Joint ventures (“JVs”) in the retail and consumer sector are popular with brands looking for partnerships that open markets and bring expertise. JVs allow parties to move quickly in a fast-paced retail environment with changing consumer demands, but entities should be conscious of how to exit such collaborations when the time comes. Bird & Bird’s Corporate team has summarised below some recent developments and provided a shortlist of considerations to include in agreements governing JV exits.
Why retail clients enter into a JV
JVs are entities created by two or more businesses to achieve a particular aim. Parties typically contribute their own comparative advantage to the venture (e.g. sectoral expertise, physical brick and mortar properties) and benefit from those of other participants (e.g. experience in a given geography).
In the UK, JVs do not have to take a distinct legal form, they exist as either a company limited by shares, contractual venture or type of partnership. This gives parties scope to pick a structure or arrangement that suits them best.
In the retail and consumer sector, JVs have allowed brands which complement each other to expand into areas which require specific skill sets and allow them to adapt to changing demands. Recent examples include:
- H&M Group and Remondis partnering to create a venture that integrates the collection, processing and resale of unwanted clothes. The venture aims to be the primary provider to companies looking to boost their resale or recycling capabilities and reduce their environmental impact.
- Kraft Heinz and TheNotCompany paired last year to increase the use of plant-based ingredients in Kraft’s brand portfolio, allowing Kraft to tap into greater demand for more sustainable foodstuffs.
- UNIQLO and Theory opening a London store displaying both brands’ products alongside each other in a hybrid venue that includes in store experiences including a café operated by Japanese company Katsute100. With both UNIQLO and Theory being owned by Fast Retailing, this pairing builds on an existing London store.
- Nestlé and PAI Partners agreed to a venture to expand Nestlé’s CHF 400mn European frozen pizza business in Europe. The new venture, which is still subject to employee and regulatory approval, would build on a similar venture between the parties in 2016 to expand Nestlé’s ice cream business.
Key considerations
JVs are not always structured to run indefinitely – once the goal of a JV is reached and the JV is deemed successful, an exit out of a JV may be the natural next step. During the excitement of signing up to the new union, it is, almost counterintuitively, particularly important to set out very clear and thorough exit provisions. This is especially true in the retail and consumer sector, where fast moving trends can dictate a JV’s lifecycle.
Depending on the means of exit (e.g., a sale of assets, listing the venture on a public exchange, or more typically a partner buyout), key considerations to include in any JV agreement should be:
- Targets: clear milestones should be agreed as to when parties can consider exits. Alternatively, a joint venture agreement should include provisions to allow a forced sale by certain parties;
- Intellectual Property: the division of intellectual property (“IP“) and goodwill, particularly in brand led environments where JVs have successfully built a portfolio of IP during their lifetime. Agreements should cover all aspects of registered or unregistered IP and any arrangements that govern post-exit ownership or use;
- Assets: how assets are divided between parties upon exit, including brick and mortar stores. Consideration should also be made of how to divide assets beyond the storefront such as logistics sites, production or storage;
- Liabilities: if an exit is achieved through an asset sale, which part(ies) will be responsible for remaining liabilities, in particular given the ongoing consumer law obligations and after sale relationships with consumers; and
- Profits: whether an exiting party has an entitlement to future income where a JV continues to operate after the exit of a party.
As JVs in the retail and consumer sector become more common, it is important to consider such factors to ensure an amicable exit.
For further information, please contact:
Nick O’Donnell, Partner, Bird & Bird
nick.odonnell@twobirds.com
