Key considerations for successful collaborations and mergers

For Part Two of our Charity Financials webinar series Stone King were joined by Liz Wright of RSM and Richard Litchfield of Eastside Primetimers to consider charity collaboration, focusing particularly on merger. This perennial subject has acquired a greater immediacy in the uncertain time of COVID-19. The aim of the webinar was to provide a clear overview, highlight key issues and put concerns into perspective.

The webinar consisted of three sections followed by summarising comment and live Q&A:

  • Strategic consideration of levels of collaboration through to formal merger
  • Project and risk management
  • Formal and practical legal, structural and due diligence considerations

To view the webinar, please click here.

In his summarising comments, Julian Blake, set out the following key considerations for charities and social enterprises considering collaboration or merger:

Culture

This key here is communication. One of the big issues about collaboration and merger is the human element not working in the way that one would wish it to. Trustees often have a sense that they owe their organisation excessive loyalty and prioritise their organisation rather than its mission – this leads to trustees not being free enough to consider whether their charity’s mission might be better delivered by the collaborative or merger approach. Personalities need to work together and understand each other for the proposed collaboration or merger to be a success.

Though personal interests are involved, for example, of employees and are important, they do need to be considered with proper priority relative to the public benefit mission.

Assessment of the benefit/risk balance

Potential risks for an adverse impact on support and from the assumption of organisational liabilities are generally the biggest issues once a collaboration or merger has broadly been agreed to be a good idea in principle. It can be overestimated or underestimated – the focus on risk has to be proportionate, practical and realistic. It is important to gain an understanding of the extent of potential risks, and particularly in a merger scenario, the extent of transferring liabilities and how best to manage them. That is what due diligence is all about – understanding the extent of potential risk and managing that risk where possible.

Consent

A merger or collaboration is not simply about two organisations deciding to proceed in the best interests of their respective beneficiaries and mission. It is also important to obtain necessary consent, or otherwise desirable support from funders, finance organisations, contractors etc. Generally speaking, where there are strategic and/or financial reasons for the collaboration or merger these third parties will be supportive. Regulatory consent can be necessary although this is often in relation to specific sectors rather than the overarching permission of the Charity Commission. Essentially, this is about trustee responsibilities, trustee discretion and appropriate management.

Employees

There is likely to be a sense of insecurity in the changes proposed amongst employees – you need to ensure excellent communication and employee consultation and engagement. On merger, there are important, formal “TUPE” continuation of employment and pension rights provisions which must be addressed.

Planning

You can definitely do too little planning but you can’t do too much! Consider in what way will the merger or collaboration mean that the overall purposes/missions of each charity will be better delivered and how finances, resources and operations can be integrated and developed over the medium and longer terms.

Consolidation

The collaboration or merger is not just about the technical agreement/merger – the two organisations will then need to make it work – this is all about consolidation and working to harmonise arrangements. Within a merger it’s about working to harmonise two organisations which have become one.

It’s not that complicated!

Some areas can get complicated, for example, pensions. Identifying the issues enables you to move to the point of assessing how best they can be overcome. Excellent communication needs to take place from board to board, senior management team to senior management team and with employees – beyond the statutory obligation and with broader stakeholders and supporters.

These considerations would be relevant whether two organisations are coming together due to financial distress and the idea is that one organisation might take over another or where two organisations have a lot of common ground and could benefit strategically from becoming closer and working together.

The law and practice referred to in this article or webinar has been paraphrased or summarised. It might not be up-to-date with changes in the law and we do not guarantee the accuracy of any information provided at the time of reading. It should not be construed or relied upon as legal advice in relation to a specific set of circumstances.

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