Learn about the methods and models for valuing a joint venture (JV) and the best practices for updating, monitoring, and improving your JV valuation over time.

A truth which I have followed since it was passed to me is that if the JV partners cannot agree valuation at the outset then the JV will never get off the ground. I have consistently found that a vision of what the JV can become is fundamental is progress. If that vision is lacking, all the valuations in the world will be money wasted.

How do you update and monitor joint venture valuation over time?

Joint ventures (JVs) are strategic partnerships between two or more entities that share resources, risks, and rewards. JVs can be a powerful way to access new markets, leverage complementary skills, and create synergies. However, JVs also pose significant challenges, such as aligning objectives, managing conflicts, and ensuring fair value distribution. Therefore, it is crucial to have a robust and transparent joint venture valuation process that reflects the current and potential performance of the JV.

1 What is joint venture valuation?

Joint venture valuation is the process of estimating the value of a JV based on its financial and non-financial contributions, benefits, and risks. This is not a one-time exercise, but rather a dynamic and iterative process that requires regular updates and monitoring. There are various methods and models for valuing a JV, depending on the purpose, context, and availability of data. For instance, market-based valuation uses comparable transactions or multiples of similar JVs or companies to estimate the value. Income-based valuation uses discounted cash flow (DCF) or economic value added (EVA) models to project future cash flows or profits and discount them to the present value. Asset-based valuation uses the net asset value (NAV) or replacement cost of the JV's assets and liabilities to determine the value. All three approaches have their advantages and drawbacks, so it is important to consider each one carefully.

Add your perspective

Paul Hardman

Partner at Shakespeare Martineau advising owner managed and SME businesses on legal issues
Report contribution
A truth which I have followed since it was passed to me is that if the JV partners cannot agree valuation at the outset then the JV will never get off the ground. I have consistently found that a vision of what the JV can become is fundamental is progress. If that vision is lacking, all the valuations in the world will be money wasted.

Like

2 How to update joint venture valuation over time?

Updating joint venture valuation over time is essential to track the performance of the JV, adjust the expectations and strategies of the partners, and identify any issues or opportunities that may arise. The frequency and scope of the update may vary, but generally, you should review the JV agreement and objectives, collect and analyze relevant data, apply a chosen valuation method and model to calculate the updated value, and communicate and report the results. When assessing whether the original agreement is still valid, any changes or deviations should be discussed and agreed upon by the partners. As for data collection, it should be consistent, reliable, and comparable across time periods and sources. When applying the method and model, any assumptions and inputs should be clearly stated and justified. Lastly, when communicating and reporting the results, they should be clear, concise, and transparent.

Add your perspective

Matteo Cerri

Teo | Entrepreneur, Investor, Author, Publisher
Report contribution
In my experience the JV valuation is essential nearly as much as the proceed of the JV itself. No valuation inevitably causes issues in the JV itself over time. Once targets are established, sharing data and tracking results should be a common effort, possibly delegated to a third party, professional supervisor. Quarterly checks should be a good starting point and actionable intervention (pre-agreed ones) are key to the process.

Like
Paul Hardman

Partner at Shakespeare Martineau advising owner managed and SME businesses on legal issues
Report contribution
The key to understanding the ongoing value of the JV is to consider not just the value of the JV vehicle but what the JV partner is separately getting out of it and that can be access to new customers, new technology or skills and resources or ways of looking at things. Where they go wrong is when one JV Partner is gaining at the expense of the other and where they go right is when the JV company can stand on its own feet and be set free from its JV parents.

Like

3 How to monitor joint venture valuation over time?

Monitoring joint venture valuation over time is essential to ensure the JV is providing the expected value and benefits to the partners, and to recognize any potential risks or opportunities that may require action. The frequency and depth of the monitoring may vary depending on the size and complexity of the JV, but some common practices include establishing key performance indicators, setting targets and benchmarks, tracking and evaluating progress, and identifying and addressing any gaps or issues. The KPIs should be aligned with the JV objectives, relevant, measurable, and achievable. The targets and benchmarks should be specific, time-bound, and agreed upon by the partners. Regularly tracking and evaluating progress with reliable data is necessary to compare the performance of the JV with other JVs or competitors in the same or similar industries or markets. If any gaps or issues arise during monitoring, such as underperformance, misalignment, conflicts, or risks, it's important to communicate openly and constructively, seek feedback and input, and implement corrective or preventive actions.

Add your perspective

4 How to improve joint venture valuation over time?

Improving joint venture valuation over time is possible by enhancing the value drivers and reducing the value detractors of the JV. Value drivers, such as synergies, innovation, customer loyalty, and efficiency, can increase profitability, growth, and competitiveness. On the other hand, value detractors such as conflicts, costs, risks, and inefficiencies can decrease profitability, growth, and competitiveness. To improve joint venture valuation over time, partners should strengthen their partnership by fostering a strong relationship based on mutual respect and cooperation. Additionally, partners should optimize their governance structure to ensure accountability and compliance. Leveraging synergies that result from combining complementary skills, assets, capabilities and networks is also important for improving joint venture valuation. Finally, partners should innovate and adapt to changing customer needs and preferences by investing in research and development and product differentiation. Monitoring emerging trends in their environment is also key for improving joint venture valuation over time.

Add your perspective

5 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?

Add your perspective

How do you update and monitor joint venture valuation over time?

1

2

3

4

5

1 What is joint venture valuation?

2 How to update joint venture valuation over time?

3 How to monitor joint venture valuation over time?

4 How to improve joint venture valuation over time?

5 Here’s what else to consider

Joint Ventures

Rate this article

Thanks for your feedback

More articles on Joint Ventures

More relevant reading