Download Mergers and collaborations

Mergers and collaborations
Kate Sayer
16 September 2016
Charity Commission
“trustees of a charity have a duty to consider regularly
whether the charity could be more effective at
achieving its objects by collaborating or merging with
other charities”
The collaboration continuum
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Joint working
Two or more charities
On a project or venture
Or sharing resources
Joint committee
or info sharing
Working jointly
on a project or
sharing services
Joint venture
company
Full merger
Model for collaboration - 1
Grant or contract?
Organisation B
Organisation A
Lead partner
Organisation C
Model for collaboration - 2
Joint activities = JANE (Joint Arrangement , Not an Entity)
Organisation A
Service or
activity
Organisation B
Organisation C
Service level
agreement –
what service
and how
delivered
Model for collaboration - 3
Jointly owned company
Organisation A
Organisation B
Joint venture
company
Employs staff
Runs services
Holds leases
Organisation C
Service
delivery
Model for shared services - 1
Lead partner
Organisation A
Organisation B
• Lease or buy
premises
•Hire sufficient staff
Organisation C
Model for shared services - 2
Outsourcing
Organisation A
Supplier
Fees
Organisation B
Organisation C
Service level
agreement –
what service
and how
delivered
Model for shared services - 3
Service company
Organisation B
Organisation A
Buy level of
service required
Management services
company
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Employ staff
Manage facilities
Raise funds
Hold head lease or
own property
Organisation C
Sell
services
Other
Organisation
What to think about….
• Will you get on with your partner(s)?
• Do you need to undertake due diligence on
them before you work together?
• Will one control and subcontract?
• Or will you be equal partners?
• What about conflicts of interest?
• Who decides who gets what?
• Accountability to funder vs. control
More to think about….
• Will there be:

a fair share of effort and reward for each?

measurable benefits?
cost savings?
any effect on income?
added value from collaboration?

any downside or other loss?
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And more to think about….
• Is it within your charitable objects and powers?
• Do you need:

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a contract
a grant agreement
or a memorandum of understanding?
or a separate company to work through?
• Is there a termination clause in agreement?
• What happens if your partner is unable to meet
their obligations under the collaboration?
Benefits include:
• New or improved services
• Access to funding
• Improved services for
beneficiaries
• Cost savings
• Knowledge, good practice
and information sharing
• Sharing the risk in new
and untested projects
• Capacity to replicate
success
• Stronger, united voice
• Better co-ordination of
organisations' activities
• Competitive advantage
• Mutual support between
organisations
Risks include:
• Outcomes do not justify
the time and resources
invested
• Loss of flexibility in
working practices
• Complexity in decisionmaking and loss of
autonomy
• Diverting energy and
resources away from core
• Damage to or dilution of
your brand and reputation
• Damage to organisation
and waste of resources if
collaboration is
unsuccessful
• Lack of awareness of legal
obligations
• Additional costs/liabilities
if partner fails
• Stakeholder confusion
Merger options - basic
A
B
New
charity C
OR
A
Operations, assets and liabilities transfer
B
Quick merger
• Gain control of a charity
• Appoint your trustees to be their
trustees as well – de facto control
• Ask their trustees to resign
• You can then take your time to decide
what you do next
Group structures
New holding
charity
Some trustees
Some trustees
A
B
Feasibility study
• Will this help you achieve your charitable
objects more effectively?
• Is there a cultural fit?
• What are the benefits and risks?
• Are there legal issues to overcome?
• What will the costs (time and money) be?
Develop a business case
Background – key drivers
Describe new way of working
Benefits – tangible and intangible
Costs and compare with status quo
One-off costs of change, including staff
time
• High level plan
• Risks and how they will be managed
• Exit strategy
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Collaboration agreement
• Purpose of agreement • Accountability and
• Activities it is to cover liabilities
• Roles and
responsibilities of
each
• Monitoring
• Communication
• Name, PR, logos etc
• Costs and assets and • Exit strategy
how shared
• Dispute resolution
Due diligence
• To ensure the merger or collaboration


is in best interests of the charity’s beneficiaries
will not expose the charity’s assets or beneficiaries
to undue risk
• Consider


is the merged organisation a safe house for the
charity's assets?
what risks and liabilities are being taken on?
Due diligence
• Background and governance
• Management and people
• IT and accounting systems and
management information
• Financial information
• Assets and liabilities
• Other legal issues
• Post-merger issues
Background and governance
• Overview of external environment and
competition
• Organisational structure – governance
and management
• Review of strategic planning document
and risk register
Management and people
• Details of staff, job titles, pay and length
of service
• Pension contributions and schemes
• Details of contracts of employment, staff
manual and policies
• Staff relations and trade union
representation
• Details of volunteers and related policies
Information systems
• Analysis of age and suitability of IT
systems – finance and donor or other
records
• Overview of internal controls and
financial procedures
• Management letters from auditors and
management response
Financial information
• Statutory and management accounts,
budgets, cashflow
• Funders: grants, contracts
• Fundraising activities and rate of return
• VAT and other tax compliance issues
• Restricted and unrestricted funds
• Reserves policy and position
Assets and liabilities
• Premises – owned and leased
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•
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details of tenure, usage, rents,
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dilapidations, tenants and terms etc
Investments
Debtors and creditors
Pension liabilities, deficits, guarantees
Contingent liabilities
Bank facilities
Other legal issues
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Power to merge
TUPE and contracts of employment
Pension schemes
Properties, leases and dilapidations
Intellectual property
Other legal contracts
Insurance
Permanent endowments
Post-merger issues
• Pro-forma post-merger statement of
financial activities and balance sheet
• Financial projections going forward
• Accounting for the merger
• Consents from regulators, funder etc
• VAT
• IT systems
• And more!