9 tips for new players in the NFP merger game

There’s a lot of talk about mergers in the NFP sector.  Here are some tips to help directors get on the front foot…

  1. Know what your position is – before you find yourself caught up in the thick of merger discussions, figure out whether you want to proactively seek a merger, and, if approached by another party, what criteria you would use to assess whether or not to go ahead. Why would you want to enter into a merger? Alternatively, why would you not want to enter into a merger?
  2. Consider options other than merging – is a full blown merger the best option or might you be better off starting with a less radical arrangement, for example shared services, or a collaborative project?
  3. Look before you leap – get some due diligence done on the other organisation so that you go into the deal with open eyes – you want to know the financial position, and whether there are any legal nasties awaiting you.
  4. Don’t make assumptions about legal structure – you don’t necessarily need to adopt the bigger organisation’s legal entity as the vehicle for the merged organisation. There may be good reasons to continue with more than one entity, or to change entity type (eg from an incorporated association to a company)
  5. Protect your tax concessions – the last thing you want to do is inadvertently lose your tax concessions. Take care with choice of legal entity, and ensure that the activities of the merged organisation are consistent with the purpose stated in its constitution (see tip 4).
  6. Make life easier by getting clear on process – there are some technical legal and regulatory hoops to jump through and these are easier to navigate if you plan ahead and seek advice where needed.
  7. Protect your directors – no-one wants to be left with personal liability for anything so make sure that you tread carefully, particularly for example in relation to employees who will not be part of the merged organisation, and liabilities that the new organisation does not want to take over.
  8. Take communication seriously – avoid angst by having a carefully thought through communication strategy. Who will you communicate with, when; what issues will you consult over and what issues will you just announce?
  9. Clarify expectations with the other party – ideally in writing, in a binding or non-binding Memorandum of Understanding, including confidentiality, communication channels and protocols for making announcements. You might start with verbal agreement, then sign an agreement setting out the intentions of both parties, and then progress – if the merger proceeds – to the final documentation to implement the deal. Build in some opportunities for bailing out along the way (for example if the due diligence process identifies some show-stoppers).

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