Introduction

This book was written based on the proposed scenario between non-profit organizations. The process was in some ways simpler than commercial mergers and it did not have to consider share trading and financial interests. Neverthelss, it brought a series of other challenges.

The main steps in a merger are:

1. Define why you want to do this:
1. Get a clear picture of where you want to go and the potential benefits.
2. Analyze organizational purposes and ethoses.
3. Analyze cost-benefit and risks.
4. Put all planning in a proposal.
5. You might need to put an MOU in place at the early stages.
 
2. Persuade all key decision makers:
1. Have your public relations messages clear.
2. Have you detailed planning clear.
 
3. Write and sign a binding agreement. This legally authorizes implementation.
 
4. Go through an implementation phase under a transition board. Expect some frustrations:
1. You find unexpected challenges.
2. Reality doesn't feel like the plan.
3. You'll do different things with different people.
 
5. Come out as a new, different organization.
 

Content

Purpose and benefits

Define the purpose of merger. What do you want to achieve?

1. Define the benefits of merger, which are the reasons for doing it. For example:
1. Gain a critical mass, not currently possible separately.
2. Obtain synergies of ideas and opportunities that make the whole more than the sum of the parts.
3. Build better relationships and stronger constituency
4. Provide a better quality program structure
5. Have better recognition, licensing, or legislation compliance systems
6. Set a standard of excellence
7. Create richer, more diverse staff and client bodies
2. Gain economies of scale and greater cost-efficiency. (However, the actual economies of scale are never as great as they appear beforehand.)
1. Some savings could begin immediately upon merger (e.g. insurance, accounting) and others could begin soon after (e.g. accreditation, some administration costs).
2. Reduce or eliminate the increasing costs of duplicated overheads and administration, and related labour and office space costs, including:
• institutional management (libraries; salaries; buildings; IT etc).
• increased workload to meet government demands for registration, accreditation, compliance, policy development, and auditing.
• bookkeeping and insurance costs.
• fixed costs of IT systems, website, etc.
3. Define other possible reasons for merger:
1. The organizations' reasons for existence have changed.
2. There might be new challenges.
3. The context and culture might have dramatically changed.

Clarify your proposed vision

1. It might need to be expanded and better defined, both in your mind and in those of your constituents.
2. Consider options for expansion and other mergers.
3. Look at the long-term vision
4. Define shared values

Stakeholders

Who are the stakeholder? Define the stakeholder groups and interests, and what each one brings to the merger.

1. This approach is based on the idea that the best way to protect stakeholder interests is to state and define them early in the process. Where appropriate, they can be written into the agreement. Some might be institutional but not necessarily all. For example, 
1. employees, some of whom risk being made redundant, whose employee entitlements would move to the new institution
2. Client groups
2. Some legitimate interests that need to be protected are:
1. Relationships with other organizations
2. Asset providers
3. Organizational philosophies and values
4. Sense of heritage from predecessor institutions
5. Existing constituencies and supporters
6. Existing strategic relationships

Structure and governance

We had to ask, "What is the result of a merger?" The result is that several orgaizations will become one organization with one name, one operating license, and a new image. Don't simply cobble the existing organizations together to do the same things on a bigger scale, even though some programs will not change much in the foreseeable future.

Do an inventory of divisions and departments. It sounds obvious, but many organizations have more details than appears obvious to outsiders. Some kinds of major projects need to be listed, even though they have a limited lifespan. Some organizations comprise a relatively small central administration and a series of major projects.

Finances Each department must have its own separate bookkeeping account, and funds may only be moved from one department to another with board approval. Less viable departments should not be allowed to milk more successful departments. There are several reasons for this approach:

1. Jealousy about money would be deeply divisive at a time when people are very sensitive to a new situation of working together.
2. It helps you to identify the profits, losses, deficits and real costs of departments and to manage cash flow more effectively.
3. During transition, the various bodies should be operating fairly independently anyway while underpinning structures are being put in place

Partnerships and affiliations The merger team might recommend that the new organization be able to form partnerships or affiliations with other institutions with minimal difficulty:

"Most had already set the precedents and had structures for doing so. The nature of some loose affiliations needs to be made clearer. Some affiliations were on the levels of friendship, co-operation and mutual help. Others were avenues for sharing expertise.

