Are you contemplating a charity merger?

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If so, we could tell you that in our experience there are a number of key issues which help to make the legal process run smoothly and efficiently; or that the regulatory backdrop will be complex; or that due diligence warranties and indemnities might be involved - BUT that would be the wrong place to start.  If you spoke to us we would say:

Why do you want to do this?  What is the vision?  What are your key goals?  Have you considered how your stakeholders will react; how your volunteers and donors will react and how, if pressed, you would persuade them that the proposed merger would enhance the organisation’s effectiveness, impact and the achievement of its long term goals?

To address these issues you might prioritise a list of what matters most; consider sensitive issues such as the attitude and ethos of your volunteers, your brand, your donors, even most importantly your name and how these matters would be handled in the future.  Is this a takeover or a merger?  Issues such as these must be debated at an early stage and resolved.

Perhaps you might form a project team and plan how those people are going to manage the merger activities that will be required in addition to their day to day work.  Make sure that there will be availability to meet with advisors, regulators, the proposed merger partner.  Make sure that the team know how these “change related” responsibilities are going to fit with their day to day roles. Communicating effectively within and beyond your organisation about what is happening at each stage is critical.

Martin Paisner, Neasa Coen and Tora Smith of Berwin Leighton Paisner LLP advised Nightingale on its merger with Hammerson House which completed on 30 April 2012. The merged entity is known as Nightingale Hammerson. Nightingale Hammerson combines Nightingale,  the largest care home for the elderly on a single site in the UK providing care for elderly members of the Jewish community and the Lewis W. Hammerson Memorial Home (known as Hammerson House), founded in 1961 for older people in need of care and attention and a real home environment.  Just to make matters more exciting, a third entity, Hammerson Home Charitable Trust, operated as a grant maker to Hammerson House and so needed to be embraced within the merger.

In our experience, there are a number of factors which make mergers run smoothly and efficiently.

Be realistic about timescales.  With the right approach relatively short timescales, perhaps nine months to a year, are achievable and generally desirable because change can be destabilising for all and can distract from mainstream activities.  The Nightingale Hammerson merger was completed in nine months as against perhaps other more typical tales of two years or more for major mergers.  But this requires real determination, meticulous planning and excellent teamwork.

Of course, you will need to be alert to the regulatory backdrop.  However, as with any other project, planning the relevant steps and the order in which those steps need to happen is the key to success.  So for example in the Nightingale Hammerson merger it was necessary to have a valid Care Quality Commission registration in place for the newly merged entity at the time of completion.  The Nightingale Hammerson transaction required complex and intricate structuring to achieve the merger of a charitable trust governed by a scheme of the Charity Commission, an industrial and provident society and a company limited by guarantee.  Because of the scope of the charities’ work, interaction with a significant number of regulators (the Charity Commission, the Financial Services Authority, the Care Quality Commission and the Tenant Services Authority) was required.  Whilst those relationships are of course ones with which we are experienced and able to manage, the appointment of a project manager by the charities meant that we could be confident that the merger steps were being implemented in an appropriate sequence by all concerned.  In addition, and most importantly, charity staff were able to focus on the delivery of high quality frontline services.

Of course, the journey towards the merged entity was only begun once the trustees of Nightingale had decided that merger was the right course of action.  Charity mergers operate in an odd landscape.  In a commercial transaction money is likely to be changing hands and private individuals often benefit.  That is not the case with charity mergers.  Nonetheless, the charity trustees need to explore the proposed transaction in detail in order to be satisfied as a collective group that they will be acting appropriately and properly in merging with and assuming responsibility for assets and liabilities of another entity.  So whilst lawyers might be talking about due diligence, warranties and indemnities, for the trustees it is also about knowing and understanding the entity with which you intend to merge.  If the vision, the ethos, and the people have a common thread; if the passion and enthusiasm for a similar cause resonates when each group of trustees talks to the other, you can obtain considerable comfort that this is the right way forward.


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