James Bamford opines that managing competing interests, asymmetric information, and different assumptions about the future are hallmarks of successfully negotiated JV agreements. Typically, when deal negotiators encounter disagreement, they turn to a set of tried-and-true negotiating options ... Compromise, hold ground, cede the point, trade for a concession on another term, or, if the difference is fundamental, walk away from what might otherwise be an attractive deal.
An additional option should be added to the set ... use a contingent deal term. Under-utilized in joint ventures, contingent deal terms can be especially valuable when the disagreement stems from divergent assumptions about future performance or outcomes (e.g., how one party contributed assets or products will perform over time). Dealmakers should not pass up a good deal just because they disagree on uncertain future outcomes. Bamford suggests that instead of arguing, agree to disagree, and use a contingent deal term to circumvent the issue.
Contingent deal terms boil down to if... then statements, where if a certain event or outcome occurs (e.g., achieving growth milestones, performance targets, or valuation levels), then a particular action will automatically occur based on a pre-agreed methodology. These are actions that often fundamentally change the ownership, scope, or economic flows of the JV. When using contingent deal terms, differences between the parties need not be bridged during the deal negotiations ... in fact, they become central to the agreement, and resolve themselves when the event in question does or does not occur.
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