Avoiding an unhappy union

Richard Litchfield is the Chief Executive of Eastside Primetimers, a specialist Mergers and Acquisitions consultancy for the social sector.

I recently heard that weddings in the UK have increased by 20% since the beginning of the recession in 2009. Professor Cary Cooper, a social scientist at Lancaster University, explains this phenomenon by saying: ‘If you’re feeling insecure, as people are now, then you are going to want to try to bring some stability to your life’.

And exactly the same can be seen in the not-for-profit sector. Tough economic times have focused the minds of many organisations to find greater security by teaming up with another. But landing the right partner can be tricky. So how do you avoid the pitfalls, and make your merger work?

In our experience of not-for-profit mergers and acquisitions, here’s what we’ve found:

• Mergers are not all about mitigating risk. In fact, most successful mergers are about improving service delivery, strengthening your position in the sector, improving efficiencies and increasing sustainability.
• The biggest danger facing many organisations is inertia. Governance is critical here because Boards that do not encourage their executives to explore mergers and strategic partnerships in advance, may find that they are left at the altar when circumstances change.
• Sometimes charities say they do not proactively seek merger partners because they do not want to be perceived as weak or vulnerable. But nothing could be further from the truth. It’s entirely rational for high-performing organisations to seek out new partners, including merger candidates, as a way to explore new growth opportunities and to meet the future needs of beneficiaries.
• It’s important to create the right team to deliver the merger. They are not for the risk averse, but they are nothing to be scared of either. Make it a project for a suitably experienced Trustee, appoint a small, empowered decision making group, and use specialist consultants. And if you don’t have the right Trustee in place to deliver this, recruit one.
• Mergers can be fast moving and unpredictable, requiring clarity of purpose, flexibility and a willingness/capability to make decisions promptly. You probably won’t have the luxury of leaving decisions to your quarterly board meetings, so think carefully about how to design a process of governance that will fit with your constitution and governance frameworks. A joint working group given delegated authority from the two Boards is a common way for a merger to be structured.
• Like any marriage, success is in the people, not the numbers. Therefore keep your financial due diligence in proportion. While you would never bring two large organisations together on the back of a fag packet, neither do you need a 500-page report compiled over many months. Assessing the compatibility of the two organisations’ Trustees, Senior Management and Staff can be as important as understanding the financials.
• History is littered with marriages of convenience that have failed to bear fruit. Mergers go straight to the heart of your culture, as well as your structures and processes. So it’s vital you take your people on the journey with you and seek to develop a common culture in the new post-merger organisation.

As Socrates observed, marry well and you become happy, marry badly and you become a philosopher.

Richard will be speaking at our upcoming seminar on Making mergers work: The role for charity trustees. Book your place here.