Mergers, acquisitions and restructuring
Reza Motazedi looks at changes in structure and collaborative working as solutions to current pressures in the charity sector.
Reza Motazedi – whichever way you choose to go, it is best to have regard to the positives and negatives of all the alternatives.
The areas of mergers, acquisitions and restructuring have gathered pace, especially in the last year or so. Partly, perhaps, as a result of recent publications by the Charity Commission on mergers and collaborative working but also, in my view, due to the economic conditions and the challenges these have brought to the sector. The role of the Charity Commission in this area is somewhat unique. The Charity Commission is the registrar and regulator of charities and as a result, it needs to ensure compliance with the law and register of charities.
Crucially, the Charity Commission is not responsible for monitoring mergers and acquisitions. This is the decision that is left to the charities and their trustees. However, the Charity Commission has an active unit devoted to
"Collaborative Working and Mergers". This unit has recently received a high volume of enquiries and demands of support from charities thinking about possible mergers.
Before you think about possibilities of mergers or collaborative working, it is, in my view, essential to understand the difference between the two. Mergers are occasions where two or more separate charities come together to form one organisation. More often than not, one charity passes its assets to another and then winds up. It could also be that two or more charities pass their assets to a newly established charity and then wind up.
Collaborative working, on the other hand, is when charities work together to fulfil their purposes whilst remaining separate organisations, usually under an agreement. Examples of collaborative working include sharing equipment, office space, finance functions, IT projects and joint training events.
Importantly, however, for mergers, charities need to have compatible objects in order to proceed; whilst for collaborative working, a charity needs to be satisfied that collaborative working in some way furthers its object.
Mergers work, in theory at least, where two prospective organisations have similar aims and objectives or indeed complementary activities. The benefits accruing from mergers could be substantial and include, amongst other things, improved services to stakeholders, economies of scale and sharing of knowledge.
However, there may also be pitfalls. If it goes wrong, it can really go wrong. It can leave people disillusioned and also affect morale of the staff and indeed that of the beneficiaries. However, there may be a halfway house. Why merge when you can choose the benefits which could accrue to you as a result of a merger with another body, by way of collaborative working?
This can be sometimes achieved by a memorandum of understanding, a simple contract or a service level agreement. In any event, it is much easier to deal with than full blown mergers and, somewhat crucially, also much easier to get out of!
This, potentially, is less of a headache than mergers, but remember that collaborative workings could have their own problems and consequences. Yet another way of navel-gazing would be to restructure the way your charity operates. This could make it more efficient, reduce costs, and put you in an altogether better direction for exploring future opportunities.
Whichever way you choose to go, it is best to make the decision having regard to the positives and negatives of all the alternatives. Legal matters are also complicated and you would need to ensure that the correct approach is taken, otherwise professional fees could be spent on a proposed activity without a positive outcome.
To that add the due diligence exercise, which should certainly be carried out before any merger, but it is also a good idea for collaborative workings. What about tax issues, including VAT? Could a merger or a collaborative working arrangement be detrimental to your organisation, or could you actually gain by merging and planning it properly?
Whatever you decide to do, it is essential that as a charity you do your homework properly. Talk to the Charity Commission - it is there to help. Most importantly, seek advice before committing yourselves and remember that communication is absolute key.
This communication should start internally, so that people within your organisation hear what is planned to happen directly from you, rather than from other sources. As ever, a good source of information is publications from the Commission; these include tool kits for "Choosing to Collaborate" and for "Making Mergers Work".