In the first of a three-part series examining the approach and considerations for effective M&A, joint venture parties in One Direct Advisory and PBL Law, authors Ron Thomsen and Amber Smyth outline the importance of assessing cultural compatibility and community benefits, especially for regional and NFP entities.
For aged and community care centres and not for profit charities, the positive culture created by the people within is often critical to their financial success. This organisational kinship is particularly pertinent in regional-based entities which have close and committed communities.
Due to recent events, including the COVID-19 pandemic, natural disasters and changing social and political situations, it appears that no business has been immune to the new challenges and risks that this changing environment presents.
In challenging times, strong relationships amongst personnel within organisations can assist with facing and dealing with adversity, due to their teamwork and resiliency skills. However, of equal importance is to have a business plan and risk mitigation strategies ready to act upon the occurrence of particular events.
In his column on 8 April 2021, the Australian Charities and Not-for-profits Commission (ACNC) Commissioner, The Hon. Dr Gary Johns said that some charities may:
‘find that the short-term strategies they have had in place to date are not viable in the longer term, requiring them to consider making significant changes.’
The Commissioner went on to say that those charities may consider shared service arrangements with other charities to reduce back-office overheads or merging with another suitable charity which can reduce financial uncertainty, and could lead to successes down the line, with expanded services and economies of scale.
Mergers are often implemented to assist businesses struggling due to recent events, get them back into recovery mode but should not be seen as a failure on the organisation’s part.
The importance of aligning two organisations’ values is often undermined given the survival instinct that arises which forces the focus onto finances. If organisations have common objectives, similar values and the same understanding of how to treat stakeholders and clients, then mergers can be much more successful. Establishing these elements upfront, prior to deciding to engage in a merger can be the difference between a merger’s success and failure.
A merger or an acquisition could be investigated for either offensive and expansive reasons or defensive considerations to shore up future viability.
There are a number of reasons why a charity might consider a merger or acquisition besides financial considerations. These thoughts, which may individually prompt the decision, but more than likely, multiple considerations together would result in the decision to engage in a merger or acquisition, include:
- Financial stress in the residential aged care sector, especially in regional areas.
- Lack of Government funding support. Even following the Royal Commission recommendations for funding support, remedies to existing circumstances can be long coming.
- Loss of key executive and board members which have been integral to the charity’s operation.
- Inability to maintain service standards and compliance which could be due to financial reasons, lack of staff or suitably trained clinical people.
- Just ‘treading water’ despite very hard work, especially over recent years and only surviving without moving the business forward with purpose.
- Business expansion in terms of geography, client numbers and products and services can be a defensive strategy.
- Diversifying income streams and ‘not having all your eggs in one basket’.
- Addressing underperforming assets through a merger.
Culture in a merger can be as simple as joining a like organisation in a neighbouring town, but is there a shared vision of where you want to be? You don’t want to invest executive and board time into achieving a merger plan if you can’t work together going forward.
In regional Australia, mergers of aged care facilities can impact the local economy, if it creates replacement of jobs or regeneration of local opportunities. It is fair to say that regional aged care services need support, but removing them could cause damage to the local community.
In our next two articles, we will discuss in more detail, a list of implementation and due diligence considerations that need to be addressed prior to a merger or acquisition.