Funding Fair 2013

Joint Ventures, Collaborations and Mergers

Andrew Studd

Charity and Social Business Team Russell-Cooke LLP 12 July 2013

Context

   Current environment Trustee duties and setting the strategy to achieve the objectives Spectrum of collaborative working arrangements

Drivers

           Wider geographic spread / scale / reach Better / more efficient service delivery Reduce overheads / loss of income / cost savings Future funding uncertainty Brand and cost of fundraising Louder “voice” in campaigning Move from grants to contracts Funders requiring partnership working Governance Staff retention / skills Crisis?

Business Themes

        Who is your partner?

Common objectives / goals What do they want from you? Trust, culture and personalities Reputation Funding Communications and planning Contracts

Authority

 Memorandum and articles/trust deed/rules*  Objects     Powers Trading or fundraising? Primary purpose Appropriate use of resources Private benefit     Trustees Commercial partnerships policy Reputation management Charity Commission guidance *note own structure and impact on liability

   Degree of integration Sharing/apportioning of risk MOU? Legally binding or not?

 Accountable Body and Sub Contractor    Primary responsibility remains Apportion service responsibility Risk of default by subcontractor?

Collaboration: Joint Venture SPV Charity A

Member or Shareholder with right to appoint to board

Charity B

Member or Shareholder with right to appoint to board

JV Entity

Charity C

Member or Shareholder with right to appoint to board

New Entity

     “Corporate” joint venture or “SPV” Limited liability for members or shareholders Governance issues   Business rates Costs sharing, VAT and grouping – cost sharing exemption Capital provision Board appointment and other controls

Key Legal Issues

       Assumption and management of risk – structures and contracts Identifiable benefits, outputs or cost reduction Management and decision making - process Communication Due diligence  Viability of partner  Employees and TUPE    VAT/Tax/Accounting Legal and Financial Culture?

Control Exit

Merger – Structures

    Overlapping board membership  strategic partnership but  potential conflicts of interest Group structure  Parent /subsidiary Full merger  One into another  New organisation Other options – function swap

Parent Charity Trading Subsidiary Subsidiary Charity

Structures - Group

   Key Benefits  Isolation of risk   Benefit of simplicity Governance Issues  Benefits of integration   Confused reporting lines “independent” trustee board Unincorporated charities

Merge into new charity

Charity A Charity B

New Charity

One merges into another

Charity A Charity A (+ B) Charity B

Structures – Full Merger

  Benefits    Full integration?

Branding Competitive environment Issues  More extensive due diligence  Cost  Legal issues  Pensions  TUPE  Leases

Combination

     Group structure followed by full merger or “hive up” Control Timing Flexibility “Independent” trustee board and managing conflicts of interest

Due Diligence

     Asset risks  Consents? Landlords and other third parties Income risks   Contracts Consent of funders  New funders  Old funders – clawback Past risks Reputational risks  Data protection Regulatory risks

Due Diligence – Staff Issues

      TUPE Varying the employment contract Compromise agreements Pensions Union recognition and national terms Self-employed, casuals and volunteers

Transfer Agreement

      Transfer of Assets Warranties Indemnities Intellectual property Land Assignment/Novation of contracts

Risk Management

      Deal breakers Due diligence is key Confidentiality agreement Heads of terms/MOU Role of structure  Acts as a firewall Role of the transfer agreement  Transfer of assets   Warranties Indemnities

Post Merger

      Just the beginning….

 Integration and implementation Mission protection Retention, wind-up or strike off Register of mergers Insurance and claims Ring fencing and restricted funds

Checklist

  The starting point: inspiration, not desperation! Be clear about the risks, and benefits you are seeking     Working in the spirit of partnership is key Effective leadership is essential People are the most important consideration Process management is complex and time consuming  Independent facilitation can be highly cost effective

Contact Details Andrew Studd

Partner – Charity and Social Business Team 020 8394 6414 [email protected]