Collaborations & Mergers

1. Collaborations & Mergers A Carmichael Centre Workshop in association with the IMCV Date: Thursday 3 April 2014 Presented by: Diarmaid Ó Corrbuí CEO: Carmichael Centre for Voluntary Groups

2. Workshop overview In today’s workshop we will cover: • Some definitions • Reasons to merge • Stages in a merger process • Pre merger evaluation • Merger planning • Post merger implementation • Challenges • Case study – Elaine Moore; Adapt Community Drugs Team & Caroline Gardener from Quality Matters

3. Collaboration and mergers can be a matter of survival • “In the long history of humankind, those who have learned to collaborate and improvise most have effectively prevailed” Charles Darwin

4. Collaboration and a merger between organisations are two ends of a cooperation spectrum • The National Council for Voluntary Organisations (NCVO) in the UK defines collaborative working as a partnership between two non‐profit organisations Collaboration Strategic alliance/ joint programming Merger

5. Collaboration, alliance and merger

6. Consolidation of the sector is widely expected • Almost 7 in 10 charities surveyed feel that consolidation in the sector is inevitable and 76% expect that consolidation will be perceived as beneficial in the public’s eyes. • Almost 6 in 10 charities feel that consolidation will provide greater returns on the public’s donation to charities while slightly fewer charities (52%) expect that it will lead to greater benefits for the causes for which donations are made. • Almost 8 in 10 organisations agreed that with increased regulation and legislation the Government expects and wants more consolidation in the sector. Source: Russell Brennan Keane Survey of the Charity & Not For Profit Sector 2012

7. Why look at mergers • Generally, the motivation for looking at a merger comes from one or more of three overarching factors: • Finances, • Skill set and • Mission

8. Reasons to merge (1) Finances • For many, the primary motivation is either a drive to save funds or to try to garner additional funds. • Savings may be found through: • Efficiencies of scale, • Sharing employees or administrative functions • Staff reduction • The merger may help raise additional funds through funding opportunities that become available, through a wider donor base or through newly opened sources of income.

9. Reasons to merge (2) Skill set • Can allow non‐profits to benefit from expertise that they may not have in their own organisation. • It can also allow a non‐profit to attract, hire and share more experienced and/or specialised staff/board members than they could have attracted on their own. • Enhancing expertise can have the knock on effect of enhancing the organisation’s reputation, and in turn, funding. • May also give employees the opportunity to have greater career opportunities, helping to reduce staff turnover.

10. Reasons to merge (3) Mission • For non‐profits working in an area and locality where there are many different organisations with similar missions and similar services, the result may be fragmented services, and uncoordinated and/or overlapping programmes. • Merger can help overcome these problems, leading to increased or improved services. • It can allow the missions of the non‐profits involved to be served in a more appropriate way. • Can also help create a more joined‐up and seamless service that better serves the people it seeks to help. • Strengthening advocacy capacity may be another reason for merger between similar organisations, as greater influence can emerge from increased numbers speaking with a unified voice.

11. Reasons to merge (4) Funder • However, in addition to the above three reasons, often mergers of non‐profits is a consequence of funder encouragement

12. The three stages of a merger process

13. Stage 1: Should we be thinking of a possible merger and why? • The possibility / potential for merger is something that every Board and Management Team should regularly review and evaluate • However, entering into a merger process is a major step for any organisation and needs careful consideration. • So before formally engaging in merger discussions the leadership of the organisation should go through the following evaluation checklist

14. Pre merger evaluation checklist

15. Pre merger evaluation checklist (1) Mission & Strategy • Will we still be able to deliver on our mission? • Is a merger the best strategic option? – Are there better/ more feasible alternatives? • Strategic alliance • Shared services arrangement/joint programme • Organic growth

16. Pre merger evaluation checklist (2) Address a gap • Will a merger with this organisation help us address a key service or geographic gap for our beneficiaries or enable us provide a critical function e.g. advocacy /education & awareness

17. Pre merger evaluation checklist (3) Tangible benefits • What benefits will it bring? • Broader range of services • Create synergies and enhanced services • Joined-up/integrated services for our clients • Strengthen our funding position and our relationship with our funders • Deliver costs savings /efficiencies • Enhance awareness • Leveragability

18. Pre merger evaluation checklist (4) Culture & Values • Will our core values and beliefs be protected and sustained in the new entity? • Is there a good cultural fit and working style fit between the two organisations?

