LEARNiNG FRoM MERGERs - ThE cAsE sTUDiEs

Groundwork North East
ScarborouGh, North YorkShirE

august 2008 Initial discussions begin; Working Group set up Working Group undertakes consultations and starts preparations for merger

February 2009 Boards make formal decision to merge; one of the trusts pulls out of merger

Groundwork North East was formed in July 2009 following the merger of four Groundwork trusts and the regional office of Groundwork UK. Rather than setting up a new organisation, assets from four organisations were transferred into the fifth, which then changed its name. Another Groundwork trust in the region chose to remain independent. The four Groundwork trusts that merged – West Durham and Darlington, south Tees, East Durham and Northumberland – had similar roles and activities prior to the merger. While staff from different trusts knew each other, and chairs met quarterly via the regional committee, there was little history of joint working.
The merger was partly prompted by local government reorganisation. Durham became a unitary authority in 2009, meaning that there were now two Groundwork trusts working in the same local authority. As a result, these two were already considering merger. Meanwhile, some parts of the region were somewhat under-served, and regional partners, such as the Regional Development Agency, were supportive of closer working. The trusts also faced some capacity issues. For example, it was not possible for each to recruit a landscape designer, so a regional landscape design team had been set up. The trusts were considering doing something similar for other teams. There was a recognition that more collaboration and could better serve local people. The catalyst for merger came from Groundwork UK, which was looking at strengthening regional delivery and bringing more consistency to project management and reporting systems across Groundwork trusts. The central organisation was encouraging Groundwork trusts to choose one of two options: creation of a single regional trust (‘model A’), or creation of a new regional independent trust to work with all trusts in the area (‘model B’). As ‘model A’ offered a chance to rationalise human resources and address some of the capacity gaps already identified, while ‘model B’ would have meant creation of yet another organisation, the North East trusts chose the former.

april 2009 New chief officer is appointed

Chief officer leads on due diligence process and oversees formal staff consultation

1 July 2009 Merger date Post-merger phase

LEARNiNG FRoM MERGERs - ThE cAsE sTUDiEs

Page 2

GrouNdwork North EaSt
The merger process
initial merger discussions started in August 2008. A working group, comprised of representatives from the trust boards and the chair of the regional committee, was set up to drive the merger forward and lead on the consultation process. A further series of working groups took forward specific elements of the merger process, including finance, hR, iT systems and administration and projects. During 2008/9 the trusts received £50k from Groundwork UK to support the merger process, which helped towards paying for solicitors and legal costs, external recruitment support, new branding and later, implementation of a new iT system. having chosen in principle to form a single regional trust, the regional committee decided that the model of merger would be a transfer of assets into one of the existing trusts, Groundwork West Durham and Darlington, which would then change its name to Groundwork North East. This model was chosen partly so that the new organisation would have a track record and trading history. it was also more straightforward than setting up a new trust and dissolving all the existing organisations. West Durham and Darlington was the most complex of the trusts structurally, and had an income-generating business centre, The Greenhouse, plus a wholly owned subsidiary. it would therefore have been the most difficult to dissolve, so made sense that it was this trust that the others transferred their assets to. The boards of the individual trusts took the formal decision to merge in February 2009. At this point, one trust decided not to go through with the merger, and the director of the regional office resigned. Despite one trust pulling out, a formal decision was taken to continue with the merger. The next step was to bring in an external consultant to lead the recruitment of a managing director for the new organisation. This post was filled by April 2009, an internal appointment. Key tasks for the new managing director included: • • leading the due diligence process overseeing a large formal staff consultation on the new organisational structure

“So having made this decision [to create a single regional trust], how we did that came down to the ease of getting things approved by the Charity Commission.”

The due diligence process was carried out ‘in house’. Groundwork North East produced a due diligence pack and asked each trust to work through it. The pack included a list of what needed to be covered, agreed by solicitors. A working group then spent a couple of days cross referencing and checking to pick up any economic, technical and organisational issues, which were again cross-checked by solicitors. Using solicitors in this way, rather than getting them to do the whole process, saved the trust a considerable amount of money. The organisational restructure included identifying 25 posts as ‘at risk’ (out of a total of 150), meaning that some staff needed to apply for roles in the new organisation. however, 23 new posts were on offer, so few redundancies were expected.

LEARNiNG FRoM MERGERs - ThE cAsE sTUDiEs

Page 3

GrouNdwork North EaSt
The merger took place on 1 July 2009, although owing to an issue around pensions that still needed to be resolved, one trust did not merge until later in the month. During July, staff whose roles were at risk were interviewed for new roles, and new terms and conditions of employment for all staff were agreed. By 1 August 2009, staff were in their new posts.

success factors for the merger
Treating all of the merging trusts as ‘equals’ in the process was critical to its success. Although trusts varied considerably in size – from 8 staff to 70 – and some were financially stronger than others, the merger discussions focused on the positive aspects and skills that each would bring to the new organisation. The process is legally a merger, not a takeover, and the new organisation has ‘merger accounts’. “You need everyone to feel that they are coming in as an equal partner. This is really important if want to make it a success.”
STakeholder

communicating the changes effectively to staff was seen as really important to the success of the merger. A further success factor was that Groundwork West Durham and Darlington understood what mergers involved - having been through similar processes twice before. one of these, a takeover of a smaller charity, had been successful, while another more recent takeover had been much more difficult, with a pension liability causing serious problems. staff and trustees therefore had a good idea about what types of issues might come up, particularly around due diligence, before embarking on the process.

