Roundtable Discussion:Strategic restructuring

(mergers, joint ventures, consortia)

Definition of a Merger

• “Merger is where two or more organisations formally combine to form one organisation…” [James Sinclair Taylor, NCVO]

• Assets and liabilities of an organisation are merged or acquired by another

• Change in governance and legal arrangements

• Today, will alternate between “merger” and “restructuring” (broader term)

Jack Welch on Mergers

“The first pitfall is believing that a merger of equals can actually occur. Despite the noble intentions of those attempting them, the vast majority of MoE self destruct because of their very premise”

Background

• Inefficiencies, lack of scale, duplication• Mergers/joint-ventures/consortia frequently

discussed• But not many happening (eg 9% NCVO statistic)• Economic/funding conditions lend themselves to

new, larger, more efficient ways of doing business

• It’s about long-term sustainability and impact!

Themes

• Mergers is type of restructuring – one on a spectrum

• Common tool for managers in private sector• SMTs and Boards should frequently consider

restructuring options• Are mergers/partnership good? Answer = it

depends• Change process – need to take your people and

theirs on journey• Trust is key ingredient for success• 1+1 = 14

Main drivers for mergers

Source: Breakthrough, October 2009

Jack Welch on Mergers

“Mergers and acquisitions give you a faster way to profitable growth. They quickly add geographical and technological scope, and bring on board new products and customers. Just as important, mergers instantly allow a company to improve its players – suddenly there are twice as many people “trying out” for the team.”

Reasons preventing mergers

Source: Breakthrough, October 2009

Obstacles to Mergers

Source: Breakthrough, October 2009

4 Models of Mergers

Like-for-like organisations in same sector,

merging services.

Wells Old Almshouses & Llewellyn, Charles and

Harper's Almshouse Trust

Larger organisation‘acquiring’ smaller org, ensuring continuity of

service and new investment.

The National Childcare Trust & The Baby Café Charitable Trust

Like-for-like organisations in different sectors

creating new portfolio of services.

Crisis & OSW; BHT and Blue Rocket.

Two or more organisations co-invest into new company.

Third Sector Consortia Management LLP

Types of RestructuringType Features/ description Drivers or Benefits

Full merger/ acquisition

Combine assets & liabilities into existing or new entity, new legal & governance arrangements needed

most potential impact

High transaction costs

Joint venture Pool functions (back-office) or co-invest into new venture, new legal & governance likely

Less investment than full merger

Consortium SPV for delivery of services, bound by contractual arrangements

Utilises strengths of partners

Retain independence

Partnership Business partnership of some variety, no legal changes

Loose alliance

Lower costs

First step to merger

Merger process

Assess ApproachFormal

DiscussionsFinance

Negotiate &Complete

Implement

• Self-analysis• Pros/ cons• Poss partners• Costs• Early consultation?• Seek Board support

• Make initial approach• Meet face-to face• Agree rules for process• Identify deal- breakers• Seek Board approvall

• Set up working grp• Set timetable• Begin due diligence• Consult with SMT?• Complete MoU• Inform Board re progress

• Assess financing needs• Raise finance if reqd• Seek grants for support

• Seek Board approval • Consult• Hire prof support• Complete due diligence• Legals and contracts• Final sign-off

• Announce • Plan project• Merge boards• SMT teams• Staff teams• TUPE/ Redundancies• Co-locate• New branding

Feasibility study

Matching service

Project manage merger process

Financialadvice

Support due diligence, givelegal & account

advice

Post merger consultancy, HR,

mentor SMT/ boards

Support Available

Different Stages

Considerations for legal structure

Source: Social Finance, October 2009

What are success factors?

Source: Social Finance, October 2009