Making the Most of Merger

Stephanie BidenPartner, Charity & Social Enterprise Department

Carolyn MillerConsultant

15 May 2014

Why Merge?

• Survival: financial/governance

• Response to commissioning and contracting or funding bodies

• Meet beneficiaries’ needs better

• Greater influence

• Expand range of services

• History of collaboration

Other ways to collaborate

• Spectrum of choices: Collaborative working on issues/projects

Sharing knowledge

Joint venture contract or new entity

Shared services

Full merger

Together, we will increase

our impact

The right move at

the right timeExpertis

e

+ reach

Supporters

Head office teams

Local teams

Those we support

Three Key Stages to Merger

1. Groundwork Compatibility

Heads of terms/confidentiality agreement

2. Due Diligence Financial/legal/operational/cultural

3. Completion Merger agreement

Practicalities (pre and post)

Basic Merger Structures: Asset Transfer 1

A B

Issues with Asset Transfer 1

• B assumes liabilities of A

• Therefore good due diligence vital

• Simpler/cheaper resulting governance and management structure

• Feels like a takeover (but it needn’t)

Basic Merger Structures: Asset Transfer 2

A

B

C

Issues with Asset Transfer 2

• Same issues as Asset Transfer 1, except: Feels less like a takeover

More expensive

Basic Merger Structures: Group 1

B

A

Basic Merger Structures: Group 2

C

BA

Issues with Groups

• Tighter than mere contract arrangements

• Cheaper to establish

• No transfer of liability

• More complex governance and management

• Easier to persuade boards?

• Useful stepping stone?

• Reversible

• Does it solve financial problems?

Compatibility

• Identify values beneficiaries objects values or mission statements policies

• Future management and governance• Consultation• Trust• Name/brand/identity

Due Diligence: key legal issues

• Constitutional Objects

Powers

Members

• Structural

Corporate/unincorporated

Due diligence: staff/pensions

• TUPE• New staff structure?• The new CEO?• Pensions

Defined benefit pension schemes Deal breaker?

Due Diligence: Contracts/funding arrangements

• Contract of funding agreement

• Consent (funding agreements)

• Assignment v novation (contracts)

• Risk – value?

• Third party suppliers

Due diligence: Land

• Freehold/leasehold property Restrictions on disposition

Charges

Condition

• Permanent endowment

• Other special trusts

Due diligence: Intellectual property and data

• Intellectual property (IP) Brands, publications, databases

• Data protection Personal data

Consent

Due diligence: other issues

• Litigation/disputes• Insurance• Information technology• Trading company• Investments• Tax/VAT

Due Diligence: Regulators

• Charity Commission/OSCR• Homes and Communities Agency• Pensions Regulator• Care Quality Commission• Other sector specific

Merger Agreement

• Warranties and indemnities Purpose? To focus the mind? Importance of due diligence process

• Conditions Regulators – consents/registration Consents from funders/contractors Member approval

• Pre-assignment/novation/consent• TUPE• Announcements

Post Merger

• Notifications Banks Contractors Regulators Register of charity mergers?

• Final accounts• Winding up/striking off (NB Legacies)

Tips for Success

• Shared vision• Strategic and organisational fit• Business case• Leadership• Recognising human factors• Good communications• Identifying deal breakers• Clear plans for merger process and beyond• Sensitivity to different organisational cultures

See: IVAR – “Thinking about… merger”

Stephanie Biden, Partners.biden@bwbllp.comTel: 020 7551 7750 @StephanieBiden

Carolyn Miller, ConsultantCarolyn.millerpersonal@gmail.comTel: 07780 678 346