Joint Ventures in M&A: Lowering Risk and Capturing Opportunity

In the world of M&A, deals with significant risks are often described as having “hair.” Recently, our clients faced a deal that wasn’t just a little messy — it was downright Sasquatch-level in its hairiness.

The opportunity involved a company with serious vulnerabilities. Its customer relationships were fragile, operating almost day-to-day, and the entire business leaned heavily on the owner's personal involvement. Any transition would be high-risk. Cleaning up this deal would require something far more powerful than a simple touch-up — it would take major restructuring and operational reinforcement.

Despite the challenges, the upside was undeniable. The seller claimed he was turning away millions of dollars in new business simply because he lacked the operational capacity to handle it. While recruiting specialized talent can be difficult, it was clear that with the right strategy, the problem could be solved — and a significant opportunity could be captured.

Our client was at a crossroads. They recognized the potential but also saw the risks clearly. Rather than rushing toward a traditional acquisition — and assuming all of the inherent dangers — they worked with us to think creatively. Together, we decided that if another buyer was willing to make a full-price cash offer under those conditions, we would happily send them a bottle of champagne to celebrate.

Instead, we developed a smarter strategy.

Rather than submitting a traditional term sheet, we proposed a joint venture structure. Our client already had the operational depth and management experience needed to handle the overflow business the seller couldn’t manage. Through a joint venture, they could immediately start capturing that revenue while limiting their exposure to the company’s risks.

The joint venture agreement included a crucial term: a right of first refusal to acquire the business later. This arrangement allowed our client to build a proprietary path to ownership — avoiding competitive bidding in the future — while earning income and strengthening the business operationally in the meantime.

By structuring the deal this way, our client dramatically shifted the risk-reward profile. The downside — primarily the investment of time and management attention — was manageable. The upside included new revenue streams, operational insights, and the ability to "de-risk" the business from the inside before making a full acquisition decision.

For the seller, the arrangement also made sense. There were no credible buyers ready to take on the company's challenges at full price. By entering into the joint venture, the seller gained liquidity and an opportunity to stabilize the business — potentially making it more attractive down the road.

This approach made our client the hero of the story. Instead of reacting impulsively or walking away from a promising opportunity, they stayed disciplined, thought strategically, and took ownership of the outcome. They turned a risky situation into a controlled, high-upside strategic move.

The broader lesson is clear: joint ventures are an underutilized tool in M&A. They can offer many of the benefits of an acquisition — access to customers, cash flow, and strategic learning — without forcing the buyer to take on disproportionate risk from day one.

Next time you face a deal that looks too risky to pursue, ask yourself:
Could a joint venture structure unlock the opportunity?

With the right approach, the right guidance, and a disciplined mindset, the answer is often yes — and the results can be transformative.