Consider the kinds of benefits and costs of affiliations. As a college, we considered exchange studentships and internships, and exchange staff sabbaticals.

Legal entity

What incorporated body will you use as the final body? Incorporate something new? Or an existing body?

Do any special taxation statuses apply? What other legal statuses apply (e.g. ASIC registration and compliance)

Following the legal requirements for non-profit organizations, we needed to list the supporting institutions so that a clear institutional constituency is defined. This would establish a general voting membership of the college, and allocate places to stakeholders. Obviously some would have more places that others. The voting membership would hold an AGM and elect a board of the best people available, regardless of organizational background.

The practical reasons in this case were:

1. The purpose of the board is to work together as a cohesive team for the advancement of the new organization and to protect all identified interests. It should not be a horse-trading forum for each member to protect the factional interests of his/her appointing body, although such a board structure was proposed.
2. It is important to have the best people on the board with the best gift-mixes because there is no substitute for wise, competent leadership.
3. There are too many interests and stakeholders to simply allocate board positions according to  constituencies. The board would simply be too big to function efficiently. 

One discussion asked how funds would be used if the new college were ever wound up. There are two answers. First, it would be a mistake to be controlled by fear of closing down.   Second, under the terms of the proposed structure as a non-profit tax-exempt organization, any assets will be given to another body with similar purposes. That is, the law requires that all funds must continue to be used for the same purposes and prohibits using them for other purposes. It is simply a matter of defining purposes carefully in the constitution. There are two kinds of legal requirements:

1. The Associations Incorporation Act requires that any funds must be given to another body with similar aims and similar non-profit status.
2. The laws governing ITEC (Income Tax Exempt Charity) status require that upon winding up, any funds must be given to another body with similar aims and similar ITEC status.

Structure

The new institution’s structure should be simple, clear and relevant in order to guarantee the smooth and clear administrative running of the new body and foster healthy relationships between the various areas of responsibility.

However, most merged colleges would normally be too large for a minimalist "principal, board, and staff meeting" approach. They would more likely look like the following, which in practice is much simpler than it appears:

Staff

We first had to ask whether we should adopt a back-to-drawing-board approach and view all positions as vacant, or as far as possible try to work with current employees?

You need to protect the interests of current employees, and probably an amalgam of the two approaches is more realistic. That is, look at the plan, look at current staff, and move people into the slots that will suit them. Then check that we have everything right. It is inevitable that some administration and lecturing staff will be made redundant, and it is important to resist the expensive temptation to manufacture busywork just to keep people in jobs. As a rule of thumb, departmental staff should remain in their departments.

In any case, it is important to create a well-structured efficient team, and avoid a "cobbled together hybrid."

Some departments will probably be overstaffed and some jobs may be lost, even with retirements. In any case, you need to make a list of people and tasks but keep it tightly confidential until you use it.

What about committed volunteers?

These would probably continue to be urgently needed. Some roles might need to be changed for them to make the best contribution.

Who should be CEO?

It would be quite logical for the transitional board to consider nominating the most senior person to become CEO of the new organization. However, it might not be so simple. If it is larger and more diverse, it could be hard for him/her to stretch to some unfamiliar areas or locations, with the result that they will be given inadequate attention as non-core business and "not what we do here". It may be best to appoint a chief administrative officer who would also be an ex officio board member.

Articulating vision: Public relations

The benefits of merger need to be articulated in such a way that constituents and stakeholders can catch the vision . That is, the message needs to be refined so that it will be effective with constituents. It would be a mistake to express the message as managers see it without knowing how people will respond to it.

Public relations is a specialized field and the task should be delegated to specialists. The public relations document (which might include a video) should be separate from the detailed implementation document.

