Popularity of JVs set to grow
MORE than half of global companies plan to pursue joint ventures in the next two years despite the number of JV’s this year dropping by 75% compared with the same period in 2008.
That’s according to a survey carried out by accountancy firm KPMG.
John O’Brien, head of transaction services at KPMG in the North, said: “Joint ventures are built on trust and the huge drop in JV numbers this year shows just how much the collapse of Lehman destroyed trust in the market place.
“Recent high-profile JV announcements suggest trust is returning but, aside from this issue, companies also feel undervalued so are pursuing JVs rather than M&A to access the benefits of current synergies and future increased value.
“Our research suggests that JVs are back on the cards, with half of our respondents planning to pursue deals in the next two years.
“Half of the executives surveyed also said that previous joint ventures had delivered everything expected of them, if not more.
Key findings from KPMG’s analysis of the Thomson data on joint ventures found that up to 2008, while M&A deals saw a huge spike in number and value during the ‘bubble’, JVs had an uninterrupted period of steady growth for four years.
The survey also found that cross border joint ventures are most popular in Japan, closely followed by China, then Germany and the UK, while between 2005 and 2008, the largest increase in joint ventures was in the energy sector with, specifically, the number of mining deals tripling as companies looked to take advantage of soaring commodity prices.
Mr Abram added: “Joint ventures, in some respects, are trickier than acquisitive transactions because there is a buy and a sell happening on both sides of the equation.
“Both companies need to have their interests aligned; agree how profits will be distributed and, perhaps most importantly, how the joint venture will be separated at the end of the agreement.
“Joint ventures were last popular in the early 90s when companies wanted to access low cost manufacturing bases in countries such as China and India, but global companies are now pursuing joint ventures to tap into the buying power of these markets.
“For companies in sectors such as energy and chemicals, joint ventures enable them to tap into the global resources essential to their growth.”
