The main purpose behind carrying out due diligence when entering into a partnership is to ensure no unexpected problems or nasty surprises occur or that there are no unforeseen liabilities attached to your new venture. In assessing what due diligence to do, it is essential that all necessary provisions for both parties are properly set out, fulfilling every aim and objective. Whereas financial and legal due diligence ascertains the potential value of a partnership, strategic due diligence explores whether that potential partnership is realistic. In this article, due diligence on strategic partners, we take a look at the process and mechanisms involved.
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For a free initial discussion on how we can help you with the legal aspects of carrying out due diligence on strategic partners, get in touch with us today. We will review your situation and discuss the options open to you in a clear and approachable manner. Early expert legal assistance can help maximise your chances of success and also avoid the stress of dealing with these issues on your own. Simply call us on 0345 901 0445 or complete our online enquiry form and a member of the team will get back to you.
What Are strategic partners?
Typically, two companies form a strategic partnership when each possesses one or more business assets or have the expertise that will help the other by enhancing their businesses. This can also mean that one firm is helping the other firm to expand their market to other marketplaces, by helping with some expertise. For the partnership to be truly successful, trust between the parties plays a very important role. Consequently, you should choose your strategic partner very carefully.
Examples of Strategic partnerships
One common strategic partnership involves one company providing engineering, manufacturing or product development services, partnering with a smaller, entrepreneurial firm or inventor to create a specialized new product. Usually, the larger firm supplies access to finance, and the necessary product development, marketing, manufacturing, and distribution channels, while the smaller firm supplies specialized technical or creative expertise.
Another common strategic partnership involves a manufacturer or supplier forming a partnership with a distributor or wholesale company. Instead of looking upon the transactional work between the partners as a basic link in the supply chain, the two companies form a closer relationship where they mutually participate in advertising, marketing, branding, product development, and other business functions. A good example of this is where a car manufacturer forms strategic partnerships with its parts suppliers. Another example is where a music distributor forms a partnership with a record label.
The activities of a strategic partnership can also include a shared research & development department between the partners. This requires a higher level of knowledge sharing as well as a higher level of sharing technological capabilities. But by doing so, the costs and risks of innovation can be spread between both partners.
What due diligence should you carry out?
Conflict between strategic partners can be quite common, but if you use the right processes and carry out due diligence checks, you can increase your chances of success. It is essential to be aware of the mechanisms involved in your partnership and carry out the due diligence relevant to these areas.
Strategic partnerships raise questions concerning co-inventorship and other intellectual property ownership, technology transfer, exclusivity, competition, hiring of employees, rights to business opportunities created in the course of the partnership, how profits and losses will be split, how long the partnership is intended to last for and how it should end, and many other business issues. Another risk of strategic partnerships, especially between manufacturer and key supplier, is the potential forward integration by the key supplier.
The key to appropriate due diligence is to analyse these questions and carry out the necessary checks to mitigate the associated risks.
How we can help
We have a proven track record of helping clients set up partnership agreements and advise on the necessary due diligence. We will guide you through all the necessary legal due diligence in a comprehensive and timely manner. We firmly believe that with the right solicitors by your side, the entire process will seem more manageable and far less daunting.
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Disclaimer: This article provides general information only and does not constitute legal advice on any individual circumstances.
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