In particular, the way the merger is expressed must:

1. have a clear, simple core message that positively creates higher aspirations
2. demonstrate how constituents in general and donors in particular will get more benefit for their investment
3. be very professional, even if it is low-cost
4. prevent miscommunications and misunderstanding
5. cover all major questions and apprehensions

There are several different audiences and the message will need to be communicated to them in different ways. These audiences include the following:

1. the general public
2. institutional stakeholders
3. individuals: employees, students, alumni
4. accreditors and creditors.

Consider branding and image. The new organization must have one name and one brand, although some departments might have their own branding.

What closes?

We asked which organizations would cease to exist. Even though it stands to benefit from the merger, the winding up of an incorporated body will doubtless involve some angst on the part of its board and members. Their fears may be expressed in some kinds of reluctance. The point is, however, to adequately protect their legitimate interests in the new college.

A lot of angst may also be prevented by encouraging it to continue to exist until it is sure that all its legitimate identified interests (as written in the agreement) have been protected to its satisfaction. In the meantime, the merger would go ahead.

The recommended option is currently as follows:

1. The agreement would authorize the transition board to transfer all property to the new college immediately.
2. Institutions that are members of the body to be wound up should be invited to become members of the new organization.
3. The agreement would be wound up upon unanimous agreement of all parties when all merger matters are complete and all parties are satisfied that the future of all listed interests has been adequately protected.

The reasons for recommending this option are:

1. It will require only one fairly simple decision from the current membership. This should minimize their angst leading up to the decision and during implementation.
2. Transfer of assets will be simpler because one group of people in the same office will handle it all.
3. As only the members of the body to be wound up have the power to dissolve it, then the merger agreement must leave dissolution to them.
4. As a party to the agreement, the body to be wound up would need to continue to exist to ensure that any agreed-upon interests have been protected until this was no longer relevant.
5. This would be much better than trying to wind it up and passing its right to protect the its interests to another party for several reasons.

The recommended option not only better protects its interests and facilitates the merger immediately, but also avoids the difficult issue of winding it up. According to the Associations Incorporations Act, the full membership need to hold a special general meeting and pass a special resolution to wind it up. This implies that:

1. If the merger depends on its dissolution, it has the right not to participate in the merger.
2. The agreement itself cannot dissolve it. It can assign assets to the new college, authorize the transitional board to act on its behalf in defined capacities, and at most, commit its board to recommend dissolution to its members.
3. Until such a resolution is made, there remains a possibility that the membership will reject the special resolution.
4. It would be left on hold indefinitely if:
1. Its board enters into the agreement
2. the agreement does not specify a terminal date at which it leaves the merger through lack of a resolution by its membership.
3. It does not make a decision to participate in the merger. Even if it rejected the merger, it could still change its mind later and join the merger.
5. Its board alone can make the special resolution if there are no association members other than the board members. This invites several questions:
1. Does the association have any members beside the board members?
2. Who are its members that would pass the special resolution to wind it up?
3. When does its board of resign?
6. The decision to merge and the decision to wind up is nearly the same thing:
1. A decision to agree with the merger is tantamount to a decision to discontinue as a separate entity.
2. Stakeholders will be part of the new college. A decision to agree with the merger and discontinue as a separate entity is not a decision to disengage or feel "evicted."
3. A decision to discontinue as a separate entity is the same as the resolution to wind up.
4. A decision for such a major change should involve the whole membership of the body to be wound up anyway.
    

Other options

Most other options involve the winding up straight away. For a number of reasons that is messy and in some ways not something that can be decided by the merger. The other options appear to be:

Option 1. The agreement asks its current membership to pass a special resolution to transfer all assets to the new college and wind it up.
 

Option 2. Its board agrees to:

1. the terms of the merger
2. hand over its assets to the new college during the period of implementing the merger
3. authorizes the transition board to perform anything necessary to expedite the same
4. agrees to recommend to its members its winding up.
    

Option 3. In the agreement, it agrees to:

1. the terms of the merger
2. hand over its assets to the new college during the period of implementing the merger
3. authorise the transition board to perform anything necessary to expedite the same.
4. recommend to its members that they resign and to accept the board of the new college as its board and membership.
    

