Charity Mergers - The Three Stages

This weeks episode is about Three Steps to Successful Charity Mergers.

Charity Mergers are the coming together of two separate charities to form one .

Mergers can produce several benefits for but they also have several challenges as well.

Stage One: Business Case

Firstly, your Business Case, your reasons for wanting to merge. For example, economies of scale, pooling of talents, greater reach. There are benefits, as well as challenges.

Most importantly, consider if the merger in the best interest of your charity and beneficiaries.

Listen to find out more

Stage Two: Due diligence.

Secondly, due diligence, mentioned in last weeks podcast. Above all consider the risks and liabilities you are about to take on.

At the outset, protect yourself, and not restrict your conversations with your charity partner. NDAs (Non Disclosure Agreements) are a must.

Moreover, it's not just legal and financial matters that you look at. Above all the merging of charity cultures can be the thing that strengthens the merger. However, good and bad cultures mixing is not good for anyone.

Listen to find out more

Stage Three: Change management.

You will have many charity stakeholders. They will be anxious and have concerns about the prosed merger . Above all, get them on side, make a smooth transition to a brave new world.

Most importantly, communicate, understand, and involve people in the change. As a result you will have a more successful merger.

Listen to find out more

What Next

In short, mergers are marriages.  As Socrates said “By all means marry; if you get a good wife, you’ll become happy; if you get a bad one, you’ll become a philosopher.” In conclusion, Three Steps to Successful Charity Mergers will make for a happier marriage.

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In This Episode

• Understanding the importance of a merger business case
• Appreciating the importance of due diligence and what it is
• Why Change Management plays an important role in Charity mergers
• Developing your own Numbers confidence and decisions
• Take more control of your numbers to help make you money, survive and thrive

Links

https://podcasts.apple.com/podcast/proactiveresolutionss-podcast/id1500471288

https://play.google.com/music/m/I3pvpztpjvjw6yrw2kctmtyckam?t=I_Hate_Numbers

https://open.spotify.com/show/5lKjqgbYaxnIAoTeK0zins

https://www.stitcher.com/podcast/proactiveresolutionss-podcast

https://tunein.com/podcasts/Business–Economics-Podcasts/I-Hate-Numbers-p1298505/

You are listening to the I Hate Numbers Podcast with Mahmood Reza. The I Hate Numbers podcast mission is to help your business survive and thrive by you better understanding and connecting with your numbers. Number love and care is what it's about. Tune in every week. Now, here's your host, Mahmood Reza.

There is a strong history and a growing trend of collaborative working within the arts and charity sector. This ranges from sharing and pooling resources to project working to more formal mergers. This podcast is going to look at merges, particularly the three stages that are involved on a successful merger. My name is Mahmood.

I'm an accountant, mentor, and educator whose mission is to improve your money mindset, to help you make more profit in your business, to save more time, save some tax, and enjoy what you are doing. Now, the broadcast here is going to be looking at the three stages involved in a merger, and before we look at those three stages involved, what we need to think about initially, as an organisation, is the benefits and the business case that we're putting together for that merger.

Mergers can produce a number of benefits for organisations as well as our beneficiaries and stakeholders, but they also have a number of challenges involved as well. The first stage involved is the consideration of the merger itself, and I want you to think of this podcast as like a little checklist here to go through.

There are more details supplied to accompany these show notes, so let's consider first of all, stage one and what do we need to consider when we look at a merger. Now, mergers, as we said, can produce a number of benefits as well as producing some challenges along the way. So, we need to consider, is the merger in the best interest of your charity and your beneficiaries?

Will it improve the quality of service for example, by getting what's called economies scale? That's whereby combining two organisations, we can have some cost savings as a result. Can we generate more income, more resources? Can we make better use of those resources? Is there going to be a fit in terms of the respective cultures and the visions of the two organisations?

Is there going to be an impact on the funding base? Can we improve the service delivery? As a result, we will potentially increase our organisational profile, have additional capacity, reduce some risks by working together. We need to also consider at the outset, the team that's going to be involved in here, the cost of merging

that will include things like rebranding, professional fees, relocation. If we have a membership organisation, then we need to look at our consultation. Do we need to have improvement of the merger by our members? Do they need to give it the thumbs up, the green light? Check the governing document accordingly.

Now, having looked at the consideration of the merger, and that's just a brief outline here, the next thing we should consider is what we call due diligence. Now, in last week's podcast, episode 38, and the one before that, we made reference to due diligence. For those organisations looking to sell their businesses and due diligence raises its head once more

in the context of merging two organisations together. It's more usual that it's two organisations coming together as opposed to more than two. Now, having gone through the business case for the merger, we also need to consider the risk and liabilities that we may be taking on once we marry effectively our charity partner.