19. Pre merger evaluation checklist (5) Leadership & Governance • Is there agreement and a high degree of comfort with the proposed future leadership and governance of the new merged entity? • Board • Board Chair • CEO • Senior Management Team

20. Pre merger evaluation checklist (6) Gut feel • Does the proposed merger feel right? • Is it the correct thing to do? • Will our clients be better or worse off as a result of this merger?

21. Merger critical success factors • Trust: Is there sufficient trust and good faith between both parties at board and management levels? • Openness: Is there a genuine commitment to conduct the process in an open and frank manner? • Positive attitude: Are both parties engaging in the process in a positive frame of mind? • Support: Are we clear about the level of support and resources needed and can we provide the necessary support and resources that will be required by the merger process? Do we have or do we need to bring in people with the necessary experience and skills to successfully manage and execute the merger process? • Commitment: Are both parties committed to making the merger a success? • Mutual benefit: Is there sufficient clearly defined and quantified mutual benefit for both parties?

22. Stage 2: Planning the merger – What do we need to do?

23. Stage 2 Merger Planning – Key steps

24. Stage 3: Post merger implementation: Can we make it work? • We are only at the tip of the iceberg at the end of stage 2 • The success or failure of the merger will largely be determined by how well (or badly) the post merger is planned, managed and reviewed.

25. The Challenges: – Why mergers fail or under deliver? (1) One of the biggest difficulties that can arise are in relation to organisational culture and fit. • In a survey of non‐profits that had merged, the most common barrier to merger was considered to be culture clash – this was experienced in the case of 52% of respondents. • Management style, policies and procedures, decision making processes, professional philosophies, and dress code can all become challenges. Source: NCVO Collaborative Working Unit: ‘Should you collaborate – key questions’, March 2005

26. The Challenges: – Why mergers fail or under deliver? (2) Staff turnover can also be a problem. • While a small proportion of staff turnover may be due to redundancies, this is more often due to a change in leadership which in turn leads to changes in philosophy or structure, resulting in a work environment that may not be suited to all staff. • In addition, some staff may leave due to increased workload resulting from the merger – this tends to happen more often with management, as they may be expected to oversee more people than they originally managed or wanted to manage.

27. The Challenges: – Why mergers fail or under deliver? (3) • The process can be resource intensive, in terms of time and money, due to the need for due diligence, professional advice, and other costs such as marketing, re‐branding and systems integration. • Equalisation of staff benefits and pension costs can be an additional cost in some cases.

28. The Challenges: – Why mergers fail or under deliver? (4) • Merger can also lead to problems with leadership. • Leadership may be shared, in an attempt to make it clear that one organisation is not dominating another. • This can lead to confusion about roles and responsibilities. • In addition, some leaders may find it difficult to manage a larger organisation.

29. The Challenges: – Why mergers fail or under deliver? (5) • If the merger results in the creation of a new organisation, there may be issues in relation to organisational identity. • This can cause problems for staff and in the eyes of donors and the general public, and may also impact staff motivation and commitment levels.

30. The Challenges: – Why mergers fail or under deliver? (6) • There may be a lack of support for the collaboration from the board and staff. • This may be due to a fear that organisational autonomy will be lost, or it may be fear of loss of power or funding, job security or changes in employment conditions.

31. The Challenges: – Why mergers fail or under deliver? (7) • Funders may use the merger as an opportunity to reduce funding • Funders don’t recognise the need for effective planning and investment in all stages of the merger process, particularly in stage 3 - implementation

32. Collaborations & Mergers A Carmichael Centre workshop in association with the IMCV Questions?

33. Support slides for Stage 2 of a Merger Process Planning

34. Merger planning (1) Appoint champions and merger team • The champions for the merger should be the chairpersons of the merging organisations. • The two CEOs need to play a key role in supporting in the chairpersons throughout the process, reporting on progress and bringing items requiring decision to their attention. • A joint merger team should be established with equal representation for both parties. • The team should be led by the CEOs and include, where relevant, the respective heads of HR & Finance and be supported by appropriate professional advisors as and when required. • The merger team should draw up a workplan for the merger process and get sign-off from the process champions. • The respective boards of directors should also consider establishing a sub-committee to monitor the process.