Option 4. The new college keeps it as a shelf organization. However, the board would need to eliminate any risk of debt, litigation, prosecution, or official complaint. There seems to be no need keep it and the reporting requirements (ATO etc.) could be bothersome.
 

Option 5. The transition board replaces its membership and board immediately upon signing the agreement, pending the resignation of its existing membership and board. This would simplify the transition and transfer of assets, but it would not really offer a guarantee of its interests.

Risks

Conduct a risk analysis. In fact, most of the above discussion has been various kinds of risk management. Some of it should be a simple collation and review because each organization should already conduct its own risk analysis. It should also include gathering up-to-date audit documents, both academic and financial.

We will also need to identify risks that relate specifically to the merger. Obvious specific risks for a college such as ours are as follows:

Tasks

Basic planning

1. Check this list for omissions
2. Decide what documents will be necessary to record each aspect of the merger.
3. Agree on:
1. a name (see appendix)
2. a vision or purpose statement
3. a constitution (should be easy)
4. Define clearly the stakeholders and the specific interests that need protecting.
5. Write a business plan
6. Write a budget, and review all costing and pricing.
7. Review systems for efficiency and effectiveness
8. Do a management review (line of documented accountability of activities to board decisions.)
9. Disclosure of each college's audited financial statements (Note: Comparing them will be difficult because the wealth of some organisations will be asset driven and others will be cash-flow driven. Dependency on donations will also vary. But don't inherit liabilities or potential liabilities, so early disclosure is good risk management.
10. Decide what the new organisaiton's history will be to protect the heritage of predecessor institutions (e.g. plaques and artifacts, symbols such as photos of past principals, etc.)
11. Appoint a CEO and chief administrative officer as soon as possible after agreement is signed and give them job descriptions.

Strategic links

1. Should you approach other organizations to join the merger as franchisees? This would preserve their identity and autonomy, while still offering the benefits of merger.

Administration

1. Oversee unification of:
1. insurance
2. bank accounts
3. IT systems (LANs)
4. employment records: superannuation, PAYG, workers’ comp., annual leave, long service leave, sick leave, hours, etc.)
5. software licenses
6. CCLI license (music copyright)
7. licensed or auspiced qualifications
8. Websites, web-related systems, and domain names
1. Determine requirements for new website (e.g. marketing, student information, staff information, document control, compliance systems, etc.)
2. Develop new website
3. When new website is in place, put a redirect on other domain names until their licenses expire
9. intellectual property
1. Identify intellectual property that is owned or licensed to colleges, including any restrictions placed upon those licensees. Intellectual property will be mostly copyrighted books, materials, and software, as well as trade marks, etc.)
2. Determine how it will be used
3. Put them in a unified document register
10. academic records (you'll probably operate different databases for some time)
11.  licenses
12. accounting and financial systems
13. phone systems and phone numbers
14. advertising materials
15. periodicals
2. Ask accountant if it would be helpful to have a full list of regular bills and approx. how much.
3. Check legislation compliance
1. Review and merge inventories of legislation
2. Internal audit of compliance and risk
4. Inventorise existing contractual commitments. These may include
1. Employment
2. Leases (premises, equipment, furniture, cars)
3. Supply contracts (telephones, cars, etc.)
4. Franchised services
5. Transfer all kinds of academic recognition to the new college. These include:
1. accreditation of HE programs
2. accreditation of VET programs
3. CRICOS
4. FeeHelp
5. memberships of associations
6. Oversee unification of taxation documents
1. tax deductible funds: Review documentation, Inform ATO
2. other relevant taxation-related statuses:
1. ABNs
2. Tax File Numbers
3. BAS
4. PAYG
5. ITEC
7. Register with ASIC
8. Appoint an academic dean to review, collate and revise all core policy documents into one institution-wide document of policies and local regulations so they:
1. fit all offerings of all participants, both HE and VET,
2. meet requirements for overseas students, and
3. meet all legislative requirements.
9. Review offerings with a view to phasing out duplicated programs and programs for which there is little prospect of viable numbers of students. Some qualifications might be amalgamated.
10. Review all training and assessment plans, and industry consultation.

