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Making the Most of Merger

Making the Most of Merger. Stephanie Biden Partner, Charity & Social Enterprise Department Carolyn Miller Consultant 15 May 2014. Why Merge?. Survival: financial/governance Response to commissioning and contracting or funding bodies Meet beneficiaries’ needs better Greater influence

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Making the Most of Merger

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  1. Making the Most of Merger Stephanie Biden Partner, Charity & Social Enterprise Department Carolyn Miller Consultant 15 May 2014

  2. 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

  3. Other ways to collaborate Spectrum of choices: Collaborative working on issues/projects Sharing knowledge Joint venture contract or new entity Shared services Full merger

  4. Three Key Stages to Merger Groundwork Compatibility Heads of terms/confidentiality agreement Due Diligence Financial/legal/operational/cultural Completion Merger agreement Practicalities (pre and post)

  5. Basic Merger Structures: Asset Transfer 1 A B

  6. 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)

  7. Basic Merger Structures: Asset Transfer 2 B A C

  8. Issues with Asset Transfer 2 Same issues as Asset Transfer 1, except: Feels less like a takeover More expensive

  9. Basic Merger Structures: Group 1 B A

  10. Basic Merger Structures: Group 2 C A B

  11. 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?

  12. Compatibility • Identify values • beneficiaries • objects • values or mission statements • policies • Future management and governance • Consultation • Trust • Name/brand/identity

  13. Due Diligence: key legal issues Constitutional Objects Powers Members Structural Corporate/unincorporated

  14. Due diligence: staff/pensions • TUPE • New staff structure? • The new CEO? • Pensions • Defined benefit pension schemes • Deal breaker?

  15. Due Diligence: Contracts/funding arrangements Contract of funding agreement Consent (funding agreements) Assignment v novation (contracts) Risk – value? Third party suppliers

  16. Due diligence: Land Freehold/leasehold property Restrictions on disposition Charges Condition Permanent endowment Other special trusts

  17. Due diligence: Intellectual property and data Intellectual property (IP) Brands, publications, databases Data protection Personal data Consent

  18. Due diligence: other issues • Litigation/disputes • Insurance • Information technology • Trading company • Investments • Tax/VAT

  19. Due Diligence: Regulators • Charity Commission/OSCR • Homes and Communities Agency • Pensions Regulator • Care Quality Commission • Other sector specific

  20. 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

  21. Post Merger • Notifications • Banks • Contractors • Regulators • Register of charity mergers? • Final accounts • Winding up/striking off (NB Legacies)

  22. 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”

  23. Stephanie Biden, Partner s.biden@bwbllp.com Tel: 020 7551 7750 @StephanieBiden Carolyn Miller, Consultant Carolyn.millerpersonal@gmail.com Tel: 07780 678 346

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