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
Workshop overview
In today’s workshop we will cover:
• Some definitions
• Reasons to merge
• Stages in a merger process
1) Pre merger evaluation
2) Merger planning
3) Post merger implementation
• Challenges
• Case study – Elaine Moore; Adapt Community Drugs
Team & Caroline Gardener from Quality Matters
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
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
Collaboration, alliance and merger
Collaboration
Alliance
Merger
• No permanent
organisational
commitment
• Decision-making
power remains
with the
individual
organisations
• Involves a
commitment to
continue for the
for the
foreseeable
future
• Decision-making
power is shared
or transferred
• Is agreement
driven
• Involves changes
to corporate
and/or
structures
including
creation and/or
dissolution of
one or more
organisations
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
Why look at mergers
• Generally, the motivation for looking at a
merger comes from one or more of three
overarching factors:
1. Finances,
2. Skill set and
3. Mission
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.
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.
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.
Reasons to merge (4) Funder
• However, in addition to the above three reasons, often
mergers of non‐profits is a consequence of funder
encouragement
The three stages of a merger process
Stage 1:
Evaluation
Stage 2:
Planning –
– Should we
merge?
What do we
need to do?
Stage 3:
Post
merger
implemen
tation: Can
we make it
work?
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
Pre merger evaluation checklist
Mission &
strategy
Gut-feel
Gap
Leadership &
governance
Benefits?
Culture & values
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
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
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
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?
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
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?
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?
Stage 2: Planning the merger – What do we
need to do?
Stage 2 Merger Planning – Key steps
1. Appoint
champion and
merger team
2. Communicate,
communicate,
communicate
3. Confidentiality
4. Legal
structures
5. Governance
6. Members
7. Finance &
Operations
8. Due Diligence
9. Merger pack
10. Timetable
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.
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
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.
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.
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.
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.
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.
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
Collaborations & Mergers
A Carmichael Centre workshop in
association with the IMCV
Questions?
Support slides for Stage 2 of a
Merger Process Planning
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.
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.
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.
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.
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
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)?
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.
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.
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
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.
Merger critical success factors
Trust
Mutual
benefit
Openness
Critical
Success
Factors
Positive
attitude
Commitment
Support for
the process