35. Merger planning (2) Communicate “Communicate, communicate, communicate.” • Let staff, management, beneficiaries, funders, volunteers, patrons, etc. know that a merger process is taking place and provide regular status updates, even when there isn’t much to report. • It is also important to listen and respond as best you can to concerns and fears that may be raised. • The respective organisations will have responsibility for their own internal communications (staff & clients) and public communications (funders, media, general public etc.) should be agreed and managed by the merger team.

36. Merger planning (3) Agree confidentiality policy Be clear about confidentiality issues • Certain information needs to be kept confidential throughout the process, for example, certain financial information. • Identify what needs to be kept confidential and agree who can/needs to have access to this information, for example, the merger team, professional advisors etc. • Letters of intent and terms of reference (memorandum of understanding) should be exchanged once it is agreed that both parties are serious about merger. • This letter will set out the requirement to maintain confidentiality in respect of identified information received from the other party.

37. Merger planning (4) Legal structure of merged entity • There are several options for the legal means of creating one organisation. For example: • Create a new holding company, with the existing organisations continuing as subsidiaries. • Create a new company and transfer activities, assets and liabilities from the existing organisations to the new company. • One of the existing organisations transfers its activities, assets and liabilities to the other. • One of the existing organisations becomes a subsidiary of the other. • There are advantages and disadvantages to the different possible options, so the Boards of the respective organisations will need to agree on the best legal and organisational structure for the merged organisation.

38. Merger planning (5) Governance arrangements for the merged entity • As part of agreeing the new constitution/memorandum and articles of association, the following will need to be considered and agreed: • Who will be the organisation’s board directors? • What will be the governance arrangements for the merged entity? • Size of the board, skills mix, prospective chair, interim arrangements, etc. • How will they be appointed? • How long should their term of office be? • What officers should the new organisation have? (e.g. Chair, Treasurer, Secretary) • What will be the process for selecting and appointing the Chief Executive and other senior management roles (skill requirements, job descriptions, selection process, etc.)? • The name of the merged organisation will need to be considered

39. Merger planning (6) Members of the merged entity • Who are the current members of the respective organisations? • Will all the existing members from each of the merging organisations continue to be members of the merged entity? • Is there any need for new categories of members? • Is the membership structure flexible to take into account any future members (or membership catogories)?

40. Merger planning (7) Financial and operational framework • Which activities and services will be continued in the merged organisation? • How are those activities and services to be funded? • Will the merged organisation undertake new activities or discontinue existing activities and what are the financial implications? • What will be the organisation structure for the merged entity? • What will the overhead costs be? Are there savings to be made? • The financial strengths and weaknesses of each party to the merger need to be identified and shared. Openness and honesty is absolutely essential. • Detailed financial information should be prepared by each party to the merger and included in the merger pack.

41. Merger planning (8) Due diligence • Each party should prepare a merger memorandum summarising key information and draw together various documents for inclusion in a pack to be shared with the prospective merger partner. • The respective boards must ensure that the merger is in the best interest of their organisation’s clients and should therefore, investigate the potential merger partner by undertaking a formal due diligence process. • Professional advice from accountants and solicitors may be needed for at least some of the areas.

42. Merger planning (9) The due diligence merger pack The information required for the due diligence report from each party is likely to cover the following: • Executive Summary • Organisation history and description • Management and people • Financial Information & Systems • Premises • Assets & Liabilities • General information

43. Merger planning (10) Merger timetable Agree a timetable for the process • While it can be difficult to estimate how long a merger process will take, it is important that an outline timetable for the key stages be developed. • The timetable should also set out key review checkpoints at which the process is reviewed by the process champions and the respective boards and decisions taken as to whether to continue with the process or not.

44. Merger critical success factors