Big Four Alumni & Professionals Group (ACN, CAP, D&T, E&Y, KPMG, PwC)

Big Four Alumni & Professionals Group (ACN, CAP, D&T, E&Y, KPMG, PwC)

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    John Fowler    Group moderator
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    KPMG Survey Finds Joint Ventures Fuelling Growth During the Downturn

    2010


    A research study recently conducted by KPMG International and the IESE Business School has shown that 52 percent of respondents believed their recent JVs have been extremely helpful to them for improving their overall performance. This survey was conducted on more than 100 senior executives who said that Joint Ventures (JV) appear to be the saving grace during the downturn. They have been successful in delivering what was expected of them and are expected to deliver even more in the recent future.

    65 % of total respondents felt positive about their future JV activity and 50 % expected to make more use of the JVs in the near future. 31 % of respondents had also expressed dissatisfaction at how their own JV had worked out, and the report also says that there is more work to be done to perfect the approach towards JV formation.

    Doug McPhee, a partner in KPMG’s UK firm, commenting on the survey findings, said: “The revival in JVs’ fortunes should come as no surprise. After years in the wilderness during the peak of the M&A market, a return to the mainstream was expected as companies began to struggle to access the debt capital needed to fund their M&A aspirations. However, what is more pleasing is the way in which companies appear to really be making the JV approach work for them. Traditionally, JVs have been seen as a less attractive route to growth as they have been perceived as difficult to manage and delivering no control over operations and strategies. I would suggest that this perception is now being changed and that JVs really are delivering on their promises.”

    The respondents who had participated in over 250 JV’s between them, trust was a very important factor between the two partners. Trust was ranked as one of the most important factor behind the success of a JV.

    According to McPhee, the trust issue is a massive one for JV participants as the tendency in the past has been for businesses to approach the negotiations as they would a more straightforward acquisition. He said: “JVs require a different mindset to M&A, which inherently involves posturing for the highest selling price and the lowest buying price. On the other hand, JVs require genuine collaboration to be successful. In that respect, trust is fundamental.”

    Talking about due diligence, 60 percent respondents felt legal due diligence to be a high priority.

    Commenting on this, Doug McPhee said: “The due diligence responses are a slight cause for concern. The focus on legal due diligence is understandable, considering the level of related party transactions once the venture is formed. However, the tendency for this to happen at the expense of other forms of due diligence — sometimes for fear of aggravating the other party — is risky. It comes as no surprise to me that our survey shows how businesses that did indulge in commercial and financial due diligence had a far greater chance of securing a successful JV.”
 
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