2018 Fall issue of Horizons

M&A Exploration Once the organizations move past whether they have found the right fit, the M&A discussion can take on a more formal tone. M&A committees, often comprised of the executive director, board chair and other influential key persons, will work both separately and together to explore key operational and financial issues. Having a committee that is comprised of individuals who bring forth dissenting opinions will ensure that the M&A process is well vetted and not subject to “group think” pitfalls. During this stage of the M&A process, it is important to not shy away from the difficult conversations or hard topics. The M&A committees should consider performing interviews with staff, community members and key funders and should perform analysis to answer key questions, such as: ∙ Would a merger or acquisition result in better services? To what degree is there existing overlap, similarities or differences in how the combining entities serve their communities? ∙ In what ways could each organization draw upon resources or expertise of the other? ∙ In what ways are the missions, cultures and philosophies of the combining organizations similar or different? ∙ Will the combined organizations be better able to compete for funding, contracts and resources? ∙ What costs and savings can be anticipated during the short and long-term? Passing an “Intent to Merge/Acquire” resolution is one way the combining organizations can demonstrate their good faith to move forward with the M&A negotiations. While not a legally binding document, this goodwill gesture can help the parties signal that the M&A efforts will be taken seriously.

Execute the M&A Agreement Although a lot of the heavy lifting, conceptually speaking, is completed during the previous stages, executing the M&A agreement often involves a very thorough review of both large and small details.

It is during this stage that the following matters are addressed:

∙ Developing a detailed timeline of activities and decisions that need to be made before the M&A transaction occurs. ∙ Deciding if one organization’s mission/ vision statement, by-laws and policies will be adopted by the newly combined entity or if new versions will be created.

∙ Agreeing on board appointments and executive leadership.

∙ Creating a detailed budget, focusing on cost savings, revenue sources and consideration of any programs/locations that should close, consolidate or expand. ∙ Evaluating the legal structure of the new entity – do the organizations merge or does one acquire the other? ∙ Assessing each organization’s risks, liabilities and restricted assets, so that the combined entity has a thorough understanding of the debt levels, pending legal matters, contractual obligations and how bequests, endowments or other restricted assets can be received/transferred without issues. Legal Structure This stage of the M&A process ensures that the business combination is legally executed and reported as the parties intended. Strategic restructuring can take on several legal forms, each having unique accounting and tax considerations. From an accounting perspective, a transaction will be recorded as a merger or an acquisition. How the deal is structured will determine whether it is a merger or an acquisition and whether the carryover method (for mergers) or the acquisition method (for acquisitions) is used to record the transaction.

Fall 2018

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