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Deciding to merge

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Questions to ask if you are looking to merge with another organisation

Who makes the decision?

The idea of merger is usually raised by an organisation's Chief Executive or trustees (members of the board or management committee). It is trustees' role to ensure their organisation acts legally and they take final responsibility for the decision to merge. Trustees must act in the best interests of beneficiaries.

Can you merge?

You will need to check whether your governing document includes a power to merge or a dissolution clause. If merger is not mentioned or if you are uncertain whether it is permitted, seek advice from the Charity Commission or a solicitor. You may have an obligation to consult your members about a proposed merger.

Should you merge?

You must be sure that merger will help you achieve the objectives of your organisation. Your potential merger partner/s should have compatible objectives to yours so that merger allows you to continue current work. Merger should only go ahead if it will mean more or better services for your beneficiaries or the continuation of existing services which would otherwise be lost.

Where there are no legal barriers to merger, there may still be 'deal breakers' which act as blocks. For example, if a key funder is against merger, an organisation risks financial instability if it goes ahead. Establish early on whether these are absolute barriers or issues that could be resolved.

You may decide that the time is not right for merger and that a form of collaborative working would better meet your current aims. You should regularly review your options and could revisit the idea of merger in a few years' time.  

Merger process

Planning the process

Mergers work best when the process is led by people who are good communicators and change managers and who can articulate a vision for the merged organisation and carry people along with them in achieving it.

A merger typically passes through a number of stages. Planning ahead and setting a timetable is crucial to ensure the process goes smoothly. Use professional advice - you will need a solicitor and may find a neutral facilitator helpful during discussions.

Who leads on merger?

Once you have decided to merge, it is useful to create a small steering group comprising the chairs of the merging organisations, at least one other trustee from each organisation and each organisation's chief executive, in addition to any advisors or consultants. In large organisations, other senior staff may be included. An implementation group of staff can act on decisions taken by the steering group and will get future colleagues starting to work together.

Timescale and budget

Set a target date for merging, then start working to make it happen. Delay in getting going may make the merger process harder. The process is time consuming. Time costs money and if staff are working on merger they are not working on their ongoing tasks.

  • How much time will be required from different staff?
  • Could you employ temporary staff to back fill on ongoing work?
  • How much consultancy help do you need?
  • At what stages will you need to call on professional input? 

Set a budget for the merger which includes costs such as staff time, legal and professional fees, relocation costs and redundancy payments.

  • How will these costs be shared between the merging organisations?
  • Can you get funding to support the merger process? 

What role do regulators play?

There are few constitutional barriers to merger that cannot be overcome with the help of the appropriate regulator.

The merging organisations will need to draft the new organisation's governing document. Options include forming a new entity with a new governing document or amending the governing document of one of the existing organisations. Merging organisations should seek advice from their regulator or professional advisors on the content of the governing document and registration procedures for the new organisation.

The Charity Commission takes a neutral stance on merger in individual cases, while encouraging charities to consider what is best for their beneficiaries. Most mergers do not require Charity Commission consent, but the Commission recommends that charities seek their advice early regarding legal and regulatory issues.

Read the Charity Commission's Collaborative Working and Mergers: An introduction

The Registrar of Companies registers limited companies. The Financial Services Authority registers Industrial and Provident Societies.

Voluntary and community organisations may have additional regulators that should be consulted before merger takes place. For instance, the re-registration of care or medical facilities following a merger can trigger substantial additional regulatory compliance costs so these should be checked early on.

What is due diligence?

Due diligence is the exercise which unearths the information that organisations need so that they can decide whether to go ahead with merger. The scope of due diligence varies according to the size and complexity of the organisations involved. Some organisations carry out due diligence themselves. In other cases, professionals working for each organisation examine the others to ensure that they fully understand how a potential merger partner works and to identify any risks, liabilities or other issues which could derail the merged organisation.

Due diligence looks at areas including:

  • current financial position and future viability of the merged organisation
  • property ownership and occupation
  • assets, eg. restricted funds or permanent endowment
  • income sources, eg. committed giving, grant funding, contracts held or under negotiation
  • employment practice
  • policies and procedures. 

Inadequate annual accounting by an organisation can be a barrier to merger going ahead. Once the decision to merge has been made, organisations are advised to take professional advice on handling the accounting issues raised by merger as this is a complex area.

See more about Due Diligence.

Assessing financial problems

Sometimes merger takes place to enable an organisation in financial difficulties to survive so that its services for beneficiaries continue. Efficiency gains are made through sharing a back office. Organisations taking over others for this reason should ensure that they have compatible objectives so that merger will have no adverse effect on their own beneficiaries. Organisations being taken over in this way should decide what compromises they are prepared to make.

However, many mergers of this sort do not go forward once the scale of the financial problems are known. It is vital that due diligence uncovers both the scale of any financial problems and whether they are:

  • the result of an unexpected or historic and non-recurring problem
  • symptomatic of long-term problems such as inadequate funding or high costs
  • uncertain and potentially more extensive than initially indicated 

It may be possible to overcome such problems with additional funds or by adopting a form of group structure which creates a firewall between an organisation with associated risks and its parent organisation.

Where an organisation that is being taken over has a pension deficit, this is a liability which could mean a major outlay for the merged organisation. Professional advice should be taken.

When should we tell staff?

    "When considering a merger, it's important to strike a balance between being honest with staff, but not worrying them about their future unnecessarily. We chose to be open and laid it all on the table at an early stage which meant we did lose some staff."
    - Shaks Ghosh, Chief Executive, Crisis

Staff and volunteers are key assets. How far do you want them to be involved? It may be sensible to keep the exploratory stages of merger confidential. The merger may not happen and the organisations risk losing staff. Organisations may also risk reputational damage if it becomes known that they were involved in an abortive merger.

The stage at which all staff are told of merger plans depends on the culture of the merging organisations, but legal obligations and the duty to consult staff mean that sufficient time should be allowed for consultation. Once the announcement is made, it is important to keep staff and volunteers informed and involved as the merger process unfolds. Staff may be anxious about compulsory redundancies or relocation. Regular communication is key to preventing low morale and a lack of information can fuel unhelpful rumours.

Transfer of Undertakings Regulations (TUPE)

These regulations govern the position of staff transferred from one organisation to another. They concern the rights of employees to protection for their terms and conditions and transfer employment claims to the new employer. Legal risks and obligations to staff need to be thoroughly understood so legal advice should be taken early on.

An organisation accepting staff will be taking on obligations which could include:

  • employment tribunal claims
  • trade union recognition agreements
  • externally controlled pay structures
  • pension and redundancy obligations 

TUPE protection continues after a merger, but does not prevent restructuring or reducing the size of the workforce to achieve financial savings. Again, legal advice needs to be taken on this and on any move to alter contracts of employment or other benefits.

Involving stakeholders

While some funders may be keen to see mergers, other stakeholders may have conflicting interests which should be addressed early on. For instance, if vital operational premises are held on advantageous leases which can only be assigned with the landlord's consent, not getting this consent could seriously obstruct a merger.

  • What effect will merger have on the interests of your different stakeholder groups? Consider beneficiaries or service users, volunteers, donors and funders, as well as staff and members.
  • Which stakeholders need to be consulted before the decision to merge is made and who should be informed afterwards? For example, agencies to whom you are contracted will need to be notified of changes such as your new registered charity or limited company numbers before merger takes place. 
Page last edited Mar 15, 2016

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