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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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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

  • Expand range of services

  • History of collaboration


Other ways to collaborate

Spectrum of choices:

Collaborative working on issues/projects

Sharing knowledge

Joint venture contract or new entity

Shared services

Full merger


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)


Basic Merger Structures: Asset Transfer 1

A

B


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)


Basic Merger Structures: Asset Transfer 2

B

A

C


Issues with Asset Transfer 2

Same issues as Asset Transfer 1, except:

Feels less like a takeover

More expensive


Basic Merger Structures: Group 1

B

A


Basic Merger Structures: Group 2

C

A

B


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?


Compatibility

  • Identify values

    • beneficiaries

    • objects

    • values or mission statements

    • policies

  • Future management and governance

  • Consultation

  • Trust

  • Name/brand/identity


Due Diligence: key legal issues

Constitutional

Objects

Powers

Members

Structural

Corporate/unincorporated


Due diligence: staff/pensions

  • TUPE

  • New staff structure?

  • The new CEO?

  • Pensions

    • Defined benefit pension schemes

    • Deal breaker?


Due Diligence: Contracts/funding arrangements

Contract of funding agreement

Consent (funding agreements)

Assignment v novation (contracts)

Risk – value?

Third party suppliers


Due diligence: Land

Freehold/leasehold property

Restrictions on disposition

Charges

Condition

Permanent endowment

Other special trusts


Due diligence: Intellectual property and data

Intellectual property (IP)

Brands, publications, databases

Data protection

Personal data

Consent


Due diligence: other issues

  • Litigation/disputes

  • Insurance

  • Information technology

  • Trading company

  • Investments

  • Tax/VAT


Due Diligence: Regulators

  • Charity Commission/OSCR

  • Homes and Communities Agency

  • Pensions Regulator

  • Care Quality Commission

  • Other sector specific


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


Post Merger

  • Notifications

    • Banks

    • Contractors

    • Regulators

    • Register of charity mergers?

  • Final accounts

  • Winding up/striking off (NB Legacies)


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”


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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