MARKET PLACE
STRENGTH IN NUMBERS
Here Peter Savage describes the benefits of becoming a joint venture – as well as potential pitfalls.
In the current economic climate, many recruitment companies are considering ways to maintain or even increase their turnover in order to avoid losing staff and market share.
While some may see this as an opportunity to grow by acquiring competitors at a reduced price, for many a key driver will be to keep costs at a minimum and certainly to avoid committing vital cash reserves to new projects.
Venture option
With the right partner in place, a joint venture may fit these requirements. Indeed, some companies, such as joint venture specialist HR GO plc, make this the cornerstone of their operations.
Joint ventures can range from relatively straightforward fee-sharing agreements to large international investments in entirely new projects. Regardless of size, the keys to a successful joint venture will be to find the right partner with the same strategic vision, and to structure the new enterprise correctly.
At the heart of any joint venture will be its strategic and economic aims, which can vary widely.
A joint venture will sometimes allow two companies to jointly exploit a new market with a shared investment and shared risk. Similarly, joint ventures can be particularly effective to aid expansion into new national or international markets.
By working with a partner with an established infrastructure, one company can gain access to a new market without needing to open an office or acquire a business. There will, however, need to be some element of reciprocity.
Joined-up approach
Another aim of a joint venture may be to form a consortium. This can make a group of two or more companies more competitive when pitching for longer-term contracts or to be preferred suppliers, particularly for larger private organisations and in the public sector. The experience and resource of the consortium members can give a perceived commercial advantage, and the joint venture can also operate as an invoicing shell, with each party rewarded solely on the basis of fees generated by placements made.
Joint ventures may also allow businesses to implement major marketing initiatives that might have been impossible alone. The more ambitious the concept, the more partners may be required. For example, in creating a new web-based job board, a partner with previous experience may wish to take a stake in the new business to provide valuable insights and contacts, providing advice and assistance beyond simply commissioning services from IT providers.
There are two principal forms of joint ventures. The first is a corporate joint venture, involving the formation of a separate legal entity to carry on the business. This allows parties to limit their liabilities and make investments, in the form of money, time or assets, for an agreed share of ownership.
The second is a contractual joint venture, where no separate entity is formed, but parties agree to carry on a joint business as independent contractors.
The suitable form will depend upon the commercial strategy. A consortium would usually require a new company to be formed, while those involved in shorter-term projects may prefer a contractual arrangement, being easier to terminate when no longer needed.
In either case, there will need to be a legal agreement governing the joint venture. As well as stating its aims, this will set out the many and often complex rights and obligations. Ownership of the company or project must be established, as must the responsibility for decision-making.
Define boundaries
Establishing financial rights and responsibilities is essential. For example, after their initial contributions, the obligations of each respective party to fund the future needs of the joint venture project must be decided, and it must be clear how both income and capital growth will be shared.
In terms of liabilities, there may be no requirement to contribute to any losses of the joint venture if it is made through a limited company. However, a contractual joint venture, in which each party is trading in its own right, must provide for this.
The options for exit must also be set out. It may be appropriate for the arrangements to come to an end at a fixed time, or there may be no need to consider a specific exit plan, unless one party will have the right to buy out the other. A decision must also be made on the right to sell a stake in the venture to a new investor.
Joint ventures can be a successful way for recruitment companies to join together and beat the financial crisis. But it is essential that they are undertaken only following a great deal of thought and expert advice to make the most of opportunities and minimise risk.
Peter Savage is director on the corporate team in the London office of commercial law firm, Cobbetts LLP
While some may see this as an opportunity to grow by acquiring competitors at a reduced price, for many a key driver will be to keep costs at a minimum and certainly to avoid committing vital cash reserves to new projects.
Venture option
With the right partner in place, a joint venture may fit these requirements. Indeed, some companies, such as joint venture specialist HR GO plc, make this the cornerstone of their operations.
Joint ventures can range from relatively straightforward fee-sharing agreements to large international investments in entirely new projects. Regardless of size, the keys to a successful joint venture will be to find the right partner with the same strategic vision, and to structure the new enterprise correctly.
At the heart of any joint venture will be its strategic and economic aims, which can vary widely.
A joint venture will sometimes allow two companies to jointly exploit a new market with a shared investment and shared risk. Similarly, joint ventures can be particularly effective to aid expansion into new national or international markets.
By working with a partner with an established infrastructure, one company can gain access to a new market without needing to open an office or acquire a business. There will, however, need to be some element of reciprocity.
Joined-up approach
Another aim of a joint venture may be to form a consortium. This can make a group of two or more companies more competitive when pitching for longer-term contracts or to be preferred suppliers, particularly for larger private organisations and in the public sector. The experience and resource of the consortium members can give a perceived commercial advantage, and the joint venture can also operate as an invoicing shell, with each party rewarded solely on the basis of fees generated by placements made.
Joint ventures may also allow businesses to implement major marketing initiatives that might have been impossible alone. The more ambitious the concept, the more partners may be required. For example, in creating a new web-based job board, a partner with previous experience may wish to take a stake in the new business to provide valuable insights and contacts, providing advice and assistance beyond simply commissioning services from IT providers.
There are two principal forms of joint ventures. The first is a corporate joint venture, involving the formation of a separate legal entity to carry on the business. This allows parties to limit their liabilities and make investments, in the form of money, time or assets, for an agreed share of ownership.
The second is a contractual joint venture, where no separate entity is formed, but parties agree to carry on a joint business as independent contractors.
The suitable form will depend upon the commercial strategy. A consortium would usually require a new company to be formed, while those involved in shorter-term projects may prefer a contractual arrangement, being easier to terminate when no longer needed.
In either case, there will need to be a legal agreement governing the joint venture. As well as stating its aims, this will set out the many and often complex rights and obligations. Ownership of the company or project must be established, as must the responsibility for decision-making.
Define boundaries
Establishing financial rights and responsibilities is essential. For example, after their initial contributions, the obligations of each respective party to fund the future needs of the joint venture project must be decided, and it must be clear how both income and capital growth will be shared.
In terms of liabilities, there may be no requirement to contribute to any losses of the joint venture if it is made through a limited company. However, a contractual joint venture, in which each party is trading in its own right, must provide for this.
The options for exit must also be set out. It may be appropriate for the arrangements to come to an end at a fixed time, or there may be no need to consider a specific exit plan, unless one party will have the right to buy out the other. A decision must also be made on the right to sell a stake in the venture to a new investor.
Joint ventures can be a successful way for recruitment companies to join together and beat the financial crisis. But it is essential that they are undertaken only following a great deal of thought and expert advice to make the most of opportunities and minimise risk.
Peter Savage is director on the corporate team in the London office of commercial law firm, Cobbetts LLP