“a major benefit was that we could take the best terms and conditions from other organisations – so staff now have better salaries, more holidays, better conditions and feel more secure. So generally staff are fairly positive.”
STakeholder

Benefits of merger
Groundwork North East has benefited financially since the merger. Although one-off costs have been incurred, longer term cost savings have been made through sharing back office costs - there is only one financial director, rather than four, for example. The former Groundwork UK regional office was closed, saving overhead costs, although a new office has now been opened in sunderland to give more consistent coverage across the region. Turnover has also increased, from £7.9m in 2009/10 to some £12m predicted for 2010/11. This is partly as a result of securing a number of new, larger contracts for service delivery, which has also meant that 50 new staff have been recruited. stakeholders felt strongly that this would not have been possible if the organisations had not merged. The size and scale of the new trust has increased its capacity to win large contracts, and its senior management are also able to “act and decide on things as one”, meaning they are better able to take advantage of new opportunities. The trust is also applying staff day rates more consistently in order to ensure full costs of service delivery are recovered. Although some jobs were at risk and the process of transferring to a new organisation necessarily involved some insecurity, the new structure and organisation has offered benefits for staff and the process itself helped to

“It’s been a fantastic experience. When we did the skills matching process, writing down what we’d achieved, it showed we achieved a lot and now, having gone through the merger, we’ve achieved even more.”
STakeholder

LEARNiNG FRoM MERGERs - ThE cAsE sTUDiEs

Page 4
“local authority partners take us more seriously – view us more professionally, we bring more skills and expertise, and can flexibly deliver across the region.”
STakeholder

GrouNdwork North EaSt
highlight individuals’ skills and achievements. since the merger, some staff have been able to move from back office to frontline delivery roles. Programme delivery has been structured on a sub-regional basis and sub-regional directors employed. This has provided clearer lines of communication with local authorities. Reflecting better partner engagement, nearly all local authorities in the region are members of the trust. Finally, keeping local offices, and using a sub-regional delivery model, has helped maintain links with frontline organisations and communities. As well as the sub-regional directors, there are sub-regional advisory boards that have responsibility to maintain relationships with local communities. At the same time, Groundwork North East can offer a wider range of services, staff and skills to those it supports.

challenges
During the merger process, the trusts worked through several challenges. some were related to the reorganisation. For example, all the trusts’ finance officers knew that they would all be competing for one job. This limited the progress that could be made in setting up the finances for the new organisation before the merger took place, and meant a lot of work needed to be done afterwards. one trust joined later than the others, because of a pension liability issue that came to light during the due diligence process. The new Groundwork North East board wanted to make sure they had a complete picture about the extent of this liability before agreeing that this trust would also be part of the merger. in the end, trustees took the view that going ahead with the final part of the merger was in the best interest of Groundwork North East, even though in effect the liability meant that this trust had a negative balance sheet. Nevertheless, this increased the cost of merger considerably – including the pension liability, it is estimated that the merger has cost the trusts some £250k. Although the merger took place in July 2009, not all the former trusts have yet been formally dissolved. Trusts’ staff and finances have been transferred, but accounts left open owing to outstanding debtors. in some cases leases also still need to be transferred and it has been expedient to delay dissolving the organisations formally. While this means that there are still some legal loose end to tie up, this does not generate significant extra cost for Groundwork North East. on the governance side, the trust has a board of over 20 trustees as a result of the merger, as well as the 12 sub-regional advisory groups. in the longer term, a governance review may be necessary. since the merger, the new organisation has got up and running very quickly. Nevertheless, there have been some ongoing challenges, not least in relation to iT. Groundwork North East has implemented a new project management system, which Groundwork UK has advocated that all trusts

LEARNiNG FRoM MERGERs - ThE cAsE sTUDiEs

Page 5

GrouNdwork North EaSt
start using. however, putting this in place while staff are also getting used to the new organisation and ways of working has been really difficult. communicating the changes and the organisation’s new direction effectively to staff has continued to be an area of focus since the merger. As staff still work across some ten different offices, considerable effort has been made to make Groundwork North East feel like ‘one organisation’. This has included holding annual staff conferences and quarterly staff meetings. A new marketing and communications post is being recruited, to help with internal communications. Another persistent challenge is in establishing a new organisational culture. staff have needed to be sensitive in making sure that the new trust doesn’t feel “Durham-centric”, particularly as the managing director was formally chief officer of the West Durham and Darlington trust. When communicating changes in working practices, for example, the trust has to avoid making it feel to staff that they are just being asked to ‘do things the old West Durham way’. some sensitivities about loss of identity have remained after the merger itself. in the longer term, the trust anticipates that the funding climate will become tougher and has started scenario planning around possible reductions in funding. Nevertheless, its success in the current year has set Groundwork North East in a stronger financial position going forward.

LESSoNS LEarNEd
• Working with boards in a way that underlines that they are equal partners is crucial. Groundwork North East’s strategies included making sure there were equal numbers of representatives from each organisation in decision making, and focusing on the skills and strengths that each brought to the table, for example by drawing on the ‘best bits’ from across the trusts when setting out contracts for new staff. “if Boards don’t see that there’s equality in the process … then you’ve lost them.” Good communication with staff throughout the process is key – and needs to be across whole organisations, being mindful that some staff may not be office-based. Embedding cultural change is an ongoing process, and requires senior staff to think carefully about how they present changes in working practices, to reinforce that organisations have merged on an equal basis – and not taken each other over. Due diligence needs to be undertaken very carefully and thoroughly, but not necessarily by a solicitor. Groundwork North East’s approach was to use lawyers to check that the process was sound, but to support trusts to do the leg work themselves.

• •

Sign up to vote on this title
UsefulNot useful