions on what we want to look like as a joint organization in the future is key to retaining the talent that we want to retain. Also, Day 1 will look different than prior to the merger and different from the months following Day 1 so ensuring we have a good transition plan and post Day 1 plan in place will enable achievement of the success criteria.
What are the group’s thoughts about using M&A principles with JVs?April 26, 2020 at 10:58 pm #109657
This is a very interesting question and I will attempt to provide an opinion that hopefully has some value. In this JV, I am assuming that there is probably one other partner and your company is the dominant partner in the transaction. Additionally, I am assuming that the other limited partners in the JV will have some ownership ascribed to then in your company at the end of the transaction. If this is correct, then for the limited partner they would effectively be purchasing interest in your company using their value in the JV as currency. For your company, they will need to align on a valuation with the other limited partner in the JV, which effectively would resemble activities carried out during the due diligence exercise, with the twist being that all the components are known and the only heavy lifting would be agreeing valuation with the limited partner. therefore in this context yes principles of the M&A framework for DD and Valuation would apply.
With respect to bringing the two business together, I argue that your company will definitely benefit from the Post Merger Integration principles starting with the obvious one which you have stated “Culture”. Failure to gain congruence in the cultures can destroy value from the integration in several ways, including but not limited to loss of key talent or talent pool, culture clash impacting key strategic decision, loss of key customers etc. Considerations for example where certain roles or decision are duplicated in roles, would also translate in potential efficiency gains and consequently the PMI approach would definitely add value.
Therefore, although it is technically not searching and finding a new target that is diligence, negotiated etc, the end game is still the same which is how to execute the marriage of the two businesses to ensure that 1+1 is greater than 2.5.April 29, 2020 at 12:47 pm #109717
Paul, all very good points. In our case we will keep them running as separate legal entities and provide functional services through master services agreements. Interestingly, the partner currently providing the functional services is using their divestiture process to transition the work to us creating a number of challenges. Even though we are staying separate legal entities with the same JV partner structure your culture comments are very relevant and what to do with functional roles where we may have some duplication. Thank you for your comments.
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