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As the sector moves on after a challenging and game-changing year, the need for housing providers to make efficiencies and look for the best way to secure their long-term futures is in sharp relief like never before.
Given that context, it’s no surprise that many in the sector believe more and more mergers will be considered, and last month’s timely publication of the NHF’s voluntary Merger Code aims to encourage good practice and aid transparency in RP Boards’ initial considerations.
Jo says: “Consider ‘best interests’ in terms of the bigger picture of your organisation; not just now, but for the next 30, or even 100 years. What is in the best interests of each individual organisation may not be quite the same as what is in the best interests of the merged organisation. It is not all about money; you must consider many things including geography, people, overall strategy of the individual and merged organisations and cultural fit, and consider any ‘showstoppers’ – most often IT, pensions and loans. Any difficult decisions should be made as soon as possible, and this includes being prepared to walk away if it is not the right fit. Boards will also need to check loan covenants as to mergers.”
Jo says: “This is essentially going back to basics in terms of what your organisation was set up to achieve and whether a merger fits in with those objects. Look at constitutions and think about how a merger meets the needs of those people your organisation is set up to benefit.”
Jo says: “Your board must be involved as soon as possible. It is crucial that it is fully informed and able to have constructive debate as to a proposed merger. And your Board should be in a position to challenge proposals where necessary and work with the executive team to ensure that any difficult issues are dealt with as early as possible. The process of a merger is time consuming and expensive, and it is important that it is well structured and discussions are kept on track and relevant.”
Jo says: “Providing your Board with sufficient information is key to enabling it to make a well considered decision about merging. Sufficient is not simply volume but also quality of information. Your Board must be able to see the reasoning for a proposal, from culture to finance, from people to geography and everything in between. A merger proposal should not be a foregone conclusion when presented to your Board; your Board must be empowered to be able to decide whether it wants to proceed or reject any such proposal.”
Jo says: “Your Board must have access to the skills it needs to be able to constructively consider a merger proposal (and be fully informed of the advice they are able to access), be this among themselves or accessing skills from external sources. These skills are required in order to review the details of what a merger would mean for the organisation, what the merged organisation would look like, and how it would operate. The same is true when considering any form of partnership.”
Jo says: “Board members and executives may well have differing opinions on the benefits of merging, and all constructive arguments should be heard, based on all available information having being duly considered. In my experience meetings relating to potential mergers must be chaired effectively; held in a professional manner, giving opportunities for all to be heard in an orderly fashion.”
Jo says: “All decisions from the very outset must be documented and communicated to all relevant stakeholders. There needs to be an audit trail of the decision making process and it must be able to be shown.”
Jo says: “And the communication must continue too, with documentation being shared whenever actions have been completed or anything changes. It is important to note that the HCA is likely to want to be kept informed of the timetable and outcomes.”
Jo says: “Professional advice should be sought as to the business case and the actual benefits of the merger in terms of targets and efficiencies. Your Board will need to be updated on the business case and asked to approve it. Due diligence will be required as part of the merger and expert advice should be sought to scope the process and appraise/co-ordinate any matters arising from it.”
Jo says: “Signing up to the code will require publication in the financial statements and a record of activity undertaken pursuant to it.”
Inside Housing research suggests 1 in 3 housing CEOs are considering a merger to cope with the 1% rent cut. However early on you are in thinking about the possibilities, Croftons can support you. In fact, it nearly always saves money getting legal advice as early as possible in the process.
For legal advice or further information, please contact Jo Savage.
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