Reference

How to unwind a partnership or joint venture without blowing it up

Ending a partnership is harder than starting one. At the start, both sides want the same thing. At the end, they want opposite things: one side is leaving and the other is losing something it depended on.

Customers, staff and systems are tangled between them. The contract was written by people who assumed nobody would ever need it. Every move either side makes is read as a signal.

Done badly, the unwind destroys more value than the partnership ever created. Done well, both sides walk away with their businesses intact. Sometimes they keep a smaller relationship that still works.

What follows is a sequence. The order matters more than any single step.

1. Decide what you want the relationship to be afterwards

Before anything else, decide whether you need to stay on good terms. It changes every choice that follows.

An insurer was planning for the end of a long-running distribution agreement. Its whole strategy turned on this one question.

Suppose it wanted to keep selling through the partner's network in some form. Then it could not openly recruit the partner's best advisers. If it did not, it could.

You are choosing between three outcomes:

A re-scoped partnership: smaller, different terms, still running. Often the best result, and usually the cheapest.
A clean break, on friendly terms: both sides separate on a planned timetable, and can work together again.
A clean break, contested: one side leaves and competes for what the partnership held.

Choose deliberately. Many unwinds that go badly slid into the third outcome without anyone choosing it.

2. Build the fallback before you signal anything

Your position in any separation depends on what you can do without your partner. Work that out quietly, before the conversation starts. Keep the work small and confidential.

Find where the value sits. Value is rarely spread evenly. In the distribution agreement, a small share of the partner's advisers wrote most of the business. That business sat in a few cities and product lines. It told the insurer which relationships to protect first, and which it could let go.

Work out what you can win back, and what you cannot. Some customers will follow you, some will stay with the partner, and some will leave both. Plan to win back well under the whole. Test the plan against the routes you have: your own channels, new partners, an acquisition, people you could recruit.

Know what else could change your position. An alternative you do not have today may be available in six months. During the talks, the insurer agreed to buy a business with its own broker network, and its position improved sharply. Timing the separation around such moves is legitimate, and often decisive.

3. Read the contract for the exit you actually have

Partnership agreements often say more about the exit than either side remembers. Read yours with a lawyer before you decide anything. Look for:

notice periods and the earliest date you can leave
transition obligations: what each side must keep providing after notice, for how long, and at whose cost. These can be substantial
who owns what: customers and their data, brands, intellectual property, assets built jointly, and the people employed in the partnership
restraints: non-compete and non-solicitation clauses, and how long they run
the exit mechanism, if the partnership is a jointly owned company.

Jointly owned companies often carry standard clauses for deadlock and exit. Under a buy-sell clause, one owner names a price. The other must either buy at that price or sell at it, which keeps the first price honest. Under a sealed-bid clause, both owners bid, and the higher bid buys the other out.

Put and call options let one side require the other to buy, or to sell, on set terms. Good agreements add a notice period, so a temporary disagreement cannot trigger a forced sale.

This page describes these clauses in general terms only. The detail, and whether they suit your situation, is for your lawyer and tax adviser.

4. Map everything that is tangled together

List what the two sides share, business by business and function by function:

customers and contracts, and who each customer thinks they deal with
people, including those who work in one business but are employed by the other
systems, data and the reports that run off them
brands, premises, suppliers, licences and approvals.

For each item, decide what happens on the first day after separation, during the transition, and at the end. Sometimes one side will need something from the other for a while. Write that down as a transitional service, with its scope, its price and an end date. A transitional service without an end date is a partnership by another name.

5. Cost the unwind in full

Separations usually cost more than the first estimate, for four reasons.

One-off costs. Systems to build or separate, contracts to novate, people to hire, customers to migrate, advisers to pay.

Stranded costs. The fixed costs that supported the partnership do not leave with it. The insurer's plan found that cutting the obvious costs would remove only a small part of the overhead. A smaller business would carry most of the rest. Each side should count its own, because each will be left with some.

The income tail. Income rarely stops when the partnership does. Existing customers and policies run off over a year or two, so earnings fall later than expected. The fall then arrives as the cost of replacing the business peaks.

The time replacement takes. New business written to replace the partnership costs money before it earns any. In the insurer's case, nobody expected replacement business to turn a profit for several years. Plan for earnings to dip before they recover. Tell the board and the lenders that shape in advance.

6. Protect customers and people first

Customers judge a separation by whether their service changes. Keep service levels stable through the transition, even where it costs money. Agree one story for customers with your partner, so they do not hear two versions.

Identify the people who hold the partnership together. They include the account managers, the operators who know the systems, and the partner's staff your customers talk to. Decide early who you want to keep and how, within the restraints the contract sets.

Uncertainty loses good people fastest. Tell them what is happening as soon as you can.

7. Negotiate the separation as a deal

A separation is a negotiation. Prepare for it as for any other: an aim, a floor, a mandate for the person negotiating, and a costed alternative. Trade each concession for something. You can exchange transition support for a faster timetable, a customer list for a longer non-compete, and a lower buy-out price for continued supply.

Keep the conversation about the future, not the history. Both sides will have a list of grievances. Settling them is rarely worth what it costs, and it slows everything down.

8. Run it as a project

Give the separation an owner with the authority to decide. Add a small steering group from both sides. Draw up a plan with three states on it: the first day, the transition and the end. Track customers retained, people retained, services handed over and costs against the estimate. Close each transitional service on its date.

Common mistakes

Signalling before the fallback exists, so the other side negotiates against a bluff.
Assuming the contract says what you remember it says.
Counting the lost income and forgetting the stranded costs.
Letting the lawyers set the pace, so the legal outcome leads and the commercial one follows.
Treating every grievance as a point to win.

Frequently asked questions

Can we unwind part of a partnership and keep the rest? Often, yes, and it is frequently the best outcome. Keep the parts that still work for both sides and end the parts that do not. Then rewrite the terms for what remains.

Should we tell our partner early? Tell them once you know what you want and what you can do without them. Too early, and you negotiate from weakness. Too late, and you lose the time a planned transition needs.

Who should lead the separation? Someone senior enough to trade, with no stake in defending the original deal. The executive who built the partnership is often the wrong person to take it apart.

What does a good unwind look like afterwards? Customers barely noticed. The people who mattered stayed. The costs came in close to the plan. And the two businesses could work together again if a reason arose.