One of the first sectors to bear the brunt of an economic downturn is the not-for-profit sector which is resulting in many considering an amalgamation or merger. Reliance on community services increases, yet funding and donations can be hard to come by and higher poverty rates affect customers’ ability to pay for services.
For not-for-profits already facing financial strain due to rising complexity, such as the introduction of the National Disability Insurance Scheme (NDIS), a slowing economy may signal the end of the road.
Insolvency can have serious implications though, particularly for board or committee members. It also means the organisation closes, and the service is no longer there to support those who need it most.
For these and many other reasons, an amalgamation or merger may offer substantial advantages over winding up or insolvency.
Having assisted many not-for-profit entities to merge their operations, we have been privileged to gain a deep understanding of what it takes to make a merger work.
If your not-for-profit is considering an amalgamation or merger at any point in the future, here are five important elements to consider…
1. Realistic window for financially distressed not-for-profits
For not-for-profits in financial distress, a merger is often a “Plan B” – one step up from the last resort of winding up.
As with any strategic decision, there is a limited window to pursue and implement a merger. Outside of this decision window, an organisation may simply not have the resources or time to complete it, ultimately leading to insolvency.
This limited decision window varies between organisations and can be quite small, depending on certain circumstances.
If your not-for-profit is facing difficult operational challenges and a merger is your Plan B, seek advice early on to find out if it’s still a viable option.
2. Risk assessment for board or committee members
Most not-for-profit board members or management committee members are unpaid volunteers. However, these volunteers may not fully understand the personal risk of the role they hold in the organisation.
As well as fiduciary duties, board or management committee roles carry an inherent risk that if the entity becomes insolvent, these members can be held personally liable. This particularly applies if insurance policies exclude cover for insolvent trading or breach of director’s duties.
A timely amalgamation or merger can help mitigate these risks and even provide new opportunities for board or committee members.
3. Due diligence to determine fit
Conducting a proper due diligence process helps merging organisations understand if they are a good fit.
We regularly assist with merger due diligence that considers matters such as:
From the very beginning, due diligence should form an integral part of your amalgamation or merger roadmap.
4. Open communication
Mergers or amalgamations involve change for all internal and external stakeholders of an organisation.
Some changes will be minor, such as a name or brand change. Some will be substantial, such as a complete shift in organisational structure.
To help manage the change there must be open communication between stakeholders, with a clear understanding of:
Why it is proposed
What it will look like
How it will affect all stakeholders
When it will commence
How it will occur
All communications should be detailed in the merger or amalgamation integration plan to reduce the potential for misunderstanding or conflict.
5. A practical integration plan
Ultimately, no amalgamation or merger will be entirely seamless and a successful merger requires adequate time and planning. These are best captured in a practical integration plan, which can take weeks to prepare and months to implement.
The integration plan will provide a roadmap for the organisation and its advisors to follow as they work together to prepare for and implement the merger.
Get experts involved early
It’s important to engage experienced advisors early on, and have them guide you through the process.
At RSM, our experienced team offers expertise in merging, due diligence, planning, accounting and taxation – all in the one place.
We work with leadership and board members to:
Prepare an integration plan
Facilitate discussions with stakeholders
Manage the planning and implementation of the merger or acquisition
We have highly efficient systems and competitive fee structures and have assisted many local and national not-for-profit entities to move forward with confidence over the past 30 years.
If you have any questions or require further information on a not-for-profit merger, please contact your local RSM office.