Emerging Trend Series - Trends in Joint Ventures

NET WORK

EMERGING TRENDS SERIES TRENDS IN JOINT VENTURES Stephanie Evans, Partner, WilmerHale

EXECUTIVE SUMMARY

EMERGING TRENDS SERIES NETWORK

Emerging Trends in Joint Ventures WilmerHale’s Stephanie Evans BIHC recently spoke with Stephanie Evans, a corporate partner in WilmerHale’s Washington, D.C. office, who handles mergers and acquisitions, including joint ventures and strategic alliances.

Q: What are the main trends you see around mergers and acquisitions and joint ventures, and what is driving these trends?

A: We are seeing fewer acquisitions so far this

year and more interest in joint ventures. One of the primary drivers is uncertainty: volatility in the financial markets, inflation, higher interest rates, heightened regulatory scrutiny, geopolitical issues such as the war in Ukraine and COVID’s ongoing impact, just to name a few.

Companies can’t stand still in the face of uncertainty, however, and need to look for other ways to build, buy, and innovate. Joint ventures present a different option to acquisitions to achieve companies’ business goals, and these joint ventures can be structured either by entering into a commercial contractual arrangement or by establishing a new company with the parties as owners.

Q: W hat are considerations and best

practices for GCs and boards contemplating joint ventures?

A: I n-house counsel and boards are increasingly

focused on regulatory risk. For example, an increase in antitrust scrutiny has led to an earlier and broader assessment of potential anticompetitive effects from a proposed joint venture. Another area is crossborder regulatory review. General counsels and boards should be mindful of government approvals for joint ventures involving U.S. and non-U.S. companies, whether that is CFIUS in the U.S. or its counterpart in other countries, as those approvals may take additional time to obtain.

A key best practice for joint ventures is to approach them with the same or even more rigor as an acquisition. Most joint ventures are customized to the specific parties and their specific goals for the venture and unlike an acquisition in which one party will own the target company outright, a joint venture means there will be an ongoing, collaborative relationship with the other party. As such, in-house counsel will need to assist the business leads on the details of the transaction and will need to perform detailed diligence on the other venture parties.

Because of the continuing relationship of a joint venture, another best practice is for general counsels to plan for problems to arise. Joint ventures tend to have three primary areas of risk. One is reputational risk, underscoring the need to conduct diligence about the venture partners. Another is execution risk, which arises when the JV does not achieve its business goals, which makes it important for in-house counsel to work closely with the business leads in anticipating any issues. Finally, joint ventures present a risk related to disagreements between each party, which means in-house counsel need to address upfront the dispute resolution process and the termination and separation process.

Q: W hen and why should GCs look to outside counsel for help?

A: A s organizations seek creative ways to achieve

their business objectives, such as through joint ventures, GCs and boards need to recognize that undertaking these ventures carries its own level of risk and that such undertakings require significant time and resources. GCs should also consider whether they will continue to be responsible for or otherwise involved with the venture and its operations after the venture documents are signed. Outside counsel—particularly counsel with expertise relate to joint ventures—can help in-house counsel think through all facets of the life cycle of a joint venture.

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EMERGING TRENDS SERIES NETWORK Ideally, GCs considering a joint venture will involve outside counsel early on. Specifically, if there is a term sheet or outline of business objectives and legal obligations, that is a time to involve outside counsel. Even though a term sheet may state that it is nonbinding, parties always return to it, so it is critical to be careful at that stage. In addition, when outside counsel comes in at a later point, it can be more difficult to make changes based on issues identified by outside counsel.

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EMERGING TRENDS SERIES NETWORK About the BIHC Network & Emerging Trends The Black In-House Counsel (BIHC) Network works with legal departments and law firms to advance Diversity, Equity, and Inclusion in the legal profession. We create content, events, networks, and professional development training for corporate legal departments and law firms. A key part of our mission is to showcase the talents of leading lawyers of color in top law firms to in-house legal departments.

Emerging Trends features insights from leading partners of color on key trends shaping the business landscape over the next 12 months. Each Emerging Trends briefing provides concise information on what general counsel and boards need to know about and best practices in how to approach this topic.

BIHC is pleased to hear from the following WilmerHale partners in the Emerging Trends Series:

Robert Boone

Brenda Lee

Partner

Partner

NEW YORK Complex Litigation and Investigations

WASHINGTON, D.C. Anti-Discrimination

Stephanie Evans

Andre Owens

Partner

Partner

WASHINGTON, D.C. Corporate Transactions

WASHINGTON D.C. Securities Trading and Markets Activities EMERGING TRENDS INTERVIEW SERIES

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