Historically and statistically, most joint ventures and business combinations have short and difficult lives. Lawyers can assist with preparation and negotiation of best of class, workable and practical corporate and legal structures and agreements. But only the parties, the would-be partners, can make the combined business work and succeed.
Some of the more experienced co-investors apply (and constantly upgrade) reverse due diligence processes and checklists to assess alignment, compatibility and feasibility of the intended cooperation.
They would specifically review and assess, among others, questions/aspects like:
- track record with previous joint ventures, mergers, acquisitions (add-ons), business combinations, aborted deals
- capacity/resources, ability and knowledge to support both organic and inorganic growth – and value creation
- industry reputation, good standing and network – to amplify/facilitate marketing and sales of the existing products and services, or product development, and expansion, – to attract talent
- operations / integration team, resumes, qualification, track record, availability
- any disputes with partners in the past, how they’ve been resolved
- group structure, org chart, decision-making verticals, reporting lines and routines
- debt financing, lender/s, type of debt, type of security (e.g. current or future assets of the JV, negative pledges, etc.)
- merger, foreign investment and/or regulatory approvals – in the current environment, even the best matches from a business perspective may fall victim to regulatory scrutiny.
By Pavel Hristov, Partner, Hristov & Partners
