Strategy, Value and Governance in NFP Mergers
24 July 2017 at 2:40 pm
A successful merger of not-for-profit organisations must provide real value to clients, the community and members of the organisation, writes Charlotte Sandell from specialist advisers, HLB Mann Judd.
Over the course of the last five years, Australia’s not-for-profit (NFP) sector has witnessed a number of significant changes. From the establishment of the Australian Charities and Not-for-profits Commission (ACNC) in 2012, to the ongoing expansion of the NDIS, NFPs and their boards have had to adjust to increased governance requirements and significant funding changes.
Organisations within the sector are adapting to an environment of increasingly client-centred funding models, competition from the for-profit sector, technological disruption, and higher expectations of governance and leadership. To ensure their sustainability, it’s more important than ever for NFPs to demonstrate their relevance, impact and value to the communities they serve.
In response to such challenges, there is increasing discussion within the sector about mergers and amalgamations. Whilst boards may be exploring mergers to improve existing services, attract more funding or for some other reason, a merger will not in isolation address all of an organisation’s strategic challenges. A successful merger must provide real value to the clients, community and members of the organisation.
Undertaking a merger is not a strategy, but a tactic that may assist an organisation in executing their strategy. In developing a strategy, organisations should consider the external impacts on an organisation, as well as what the organisation should start, stop and continue doing.
In assessing a merger as an appropriate tactic, boards should consider whether a merger would enable an organisation to capitalise on a strength, improve an area of weakness, make the most of an opportunity, or manage a threat. Further consideration should be given as to whether a merger is the best tactic to address such challenges.
There must be a strong value proposition for organisations to form a merged organisation. Potential cost savings on shared administrative functions may take some time to be realised, so it is critical for boards to articulate what value a merged organisation provides its beneficiaries over that which the existing organisations offer.
Further, it’s critical for organisations to understand what their current value is to their clients, community and members, and to ensure that it’s retained following a merger.
Governance and leadership
Decisions on the governance and future leadership of the organisation have the potential to create significant hurdles to merger discussions, if the key issues are not identified and consulted on early.
For example, decisions such as the structure of a merged organisation, its name and the composition of its board will all need to be considered with reference to factors such as the existing structures of each organisation, existing requirements of each organisation’s governing documents, and any regulatory requirements.
Further, any decision in relation to the ongoing governance and leadership of a merged organisation should be assessed in terms of how it would benefit the clients, community and members of the organisation.
HLB Mann Judd are experienced advisors to the NFP sector and have worked with some of Australia’s best known NFPs. Having advised many organisations on mergers, HLB Mann Judd can guide you through the merger process from determining ‘why’, to identifying and profiling ‘who’ to due diligence, to successful integration.
For more information contact Charlotte Sandell, Manager, Corporate Advisory, HLB Mann Judd at firstname.lastname@example.org.