Establishing a ‘Greenfield’ Joint Venture

JOINT VENTURE SERIES:
Establishing a
‘Greenfield’
Joint Venture
ADVISORY
JOINT VENTURE
When partners collaborate to capture opportunities in
new markets without a pre-existing business, there are
few advantages gained from leveraging existing
operations and yet significant risks involved.
How confident are you in delivering your ambitious
growth plans with a new partner, whilst mitigating your
investment risk?
A Framework For Success
Establishing a ‘Greenfield’ JV requires significant upfront investment in terms of time and planning.
Ensuring you have a clear growth strategy and investment thesis is critical prior to opening negotiations
and aligning the JV business plan with your partner. Clarity of this framework will establish the
foundations for the “transaction” and act as a catalyst for a successful deal.
Many challenges experienced by JV partners result from the lack of strategy, feasibility, and business
planning during the pre-deal period. These early stages should be spent confirming strategic intent and
the value drivers, as well as determining the key operating assumptions to unpin the new JV. Consider
the following to ensure your JV has the best chance of meeting your investment and strategic goals:
Alignment to corporate strategy
Ensure the strategic rationale and business case is clearly articulated and offers a natural extension of
your own corporate growth strategy
Partner selection and negotiation
Establish a robust partner prioritisation criteria, unpinned by your investment thesis; determine the
capabilities you seek from your potential partner(s); and plan your negotiation approach
Understand your partner
Get to know your partner, including historical performance, people and stakeholder relationships,
corporate culture, operational expertise, financial strength and strategic ambition
Jointly develop the JV business plan
Work with your partner early in the process to agree on the future JV strategy, business plan and key
guiding principles
Regulatory framework
Fully understand the legal and regulatory framework and develop or leverage your or your partner’s
connections with industry associations, government and regulators
Commercial valuations
From the outset it is important to identify the key value drivers and assumptions that underpin the JV
financials, before agreeing the major contributions by each partner to determine maximum value
Team mobilisation
Bringing the right team together early in the process is important to ensure prompt decision-making.
A dedicated transaction team is typically small, senior, operating with a strategic mindset, and
experienced across all functions. Senior management should be involved along with strategy directors
and/ or an M&A team
© 2013 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved. Printed in Hong Kong. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
The JV
The
Transaction
JV Transaction
Structuring the transaction into clear phases helps manage numerous stakeholders and expectations.
Board Paper
Go / no go
decision
Corporate
strategy
JV strategy/
feasibility
• Establish
LoI
MoU
JV Agreement
signing
Pre-Signing
• Understand your partner
strategic intent, • Align JV vision,
value drivers,
commercial terms, value
and operating
drivers, JV structure,
assumptions
funding and operational
assumptions
• Select your
partner
• Identify and value assets
to incorporate into the JV
• Conduct negotiations
• Sign JV Agreement (JVA)
1st Board
meeting
Completion / Day 1
Pre-Closing
Post close
• Complete deal conditions
precedent and legal
incorporation activities
• Mobilise functional teams
from both JV partners
• Develop detailed JV
business plan and
investment plan
• Prepare to operationalise
the JV Agreement and to
deliver strategic objectives
from Day-1
Implement
• Move from ‘Transaction’ to
•
•
•
•
•
‘Transition’ and mobilise
operational teams
Implement JV governance
processes
Finalise JV business plan and
establish opening budget
Coordinate all workstreams
Implement different stages of
organisation design (Day-1,
Day-100, long-term state)
Deliver quick-wins
Key Lessons in establishing
Greenfield JV’s
Align the strategic priorities and commercial interests between JV partners to ensure full
cooperation and shared investment priorities
Assess capability beyond the partners’ current business
Consider the future potential to compete with your partner in the addressable market
in matters such as recruitment, financing and management attention
Develop clarity on roles, responsibilities and authorities for all individuals on the
Board and operating management
Consider needs after signing and before completion, with agreed budget,
resources, governance, and payments structure, to manage deal-closing
processes (e.g. legal establishment or regulatory approvals).
Identify potential future JV funding requirements and incorporate into
the JV Agreement
Build an implementation plan and lay out critical steps for the joint venture
transition to full operation
© 2013 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”),
a Swiss entity. All rights reserved. Printed in Hong Kong. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.
KPMG's Joint Venture Advisory practice in China is led by
a group of partners who have in-depth experience advising
clients in their Joint Venture M&A transactions. Together
with more than 200 professionals in China, and a global JV
Advisory practise, we work alongside KPMG's other
advisory specialists to support JV situations inside and
outside of China.
More from this series
www.kpmg.com/cn/jointventure
If you require further information, or you would like to
arrange a discussion with one of the KPMG JV
Advisory leadership team, please contact:
Other issues in the JV series
Key contacts for the purpose of this publication
Honson To
Linda Chen
Partner, Chairman JV Advisory
Partner, Valuations
+86 10 8508 7055
+86 21 2212 3660
[email protected]
[email protected]
Linda Lin
Richard Dawson
Partner, Transaction Services
Partner, Funding
+86 21 2212 3525
+852 2140 2392
[email protected]
[email protected]
Dominic Orchard
Michael Jiang
Partner, Post Deal Services
Partner, Corporate Finance
+852 2140 2262
+86 10 8508 7077
[email protected]
[email protected]
Grace Xie
Fergal Power
Partner, Tax
Partner, Restructuring
+86 21 2212 3422
+852 2140 2844
[email protected]
[email protected]
The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or
entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as
of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
© 2013 KPMG, a Hong Kong partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. Printed in Hong Kong. The KPMG name, logo and
“cutting through complexity” are registered trademarks or trademarks of KPMG International.