Managing Director
The social housing sector is in a state of major flux and housing associations have perhaps never faced so many challenges at any one time. As housing associations assess how they take on the challenges, many, in particular smaller social housing providers, are considering whether to continue going it alone or are they better being part of a bigger organisation. Here are the steps organisations should consider when looking at mergers, as well as the type of merger options.
Mergers have long been a feature within the social housing sector. Some of these have happened as a result of financial or regulatory difficulties faced by one of the organisations, leading to a ‘rescue’ from a larger association, or housing group.
Many more however, have taken more conventional routes, often starting with initial, high level, discussions, between chief executives and chairs of boards, exploring the synergies and potential strategic and operational benefits that could be achieved from the combination of organisations. These initial discussions (should the outcomes be positive) then lead into a quite structured process, eventually bringing ‘legal effect’ to the coming together of the organisations.
I am often asked, when I speak to boards about these matters, whether the perceived benefits from mergers ever actually get delivered. The benefits can vary but often include cost savings, generated through combining ‘back-office’ functions and other elimination of duplicated effort and costs, most of which are earmarked (in a ‘business case’ for merger) to be re-invested in improvements to services and the provision of new homes or other key priorities identified in those early discussions.
What is the answer? The answer is that the expected outcomes from the business case are not always carefully tracked, beyond the date of the coming together. There are some excellent examples where the delivery of savings and benefits have been very closely tracked and reported to board, but mostly this is not the case. This is because, put simply – things move on. We have seen how much has happened over the last two to three years and even more recently the past six months of a combination of political and economic turmoil have conspired to turn our businesses upside down.
Recent history has been incredibly tumultuous, but to a lesser extent change happens all the time and corporate priorities have to change with the times. This means moving resources around and making strategic decisions about the short, medium and longer term, direction for the business. This is correct and appropriate, although it can be somewhat inconvenient for those expecting a linear level of delivery of outcomes enshrined within and expected to be delivered from the merger business case.
So should we ever think about considering a merger, given the track record of delivery, which is less than transparent, for the reasons I have suggested? I advise boards that consideration of the potential of a merger is often worth doing, provided that you have evidence that the effort could be worth the investment of time (to begin with) and resources (if you begin to feel that the concept has ‘legs’). That said, it is essential that a clear headed approach is taken and that, as far as possible, emotion is kept in check. Emotion in these matters can lead (and has led) to wrong decisions – logic and structure must hold sway.
Can merger deliver an improved future for your organisation? There is no simple answer to this, as each organisation is different, but there are some important considerations which can help executives and boards to approach these matters with logic and a strategic, clear-headed approach, to enable complex matters to be explored and an informed view to emerge.
A starting point, before any discussions with a possible partner, is to develop a ‘position’ on merger. This can (eventually) be enshrined within a ‘merger position statement’. The process should be strategic and as dispassionate, as possible. My recent experience of facilitating such discussions appears to me to be less emotive than such discussions were say 10 years ago. Most boards now, it seems to me, approach these matters in a strategic way, with a dispassionate consideration of the opportunities as well as the risks and possible threats.
Basic considerations must include the following:
Note – In each of these cases, merger can be accommodated through ‘full merger’ of entities, or through entities becoming subsidiaries within existing or newly created group structures. There are many pros and cons to these options, which must be fully explored.
It would be remiss of me to close without stating clearly that any merger (regardless of the benefits emerging from the business case) absorbs very significant energy, time and resources. They can take between six and twelve months to bring about and as such they carry many risks as well – not least the drag on the business, often challenging ‘business as usual’ performance, but often leading to the loss of key staff, concerned about their futures.
All of these important considerations can be effectively managed and mitigated, as part of a structured project plan, incorporating the project to ‘day one’ and ‘beyond day one’, but nonetheless these are important matters to bring to the table as opportunities emerge and are examined.
If your organisation is considering merger and/or seeking to identify a merger partner and would like some support, then contact me to arrange an initial chat: a.roskell@dtp.uk.com