Technology-focused joint ventures are on the rise in 2021

Businesses will need every weapon they have in their arsenal to survive the recent economic downturn and to ramp up financial performance as the economy undergoes a global reset.

Forming new joint ventures (JVs) is a good example of how many enterprising businesses have approached these conditions in the past. Indeed, analysis has shown that the formation of JVs tends to increase in the late stages of an economic downturn, often indicating a recovery, and frequently outpacing M&A. For example, after the 1990 - 1992 and 2001 - 2002 downturns, the number of new JVs launched was 20% above normal levels [1].

JVs can be used to obtain capital-efficient growth, raise cash and secure cost synergies – even when funding is tight. Investing in JVs can generate returns more quickly than organic growth can, and JVs are perceived by many to be less risky than M&A - by its nature, a JV typically involves some degree of risk and cost sharing. This is particularly relevant in a technology context because the technologies being assessed may be at an early stage of development and so the technology risks may be significant.

As economic performance at the biggest technology companies would seem to be holding steady – and even thriving in many cases [2]  - it is no wonder that many other businesses now have the pursuit of technology-focused JVs on the agenda in 2021. Periods of economic turbulence can lead to new opportunities. In seeking to exploit them, it is important to address the corresponding risks. A recent interview with one of our technology partners takes a close look at JVs in the Technology and Innovation space and considers these issues.

[1] https://hbr.org/2020/09/joint-ventures-and-partnerships-in-a-downturn.

[1] https://www.nytimes.com/2020/03/23/technology/coronavirus-facebook-amazon-youtube.html.