Synergy and systemization are increasing facts of life for institutions as the pace of technology and the need for growth outpace institutional capacity. More and more institutions are looking to partner, acquire, or affiliate to stay relevant, improve program portfolios, and expand their geographic reach.
The role of the Board in this process is critical, as is the involvement of key stakeholders in evaluating the potential of any acquisition or affiliation. The following questions can help a Board work with management to engage in the strategic vision and evaluation of a merger (and for more information on due diligence, check out our Due Diligence Checklist at UNIVSolutions.com).
Questions for the Board
Do we have the right level of management capacity?
It is critical that management share with the board its capacity to expand into additional markets; and it is critical that the board engage in critical reflection of the capability of the CEO/President to take on the additional duties of a larger organization.
- What is the management capacity to take on an integration process and what staffing resources will be deployed to ensure successful integration?
- What is the plan for to limit the distraction/disruption the affiliation/merger may place on the institutions so that there is little or no decreases in services?
Are our two organizations a cultural fit?
Research and experience shows that culture is the primary reason why mergers/affiliations fail.
- What is the culture and “personality” of both institutions’ faculty, staff, students, community, and donors?
- Are the two institutions a good culture fit, and if not, what needs to happen to minimize disruption if the deal proceeds anyway?
What are the expected efficiencies?
In mergers and affiliations, Boards and management have a tendency to overestimate the cost-savings of merger synergies. These savings typically come from the sharing of technology, financial reporting, accounting & back-office support staff, and economies of scale. However, as many organizations have discovered, these synergies often take unconsidered time and resources to realize.
- What are the expected efficiencies/synergies to be gained from the merger/affiliation for both institutions?
- What are the redundancies in process, technology, human capital that should be eliminated, if any, to achieve the desired efficiencies?
- What level of investments or growth initiatives are expected or required to achieve the level efficiencies?
- At what point into the future after the integration can the board expect to see the expected efficiency?
What is the purchase price and what is the integration cost — they are not the same?
- How will acquisition costs be determined?
- What is the immediate impact to the institutions’ balance sheets and cash flow as a result of the merger/affiliation?
- Does the acquiring institution plan to recoup the acquisition costs and by when can the Board expect to recoup such a cost?
- What level of commitment/support can the Board obtain from donors/grantors to support the merger/affiliation?
- What is the expected total cost of the integration?
What success looks like post-merger?
- What are the measure for success and what are the metrics for which management and the Board could evaluate whether success has been achieved?
- What is the timeline for when management and the Board can expect to see success?
What is our exit strategy?
Every acquisition comes with opportunities and risks. If the expected opportunities do not pan out, the Board should understand how management plans to “exit.”
- Why is this the right time to merge with another affiliate and what are the risks?
- If the merger is not a success, at what point should the Board call it quits? What does “quit” look like?
- What are the options for “divestiture” or plans should the Board determine the institutions needs to exit?
- How long is the acquiring entity expected to fund any affiliate losses and how long should the Board expect to see such funding support before an exit?
Does the merger further our mission and strategy?
- How does the merger/affiliation further the institution’s mission and strategy?
- Are there alternatives to merging that the management should explore and the Board should know about? If those alternatives are not viable, why not?
- What happens if the merger doesn’t happen?
And finally, the Board should consider what a new or future Board will/should look like to address the challenges and needs of the new organization and structure.
Mergers/affiliations are an exciting opportunity for the institutions involved, but they are also delicate partnerships with a cascade of future and often unseen challenges. Take the time to perform a thorough due diligence, and establish benchmarks for success that hold all stakeholders accountable and keep everyone involved & engaged in the joint venture.
Check out our Due Diligence Checklist at UNIVSolutions.com.