Review building needs

1. Consider building plans and costs
1. Initiate planning of any necessary refurbishment and expansion
2. Assess furniture needs.
3. Plan calendar, placements in rooms, and class schedules.
4. Define functional needs in the facility.
5. Consider optionsWhat plan for small units and houses?

Staff

1. Hold joint staff meetings to decide on issues in common
2. Review terms of employment, job descriptions, and workloads
3. Determine staffing arrangements.

Manage a physical move

1. The physical move would take place over a long holiday, preferably in January (little rain, longer break)
2. Coordinate the move
1. Give staff orientation, including regular meetings to tidy any loose ends and tempers.
2. transfer students to the programs of the new college.
3. Physical removal of furniture, etc.
4. Manage teething problems.

Conclusion

1. Conduct another management review toward the end of the merger process so that all systems are efficient and accountable.
2. Review what we have learned and write it down.

Proposal cover

On the cover of your proposal, list:

• the title of the document,
• the names of the organizations in the merger,
• any key stakeholder organizations,
• the date of the version (you will go through various drafts),
• A confidentiality notice such as "This proposal is intended for officials in the organisations identified above, and is not for or any other circulation unless agreed by all parties.", and
• A copyright notice such as "©Ross Woods This document is copyright. Authorization is hereby given to members of the above participating organizations to make unlimited copies for their own internal purposes."

Agreement

Draft Agreement It should be checked by a lawyer.

Agreement

This agreement is between:

• ABC Inc. of 123 Main Street, Bigtown
• XYZ Inc. 456 Wide Street, Rock City

Definitions:

• The "Act" means the Associations Incorporations Act (1987)
• "Member" means member as defined in the Act.
• "The parties" refers to ABC Inc and XYZ Inc.
• "Annual General Meeting" means Annual General Meeting as defined in the Act.
• "Members meeting" means members meeting as defined in the Act.

Purpose

1. The purpose of this agreement is to merge ABC and XYZ into one incorporated body with one Registered Training Organisation, hereinafter called "new college".

Protection of interests

2. All parties agree to (protect xxxxx interests.)

Entity and transition board

3. The incorporated body of ABC will become the legal body of the new college.
4. The transition board will replace the current board immediately upon the signing of this agreement by all parties and shall become the committee as defined in the Act.
5. During the transition period, the business of the new college shall carried out by a transitional board and subject to members' meetings according to its constitution, on condition that it shall not contravene this agreement in any way whatsoever.
6. The transition board shall comprise natural persons in equal number appointed by ABC and XYZ.
7. The transition board in the first instance shall comprise (names)
8. The Principal and the Chief Administrative Officer shall be ex officio members of the transition board, but shall not have voting rights.
9. A two-thirds majority will be required to pass decisions of the transition board.
10. The transitional board shall:
1. work together as a cohesive team for the advancement of the new college
2. protect all identified interests.
3. comply with the aims and purposes of the new college
4. comply with the terms of this agreement.
11. If members of the transition board cannot resolve a dispute, then they shall refer to matter to a joint meeting of the highest state boards of KJH and FGB in Western Australia and their joint decision shall be final.

Transition Period

12. The transition period will begin upon the signing of this agreement by all parties.
13. The transition period will end not later than two years afterward unless extended upon unanimous vote of all members at a members’ meeting.
14. The board of XYZ will recommend that it be wound up when all transition requirements have been completed and when its board is satisfied that the interests specified in this agreement have been adequately protected.

