Canada: Coming Together For The Greater Good – Practical Tips For Effecting A Successful Merger

Last Updated: April 18 2017
Article by Natasha Smith

There are over 86,000 registered charities in Canada operating in a rapidly changing sector.  Difficulty fundraising, the desire to expand services, donor demand, and contingent government funding are just some of the factors prompting Canadian charities to consider a merger. While a merger is no doubt an intense administrative exercise, consolidating the efforts of two organizations, under the right circumstances, can maximize organizational output and streamline operations, translating into more beneficiaries being serviced and/or an increase in the services offered. In considering the commentary made at a conference by a number of recently merged charities, this article sets out the practical benefits and challenges of merging two charities and some post-merger considerations to effect a smooth transition.

Benefits

There are a variety of ways in which a merger benefits not only the merging entities, but ultimately their beneficiaries. Firstly, the most obvious benefit is the ability of one organization to leverage the advanced capabilities (i.e., fundraising, research, marketing, reach, etc.) of the other organization and customize such capabilities to appeal to their donors and beneficiaries.  Secondly, increasing the number of beneficiaries serviced by one organization can result in the merged entity being invited to stakeholder meetings and having a stronger voice within the sector. Further, governments may choose to consult directly with an entity that services or represents a larger sample of a particular community. In this way, the merged entity has a greater opportunity to advocate for change. Thirdly, since donors in some cases are proposing that charities work together, the merging of two organizations that engage in similar activities can signal to donors that the organizations are listening. Organizations that make donors feel involved gain access to low hanging fruit. Fourthly, a merger often gives organizations a fresh start, as each organization is forced to consider what is working (and should be retained) and what is not (and should be discarded/ceased). Structurally, the post-merger entity can be organized to accommodate the size and function of the organization (which in many cases needed to be considered by both organizations pre-merger). The centralization of various operational efforts can also create more efficient systems.

Additionally, mergers benefit funding agencies by reducing the number of applications that require processing, thereby reducing the administrative burden associated with same. The application process is simplified for applicants and fewer applications means that applications are processed faster by the funding agencies.

Challenges and How to Manage Them

The two most common ways in which to effect a merger of two charitable organizations is by way of amalgamation or asset transfer. Both of these options are not without their challenges.  Discussed below are ways in which these challenges can be mitigated.

1. Getting Directors Onside

A significant structural change such as a merger requires both board and member approval for each organization involved in the proposed merger. The first step – the requirement to get both boards onside the merger – can be difficult. In some cases, boards involved in a proposed merger may feel as though they are being asked to "let go" of an organization they are passionate about and may be concerned that the spirit, purpose and mission of their organization may be lost post-merger. This concern can be addressed from the outset if the parties enter into a Letter of Intent ("LOI") to help guide the boards through the negotiation process. Proceeding under an LOI fosters teamwork between each board that will flow through to the merged entity. Importantly, if the boards have difficulty agreeing on the terms of an LOI, whether the proposed merger is truly ideal will be revealed before any further costs are incurred.  The ultimate costs of implementation can depend on how easily the parties can come to a consensus when discussing the details of the merger and the future governance structure. If there is agreement on such issues it will be a more straightforward transaction.

Important to include in the LOI is the extent to which each merging organization will be represented on the board of the merged entity. Generally, boards will be more receptive to a merger if they are ensured that there will be significant representation from both pre-merger boards on the board of the merged entity. While specific names need not be included, a proposed number of board members coming from each organization can be proposed. As a result, depending on the type of merger proposed, the parties may feel encouraged to work together to reach an agreement knowing that one organization will not simply consume the other. Other items to consider addressing in an LOI include, but are not limited to, the following:

  • What will be the future governance structure of the merged entity?
  • Who will bear the costs of the merger?
  • Will the merger be announced publicly?
  • What will impact the merger and result in a termination of the LOI?
  • For what purposes will the merged entity operate?
  • Will debts be carried over into the new entity or must certain debts be paid off in advance of the merger?
  • Will the new entity operate out of one, both or all pre-merger locations?
  • What is the deadline for due diligence review?
  • What will be the jurisdiction of the merged entity?

