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.