Members

15. New members shall replace the existing members of the ABC board.
16. The following organizations shall also be invited to become members:
1. The institutional members of XYZ
2. All member colleges of ABC at the time, which are presently:
1. ASD
2. FGH
3. HJK
4. BFR
17. If for any reason whatsoever the total of members would fall below the number of members required by the Act, then the members at the time shall invite other persons or organization to become members.
18. During the transition period, the voting rights of members at members' meetings shall be apportioned in blocs as follows:
1. ...: __%
2. ...: __%
3. ...: __%
4. The institutional supporting institutions of WABC: 15% shared equally between them
5. The member colleges of ABC: 15% shared equally between them
19. A two-thirds majority will be required to pass decisions of the members’ meetings.
20. The members’ meetings and Annual General Meetings shall have the powers given to them by Act and by the constitution at the time.

Transition

21. During the transition period, the transition board shall oversee:
1. the unification of all administrative and records systems of all kinds.
2. the unification of the Registered Training Organizations
3. the transfer of all assets, property, funds, activities, rights, memberships, affiliations, licenses, statuses, and accreditations of any kind whatsoever to the new college absolutely.
22. XYZ hereby transfer by gift to the new college all properties and rights of any kind whatsoever of XYZ college.
1. Those properties and rights shall become the property of the new college absolutely and subject to its governance according to its constitution and the terms of this agreement.
2. Those properties and rights explicitly include, but are not limited to, all administrative and records systems of all kinds, the registration of the Registered Training Organizations, all assets, property, funds, gifts, income, rights, memberships, affiliations, licenses, statuses, and accreditations of any kind whatsoever kind and wheresoever situate including those received subsequent to this agreement.
3. The new college shall not be liable to make any payment of any kind whatsoever to XYZ.
4. ABC and XYZ hereby authorize the transition board to conduct any and all activities necessary and legal to transfer those properties and rights to the new college.
23. The transition board shall:
1. Appoint a Principal
2. Appoint a Chief Administrative Officer
3. Determine staffing arrangements
24. During the transition period, XYZ will continue to use its own brands and offer the same courses until the transitional board has implemented such aspects of the merger as are necessary for integration.
25. The transition board shall determine which aspects of programs that may be integrated while XYZ are still using their own brands and offering the same courses.
26. The members shall review the constitution.
1. They shall make such changes as they determine necessary, including name and purpose.
2. The winding up clause of the constitution of the new college shall specify that if the new college is wound up, then after the satisfaction of all debts, any remaining assets and property shall be given to another incorporated body with similar income tax exempt status and that has as its objects the  . . .
27. At the end of the transitional period:
1. the transitional board shall resign at an Annual General Meeting
2. the members shall elect a new board for a full term of office according the requirements set forth in the constitution of the new college.

Disclosure

28. Each party will provide all other parties with their most recent financial audit report.

The Agreement

29. The terms of the agreement will be defined by this written agreement and all parties revoke all former merger agreements between them whether oral, implied or of any other kind whatsoever.
30. This agreement is binding absolutely upon all parties and shall be interpreted according to the governmental laws of Western Australia.
31. If a competent court of law shows any part or condition of this agreement to be invalid void or unenforceable, the remainder of the agreement shall remain fully in force and will not be affected or impaired in anyway whatsoever.
32. No part or detail of this agreement will be revoked or changed in any way whatsoever except by a written agreement that is equally binding to this agreement and is agreed upon by all members.
33. This agreement shall commence immediately upon signing by the authorized representatives of all parties.
34. All parties to this agreement indemnifies and holds harmless each other party for all expenses and liabilities arising out of negligence or misconduct to the extent that the amount exceeds their liability insurance.
35. No party to this agreement shall be required to make a payment of any kind whatsoever to any other party for making this agreement.
36. This agreement shall conclude upon the unanimous vote of members at an Annual General Meeting that all the provisions of this agreement have been met and enacted to their satisfaction.
37. This agreement is made in five identical copies and one copy shall be given to each of the parties to this agreement. Each copy shall have the same legal force.
38. A separate Memorandum of Understanding agreed upon by all parties will be used as a separate working document to specify the way in which the merger will be implemented.
39. We, the undersigned, hereby declare that we are fully authorised by our respective parties to affix our signatures to this agreement on their behalf.
40. All pages to this agreement have been initialed by both parties

Signatories: