Charity Mergers:The real issues you need to consider

Martyn DaviesSenior Associate, Geldards LLP

Charity Mergers:• Merger options• Trustee Considerations • Practicalities• Due Diligence• Documentation to expect

What do we mean by “Merger”?• Two or more separate organisations coming

together to form one legal entity – usually- A new charity formed to take on the assets and

liabilities of the original charities or- One of the existing charities takes on the assets

and liabilities of the other charity(ies)

Which option to choose?• Depends on legal structures involved• Bargaining position of the parties involved• Any specific issues (legal or otherwise) which

need to be accommodated

Which option to choose?Option 1• New corporate body established to be recipient

Advantages• Perception of parties (not a “takeover”) • Clean start, equality of parties

Disadvantages• (Possibly) costs of creation of new body• Consents to transfer assets to new organisation

Which option to choose?Option 2• Existing organisation acts as recipient

Advantages• No costs of creation of new body (but may be costs

of amendments to recipient governing document, name etc)

• Recipient won’t need to transfer its assets Disadvantages

• Can be perceived to be “takeover”

ConsiderationsInitial Questions for Trustees • Is a merger in the best interests of the charity• What are the likely benefits/risks• Are the charities compatible in terms of

objects, vision, culture and values etc• What are the views of the key

funders/beneficiaries of the charity – will they support it

Initial Questions for Trustees • What are the likely costs to achieve the

merger, consider time commitments of staff/trustees as well as financial (professional fees/rebranding etc)

• Will any consents be required to allow the merger to happen, are these likely to be given

Considerations

• Establish legal status of each party (company, trust, unincorporated association);

• Check “objects” of each• Are “activities” compatible and in furtherance

of objects?• What will transfer, for example are there any

permanent endowment /special trusts or large liabilities

Considerations

Practicalities• Check governing documents, is there:

- Power to merge or- Power to transfer or- Dissolution clause which can be used to facilitate

the merger?

Practicalities• Is Charity Commission involvement required

- Only if insufficient powers in and no power to amend governing document or

- Governing document requires consent

Practicalities• Other consents which may be required:

- Members- Grant funders (esp. if merger would trigger

repayment)- Landlord(s)- Customers- Sector regulator

Due DiligenceOverview• Goes beyond “initial questions”• Investigations into each charity to achieve “full

knowledge”• If properly conducted there will be no nasty

surprises!

Due Diligence Scope & Who conducts•May involve:

- Lawyers- Accountants- Other advisors- In-house

•Timescale:- Can be lengthy- Plan in sufficient time so as not to lose momentum

and ensure deadlines met- Be clear about who is doing what

Due DiligenceHow & Steps• Party A (or their advisors) request information

from B for themselves (and also Shadow Board of newco)

• Party B (or their advisors) request information from A for themselves (and also Shadow Board of newco)

• Replies compiled, exchanged and considered

Due DiligenceKey to a smooth process• Ensure both sides appoint a senior individual or

team to manage the process• Agree timescales for the provision of replies to

enquiries and keep to them• Have weekly calls to ensure matters are

progressing in line with agreed timetable • Agree confidentiality terms early and a press

release in case of a leak

Due DiligenceAreas covered:• Corporate structure - subsidiaries• Accounts and supporting information • Material changes since last accounts• Banking and borrowing detail• Grants and terms

Due Diligence (continued) • Assets• Valuations if necessary• Commercial agreements• Intellectual property rights• Property (land, buildings, environmental etc)

information

Due Diligence (continued)• Staff terms and conditions / disputes• Pensions• Details of any material complaints, disputes,

litigation and claims• Sector specific regulatory compliance

ProcessMerger Paperwork – Usual• Due Diligence Reports• Board/Trustee minutes and resolutions to

proceed• Governing documents of newco• Notice of EGM of members if required• Merger agreement• Asset Transfers• TUPE letters

Cardiff Derby Nottingham

Thank You

Any Questions?

Contact details

Martyn DaviesDD: 029 2039 1745E: martyn.davies@geldards.com

Our Merger Journey

Sian Mainwaring

Aim of this workshop

• To outline the approaches and processes we took

• Our learning experiences and challenges• Food for thought.......• Any questions

Who were we?

• Neath and Lliw Valley Women’s Aid• Together, 60 years experience supporting

women and children experiencing domestic abuse

• Organisational similarities• Operating within 1 Local Authority -

Neath Port Talbot

Who are we now?

CALAN Domestic Violence Services• First Women’s Aid groups in Wales to merge• Company limited by guarantee and registered charity• Domestic violence services for all individuals and families• Crisis intervention and preventative services• Refuge and Community Support Services• BRAVE team – specialist children and young peoples project• Lead organisation for NPT DA One Stop Shop• Campaigning and awareness raising• Big Lottery EIP project

Our merger journey

The first step....• 2010 remodelled children and young people’s

services across NWA/LVWA• A vision to integrate services, avoid

duplication, reduce central costs, increase and diversify service provision, develop specialist skills and reach more children and young people

• BRAVE – one specialist service from June 2010• Dipping our toes in “Collaboration”

Our BRAVE experience• Increased referrals to the service• Increased number of children and young people

accessing 1-2-1 and group support• Service diversity and development – RESPECT

interpersonal violence programmes, specialist therapeutic play service and prevention and education programmes

• Reputation synonymous with excellence and innovation

Why a merger?

• The development, innovation and sustainability of appropriate services to individuals and families

• Best practice and quality of services• Efficiency savings and rationalisation of resources• Capacity to respond to policy and development

opportunities • To reduce perception of overcrowded voluntary

sector

Agreed Principles

• A merger of equals• Positivity and momentum to be

maintained through the process• New organisation, new name, new

identity

The merger begins.....

• January 2011 – Neath WA and Lliw Valley WA made a formal commitment to explore a merger

• Merger Steering Group established and independent Chair appointed

• Legal consultants, Geldards LLP, appointed• Business case for merger finalised• Merger principles and deal breakers identified• Merger action plan established

Continued…..

• Due diligence exercise – financial and organisational perspectives

• Decision taken to formally transfer assets with effect from 1st July 2012

• Appointment of an independent HR consultant and drafting HR plan

• Sub Groups to the MSG established for HR, finance, governance and corporate identity

Continued…..

• Schedule of planned consultation events agreed by MSG

• Development of corporate identity• Legal documentation completed June 2012 in

preparation for formal transfer 1st July 2012

Our key elements

• Communication, communication, communication

• Consultation and engagement• Pilot programmes and interim plans• Planning and Structure• Realistic timescales• Energy and momentum

Communication

• Integral and essential• Open and meaningful• Communication plan – who, when and how• Consultation days, e-briefings, letters, team

meetings• Agreed format, content, timings• Even if no news – communication

Consultation and engagement

Staff, Service Users and Stakeholders• SWOT analysis• Organisational priorities• RBA Framework• Corporate identity• Service development• Organisational structures

Interim arrangements and Pilot Programmes

• To ensure a smooth transition post 1st July and minimum disruption to service provision

• Clear areas of responsibility and lines of communication

• Interim arrangements for Senior and Operational Managers

• Re-location of staff teams and managers• Joint on-call service

Our learning

• Organisational identity – name and branding• External facilitators and experiences• Integration of staff, services and organisational

cultures• Momentum and energy• Governance and Board development• Resources, capacity and workloads• Financial considerations post merger

Challenges.....

• A new experience for Trustees, Staff and Service Users

• Balancing merger and day to day responsibilities

• Not missing opportunities• Integrating organisational cultures• Overcoming them and us syndrome

ANY QUESTIONS?