To merge or not to merge? Key steps and considerations

Transcription

1 To merge or not to merge? Key steps and considerations CIH Merger Series 2016 savills.com

2 Savills experience... People, skills and experience Housing Plus, East Thames/L&Q, AffinityCircle, TVHA/Genesis Technical range and expertise: Governance Strategic choices Property Development Finance and funding Compliance Efficiency and VFM Access to resources Relationship with the regulator

3 The Board role in merger Leadership Foresight and oversight Joint and separate Clear direction Accountability Legacy stargazing grounding

4 HCA expectations Confidential HCA briefing at inception stage, and again at FBC (pre RAC) Get go Joint Project Board and Joint Exec Team plus individual board reporting seen as good practice Timeline maintain momentum vs potential bubbles if over long, or business distraction DD an appropriate process, clear brief, full calibrated reports to each Board: no loose ends! Confirmation of no major contract termination issues from merger (e.g. Care & Support) MUST be gains in merger - Need to show strategic, tactical and always some financial gains clarity on min and max savings and potential delivery over first 3-5 years. VFM will be assessed and if there is no business case there will be no approval. Stress testing for the combined entity business plan Lenders be alert to unreasonable clauses emerging as part of merger negotiation Assimilation right skills for the combined business are a must. Departure packages... Positive re Grouping Agreement and/or strategic alliance ahead of full merger or are they? SMART integration plan and Board oversight of delivery

5 Deal breakers and success factors Financial barriers Insufficient merger benefits Culture and chemistry Disengaged, disruptive... Poor communication Time (distraction) Implementation costs The opposite! Prepare Plan Commit Deliver

6 Issues and Change Drivers Internal The BIG 5 - Liquidity, Security, Debt Access, Differential Inflation, Volatility Resilience, capacity, delivery thriving or surviving? Here and now, or long term legacy? External Unmet needs wealth inequality, affordability, austerity.. Perceptions politicians, think tanks, regulator Innovative, efficient and delivering or a bit lost?

7 From the outside looking in The sector could do more? A wide range of costs and operating margins? A lot of organisations doing the same thing in the same place? Not a lot of visible partnership working? Board awareness and challenge? 35% 30% Management costs as % of SHL turnover Cash Interest Cover vs Debt/Revenue Ratio 25% % % 10% 5% 0% Mgt costs to SHL t/o Debt/Revenue ratio Cash interest cover Average D/R ratio

8 Case for merger and options Clear purpose strengths, focus, direction, capacity? Clear analysis market position, exposures, and internal capability Drivers for merger - a need for change? Financial clear indication that financial efficiency and capacity could be improved Strategic step change in offer to key stakeholders Tactical Better positions the organisation for the future / better able to access business growth Merger as 1) Joiner (national) 2) like:like partner 3) Acquirer (rich smaller) Or less vanilla Strategic alliance Cost sharing vehicle Views on risks and rewards? Objectives of merger must haves, must nots...

9 Match making options 1 Map and facilitate best chance of success 2 Prospectus and tender to selected long list 3 3 x Prospectus: Joiner/ Like for Like/ Acquisition send to all!

10 Stage 1 Merger ready to longlisting Part of the journey, destination or distraction? What s your preferred type Attribute matching Ranking

11 Stage 2 Market Testing Sequential conversations Look for the fast fail Chemistry right? Trust? High level due diligence Key tests ~ Cultural compatibility Clear benefits warrant the effort and disruption? Boards agree to move forward

12 Stage 3 Outline to full business case Governance and oversight joint board and exec teams Functional work streams and interaction cultural compatibility Prepare the outline business case Due diligence Consultation Full Business Case a plan to deliver the vision Corporate governance Leadership structures High level business plan

13 Stage 4 Full business case to legal completion Full business case to legal completion Lenders, consents, key partner consultation, HCA Timetable and project plan for delivery Proposed operation during this period grouping agreement? Pre legal completion integration..functional teams Recruitment to new structures Communicate, communicate, communicate

14 Stage 5 Go live and implementation Structures People Process review joint design IT and systems integration Finance Role of the board in oversight of delivery of merger benefits? Line of sight annual reporting against merger benefits

15 Thank you