Typically, the outset, we would arrange for an NDA, a non-disclosure agreement to be constructed, so that will, therefore, protect us and not limit us in our conversations. We are likely to come across and reveal sensitive information. If the merger, for whatever reason does not occur, and I have met instances of that in my own career where emergencies do not go through for a number of reasons,

then we want to make sure that we have safeguarded the information that we are revealing to the other party. We may need to check our own legal constitutions to see if we have to seek permission from the charity’s commission. Have we actually thought in terms of our legal structure for our merged charity? Will it be a CIO, as it's called, a charitable incorporated organisation?

Will it be a limited-by-guarantee? That's what we need to consider, and you'll find it useful to refer back to previous podcasts where we've looked at organisational structure and where we've talked also in other podcasts on social enterprise. In all these things, clearly the potential complexity, the potential risk that we are exposed to,

we need to make sure we've got competent, good professional advice in our team. Whether it's accountants or solicitors, we need to make sure we've got those on board from the very beginning. There may be, if there are staff numbers involved, then we need to also check with the employment issues, like what's called TUPE. Sounds very grandiose, doesn’t it? And it stands for transfer of undertakings.

So, in other words, we have to make sure our staff are protected and we need to make sure when we take your new staff that we have a due HR process that goes in there. We're also going to be looking at the rationale for the merger itself. So, using tools such as SWAT, which is commonly met in a business-development, business-planning scenario, we are looking at the strengths and weaknesses, and the opportunities and the threats involved in the merger.

We have to look at things like cultures when they come together, and the merging of charity cultures, like in any organisation, can be the thing that actually powers our merger ahead, or it could be the spanner in the works, which makes it all come crumbling down. And the benefits from merging are not realised because we have two different cultures coming together.

We need to check out things like IT compatibility between two systems. So, we go through the second stage, which is predominantly financial and legal considerations, or what we might refer to as due diligence. So, let's recap what we've got so far. We've talked about the potential benefits of merging.

We've produced a business case. We've evaluated a number of issues. We've looked at the risks. We've looked at the respective governing documents of each organisation. We've looked at the respective constitutions. We've looked at the potential name choice of trustees, management staff. We've gone through a due diligence exercise, and a third stage as important is what we call change management, and that's managing the whole merger process

itself. Now, within this, if you can imagine all the different parties involved from trustees down to those people who work for the charity will have a degree of anxiety and concern about the actual merger going ahead. It may be sending out the wrong signals. Management, client groups, funders, and trustees,

all of them will have an element of concern, and we need to make sure that we manage that transition, that change to a brave new world. A failure to address these at the outset, a failure to communicate, a failure to understand, a failure to change behavior where it's desired will have a catastrophic effect

on the merger. At the very start of the process, effective communication and involvement with all the stakeholders is critical. We need an air of transparency, openness, trust, and integrity, and that's got to be driving the process. That's got to be embedded at the heart of the merger activity. Everybody has got to have what we call buy-in.

The trustees, the directors, the senior management team, all have got to agree that actually going through a merger is the best strategic choice. As we said, there will be a level of fear and concern over the proposal. Some people will see it as a loss of autonomy, identity, job security, a loss of status.

So, we need to be prepared to have those frank conversations at the very outset and involve people on the journey that we're going through. It's not unusual that external personnel are recruited to actually monitor and to actually manage the communication process. Now, if a merger is to go ahead, it's accepted practice, typically, to appoint the CEO, the chief executive, the head honcho of the merged organisation at a very early stage.

This provides a bit of focus and clarity to the leadership, and again, the recruitment and selection process needs to be open, transparent, and fair. So, let's recap the three stages of a successful merger and these three stages, even though we are focusing on arts and charity organisations, there's a lot that commercial organisations can take from this and actually apply it to their own activity.

So, even though there might be nuances for a charity organisation, a social-enterprise-type organisation, these are lessons that can be taken and adapted when any merger activity is involved. So, we're talking in terms of the consideration of the merger in the first place, the business case that we put forward.

We think about the impact of these two parties coming together to form one unified beast. We're then considering the second stage, which is the due diligence exercise, typically looking at the financial, the legal, and the organisational issues, making sure that we're protected. And thirdly, it's the communications.

It's the change-management aspect, and the change management is not something that happens at the end, but it's something that is embedded in and blended right at the very beginning. Okay, folks, I hope you found this broadcast useful. I hope you found the contents of the podcast useful for yourself and a good takeaway.

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