Joint ventures, mergers and acquisitions

McKinsey has released a new report based on a survey which has found that joint ventures and mergers and acquisitions (M&A) are both posed to grow in the coming years as interest in corporate partnership grows. 68% of respondents to the survey on the subject said that they expect their companies’ joint venture activity to increase over the next five year and 59% expect M&A increases.

McKinsey has also said that the more experience companies have with joint ventures, the more likely they are to use them. Approximately 90% of respondents at companies with over six in operation said that joint ventures are either frequently or occasionally considered as serious alternatives to M&As, compared with only 40% from companies who have none at all in action. Also, executives are reported to hold a largely positive view of how past joint ventures have performed. Most describe the joint ventures with which they are most familiar as a successful one. Respondents also said that more than half of their companies’ joint ventures met or exceeded at least one parent’s expectations.

Room for improvement

Despite the initially positive feedback there is scope for improvement. Most executives who responded to the survey said that their companies lack consistent management practices from one venture to the next. Even companies with the most active joint ventures tend to manage their partnerships individually. Also, a few respondents reported the use of standardised resources, such as playbooks, that enable consistency and the sharing of best practices. It was also found that little consensus on the way to measure joint venture performance is around and many are divided over what success actually means. As an example McKinsey has highlighted meeting revenue targets as a widely acknowledged important measure of success, however keeping to the expected timeline for key milestones is not.

It seems that even companies with a large number of joint ventures tend to manage them individually rather than as part of a portfolio of initiatives.

Edited from report by Claira Lloyd

Read the article online at: https://www.oilfieldtechnology.com/special-reports/28112014/mckinsey-jv-ma-rise/