Public sector mergers are on the increase.

There were 42 mergers between housing associations in 2018 according to figures from the National Housing Federation.

To date, 12 mergers within the education sector have already been proposed for 2019 and according to The Education Supplement this year is set to see the second-highest number of college mergers since incorporation in 1993.

So, why the increase?

The influx of mergers, especially between large housing associations, has been influenced by a reduction in government expenditure towards social housing, welfare form, extended ‘Right to Buy’ and the increasing pressure to build more homes. Mergers for both Housing Associations and other institutions such as colleges or private business can bring drastic savings, gaining efficiencies through economies of scale and a reduction in back office, IT and administrative costs. Productivity can increase too. Larger entities can have a greater borrowing capacity, allowing the smaller or more recent entity to embark on larger projects that provide access to more funds. A larger organisation can also have more ability to influence and engage with government policy and other interested parties. Crucially, mergers can improve a housing association’s or educational establishment’s social purpose. 

Mergers and acquisitions in the public sector typically involve a substantial amount of due diligence by the proposed merger partners. Just as in the private sector, before committing to the transaction, the parties will want to ensure that it knows what they are signing up to and what obligations and liabilities they may face as a result.

There is no single method of merging housing associations, instead mergers can be achieved in a variety of ways. The traditional types of merger are achieved through the transfer of engagements, amalgamations and joining or forming group structures. These methods remain the most traditional ways for housing associations to merge. However, there are new kinds of partnerships that have emerged recently, such as strategic alliances and cost-sharing groups.

The process of finding out about the proposed merger partner is often the most time consuming aspect of a transaction.  There are however a number of steps that can be taken to ensure that the transaction runs smoothly.  One such approach is to carry out an internal audit on the state of your own organisation to flush out any issues that may arise before the commencement of negotiations. Such health checks are increasingly common and can save time and costs down the line.

At Mundays we offer a corporate health check service for public and private companies, management teams or owner managed businesses considering a sale, merger or amalgamation with a third party.  Please contact Neale Andrews in our corporate department for further information.

The contents of this newsletter are intended as guidance for readers. It can be no substitute for specific advice. Consequently we cannot accept responsibility for this information, errors or matters affected by subsequent changes in the law, or the content of any website referred to in this newsletter. © Mundays LLP 2019