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Merger Samples and Tools

1. Bring both boards together to discuss and sanction the merger process
2. Board chairs kick off due diligence
3. Identifying due diligence questions
4. After due diligence, bring the boards together
5. The report executive summary

3. Identifying due diligence questions

Leadership must distill and allocate questions that must be addressed during due diligence. Following is an overview memo from the board chairs of NFS and CMC to board members that was used during a recent merger inquiry.

Due Diligence Committees: Merger committee itself plus three subcommittees EXAMPLES OF QUESTIONS

As you know, CMC and NFS have together begun the process of due diligence to consider a merger. The Merger Committee-consisting of 12 total members representing each organization - met last week. We had a great meeting-productive and characterized by a lot of good spirit.

One important conclusion from the meeting is how vital and important your work will be.

This memo represents the detail we are able to give you at this point about the due diligence process.

Merger Committee: Mission, Program, and Organizational Values:

• Are the internal cultures/internal management philosophies (including HR philosophies and day-to-day working styles) of the two organizations compatible enough to preclude a long and difficult period of adjustment? What qualities would we like to see in a new organization?
• Can a new mission statement be designed early in the process in order to provide a conceptual basis for discussion? What is the rough language within this statement?
• How are both organizations viewed by clients?
• Will we seek out client input; to what extent and through what process?
• How are both organizations viewed by other agencies?
• What would be the impact of the merger on clients and client services? How will we convince the clients/community that this is a positive move for clients?
• Are the policies, procedures and philosophies around client services comparable/compatible?
• How would a merger enhance services? What would be the "value added"?
• Will a larger organization mean we risk providing a poorer quality of services?
• To what end are we doing this merger?
• How many clients utilize the services of both organizations?
• If a merger occurs, would there be a need and rationale to drop any programs?

Legal and Governance Sub-Committee:

• Do either organizations have any outstanding legal liabilities (pending or potential suits, etc.)
• Are there any financial risks in merging the two organizations that would affect the fiduciary responsibilities of the board members?
• Does the due diligence process protect all board members individually and legally from any displeasure in the ultimate decision?
• Are any other organizations under consideration for merger?
• What is the impact on legal and other structural components such as by-laws, articles of incorporation, board committees, board composition?

Finance and Budget Sub-Committee:

• What would the Year #1 and Year #2 budgets look like generally in terms of a potential bottom line? (Lots of detail not needed, a couple scenarios would be good.)
• Would the administrative rate of the new organization be favorable?
• Is there anything in the recent annual audits or current financials of either organization that would preclude a merger?
• Are both organizations sound as based on their cash reserves?
• Does either organization have any long-term debts or financial commitments (i.e. leases) that might preclude a merger?
• Would there be any audit complications that might preclude a merger?
• Can we guarantee increased spending on programs from any potential savings?
• Are the salary schedules comparable within each organization?
• How would the merger affect facility leases for both organizations?
• How will we determine staffing (who stays/who doesn't) in a new organization?
• Are the benefit plans comparable enough to avoid major adjustments for staff?
• Would we pay severance to staff who are laid off?

Funders and Community Support Sub-Committee:

• Will the individual donors to each organization continue to contribute to the new organization at the same financial levels (i.e., $300 CMC plus $300 NFS = $600 (New Entity)?
• Will efficiencies gained significantly reduce the need for donors to continue giving at the same levels?
• Will there be any complications around current or future government grants (including transferring existing contracts) that would preclude a merger?
• Will there be a potential shortfall for any period of time if loyal donors of either organization hold back or refuse to contribute to the newly created entity?
• Will we need to get community input around this decision and if so, to what extent and through what process?
• What will be the overall impact on our ability to raise money as a new entity?
• Are there conflicts on our public policy positions?
• Will a merger enhance or detract from our ability to get private or public grants?
• What would be the impact of the loss of name recognition for both organizations?