Mergers – more, bigger, better? Greg Campbell 15 July 2016
Why are we talking about (more) mergers?
• VFM expectations and pressures
• 1% annual rent cuts mean 13% less rent income than planned
• Business plans getting close to the edge
• Fears about rent settlement post-2020
• Development grant slashed - now mainly for ownership
• S.106 ‘dead in water’ – has provided one-third of HA rented homes
• National Living Wage pressure on low-wage low-margin care
• Government prodding for fewer HAs – or at least fewer CEOs
• Housing needs increasing – Government pushing for more supply
• And now Brexit – uncertainty and risk increasing
Coping with spending cuts - three stages
1. Staffing reductions and quick-win efficiencies
2. Business transformation, new Target Operating Models, shared services
3. Mergers
Where are we seeing more potential mergers?
• HAs that are still viable - but no longer able to deliver/demonstrate USP
• Recent undiversified stock transfers whose BPs are now problematic
• HAs that have always been looking to grow
• HAs seeking to keep up – and seeking greater financial capacity
• HAs that want to reduce reliance on government, LAs, contractors - even the market - to maintain momentum
• Care providers struggling with National Living Wage and low margins
• Supported housing providers concerned about rent cuts and the LHA Housing Benefit cap, and in difficulties with contracts
Mergers doubling in number?
Is merger always the answer?
• Are there realistic alternatives that deliver what you need?
Greater capacity
Cost savings
Access to specialist services and support
• The options -
Ourselves alone
Joint working and partnerships – development consortia, joint procurements etc
VAT cost-sharing groups
Shared services vehicles
Joint ventures – including potentially cross-sector, e.g. with LAs, ALMOs, commercial firms
The Merger Code
• Adopted by NHF December 2015
• 10 principles:
1. The board’s role is to act in the best interest of the organisation
2. The board should review its purpose and values
3. Where opportunities emerge the whole board should be informed
4. Decisions on merger/group structures or partnerships must be
presented to and decided upon by the board(s)
5. Boards should have or have access to specific skills and experience
The Merger Code (continued)
6. No board member or executive member should frustrate the due
consideration of a first stage proposal by the whole board
7. The board’s decision on a first stage proposal should be documented
and communicated to the other party in writing
8. Once the first stage proposal has been agreed in principle, a process
and timetable for next steps should be agreed by both parties;
9. An outline business case should be prepared
10. Declaration of an organisation’s adoption of the code should be made
in annual statements
So is this a big deal? Is the NHF ‘pushing mergers’?
Or is it a statement of what might be seen as normal good practice?
Can mergers deliver efficiencies?
Merger Size of new group (units)
Projected Savings
over 5 years (£m)
Projected additional
costs over 5 years (£m)
Net Saving (£m)
Savings unit/year - 5 year average
North East 32k 37.8 5.2 32.6 £204
Midlands 14k 11.8 3.2 8.6 £122
London 0.9k 1.6 0.4 1.2 £291
South East 23k 23.8 5.9 17.9 £153
North East 17k 6.0 2.0 4.0 £48
North West 13k 13.9 8.1 5.8 £91
How do you get it right?
• Revisit your mission at the outset
• Be clear what you’re seeking to achieve through merger
• Confront and address the showstoppers – loans, pensions, IT etc
• Effective resourcing and communications –
Avoid service hiatus
Make sure people know their future sooner rather than later
Line up your internal and external teams
• A programme that allows time for planning and implementation
• …but avoids undue delay and drift
• Don’t stop at the point of merger implementation! – rationalise, review, ensure common systems, simplify structures, consolidate
Remember the four ‘fits’
• Strategic and financial fit
• Geographic fit
• Culture fit
• People fit
Miss any of these
and either your merger will fail to proceed
or you will fail to achieve the desired benefits
How do you get it wrong?
• Lack of strategic focus and direction – from Board and Executive
• Failure to tackle potential dealbreakers from the outset – name, top jobs, financial icebergs, lender consent, IT systems, performance issues, culture issues, stakeholders and shareholders
• Allowing the ambitions of a few to sidetrack the many
• Failure to plan and resource the project adequately
• Inadequate due diligence – and nasty surprises emerging late on
• Performance is allowed to dip – the two year implementation hiatus
• Good staff are not kept on board and leave
• Weak communications – and the rumour mill takes hold
A word to the wise
Merger/grouping will take more time
and energy than you expect
- even when you take that into account
Greg Campbell
020 8830 6777 or 0793 048 0244
www.campbelltickell.com
@CampbellTickel1