Further, once an LOI is signed, holding joint meetings of both boards to negotiate the terms of a merger agreement is generally advantageous as the organizations work together to come together. This helps to dispel an "us-versus-them" mentality.

2. Sifting Through Due Diligence

An inefficient, frustrating and expensive merger is often the result of a significant data dump from both parties and an unstructured due diligence process. Before each organization starts trading information, it is important that each entity audits the state of its own governance and consider any complexities that it may bring to the merger. Each organization should, amongst other things:

  • ensure that its corporate and tax filings are up to date
  • ensure that its bylaws are current
  • ensure that it understands its membership structure (and who its members are)
  • ensure that its minute book is up to date
  • consider whether it has any externally restricted funds that will need to be maintained post-merger
  • consider the implications of an existing collective agreement, if any, on post-merger employees
  • consider the change of control provisions in various agreements (including financing arrangements, leases, and service contracts)

Once each organization is certain its own affairs are in order, each organization should develop a due diligence checklist of items required from the other party. Internally, each organization should engage in a thorough discussion and set reasonable requirements of the other party.  Importantly, to help focus those engaged in the due diligence review, a list of issues that would halt the merger should be developed.

An often overlooked item of review is the finance policies and accounting principles employed by each merging organization. If they are not already aligned, each merging entity should engage in a pre-merger discussion as to how to bring these policies and principles into alignment post-merger. This will be extremely important when the time comes to determine the budget for the post-merger entity.

Additionally, the following items should be considered during the due diligence process:

  • Do the purposes of each entity align?
  • Are there any GST/HST/Land Transfer Tax issues?
  • Are any regulatory approvals required?
  • Will the merger trigger a year-end for either organization?
  • Do any business name registrations need to be carried over to the new entity, renewed, etc.?

3. Mitigating Stakeholder Scrutiny

In some cases, stakeholders such as beneficiaries, employees, donors and even post-merger boards may want to see immediately the fruits of a merger. A failure to, for instance, see a significant uptick in donations or government grants or to see a reduction in expenses, may elicit undeserving criticism of the merger. Managing stakeholder expectations from the outset (i.e., pre-merger) can help to mitigate this type of post-merger scrutiny. Increased stakeholder engagement can be a great way for stakeholders to understand that a merger is, indeed, the best way to move forward and maximize each organization's support to beneficiaries. Holding "town hall" meetings to answer stakeholder queries or address any concerns about the merger can bolster support for the merger either by demonstrating to stakeholders that the merger is a well-considered transaction or, in some cases, helping the merging organizations to identify operational or public relations issues they may not have foreseen. Stakeholder scrutiny may also be mitigated if stakeholders feel involved in the process. For instance, canvassing stakeholders, such as program beneficiaries and employees, for input on a new name for the merged entity can work to get such stakeholders excited about and engaged in the merger. Additionally, including employees from both organizations in joint corporate events and joint communications leading up to the merger can help to foster a sense of collegiality even before the merger date.

Post-merger Considerations

There are a number of practical issues that must be considered post-merger. In some cases, organizations will need to determine how to operate in more than one location, how to integrate the organizational cultures, and how best to train team members on any new or adopted processes.  Additionally, like any relationship, there needs to be an element of trust. A merged organization can make the transition smoother by:

  • Disseminating questionnaires to employees in scheduled intervals post-merger to gauge what is working and what is not
  • Sharing profiles of various employees to ensure that everyone knows where to go for specific information
  • Distributing branded items and uniting team members using consistent messaging
  • Setting fair expectations and providing progress updates
  • Giving stakeholders an opportunity to be heard and ensuring that high level communication is flowing down the chain

Conclusion

Mergers are indeed happening in the sector. A merger can make united organizations a stronger advocate for their beneficiaries and provide their beneficiaries with a stronger voice.  Organizations operating in the same industries are fighting for the same funding and often have identical goals. Mergers can enable these organizations to streamline their efforts and increase their chances of accessing this funding. As long as fair expectations are set from the outset and there is a sense of communality rather than "otherness", a merger can maximize the good works already being undertaken by charities in Canada.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Natasha Smith
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.