The economic challenges in today’s civil society and the cut backs that are due this week in the Spending Review are likely to raise questions amongst some trustee boards about whether a merger with a similar charity would be advisable.
Such mergers are often sought to consolidate the financial position of two charities to provide a more sustainable future for both staff and beneficiaries. Mergers are not, however, without their own challenges, not least the duties placed on each trustee board to carry out their own due diligence on the other party to the merger.
A successful historic financial position is no guarantee of future success. Key determinants for Trustee boards include:
1) Remaining terms of existing contract and grant funding agreements
2) Whether the funding bodies will allow the transfer of contracts/grants to a newly merged body;
3) What restrictions are placed on existing reserves and cash holdings?
4) Are there penalties within contracts that need to be highlighted on merger?
5) Are other assets (fixed assets and investments in particular) unencumbered? Often assets purchased with restricted funds retain restrictions for a certain period of time, and can require repayment of the funds initial provided under certain circumstances.
There are many other considerations when looking to merge, but the above are common areas where skeletons can remain in the closet if due diligence is not detailed and robust.
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