In business, a joint-venture is the experience most similar to a marriage. The last of your thoughts is to prepare for the time the love is gone.

Indeed, when structuring a joint venture, the parties tend to focus more on the “true love” side of the papers and a bit less on the “divorce” scenarios. Indeed, as far as exit is concerned you can find a vast array of M&A tools available, with exotic appellations: deadlock resolution mechanisms, put & call options, Russian roulettes, Texas shoot-out clauses, buy-you buy-me clauses and other niceties.

But when things go South and your joint venture is located in the other side of the world, you know that going legal is a rough road. And it is not just a matter of money: because of the “true love” phase, you have contributed in the joint venture valuable assets (trademarks, patents, know-how, goodwill, license agreements, supply agreements, distribution agreements, etc.) that you would like to have back in a moment, but this is not going to happen.

The point is that, although you have a set of exit clauses, you do not have a real exit strategy.

“An exit strategy and an exit clause are not the same thing.”

An exit strategy should include the following instruments:

1. A leverage to deter the partner from taking hostile initiatives that would force you to trigger an exit clause. This includes retaining control on strategic assets and strategic contracts.

2. A mechanism to enforce the execution of purchase options.

3. A mechanism to pre-determine the value of your shareholding in case of exit.

4. A mechanism to control the liquidation process, in case liquidation is the last resort.

5. A plan to quickly redeploy strategic assets and contracts and preserve the joint-venture goodwill.

In part 2 we will analyze these 5 tools.