Presenting a live 110-minute teleconference with interactive Q&A Non-Profit M&A: Benefits and Pitfalls Analyzing Tax, Accounting and Business Aspects of Partnerships With Other NPOs WEDNESDAY, FEBRUARY 20, 2013 1pm Eastern | 12pm Central | 11am Mountain | 10am Pacific Today’s faculty features: Michael Peregrine, Partner, McDermott Will & Emery , Chicago Barry Sagraves, Managing Director, Juniper Advisory , Chicago Dan McCormick, CEO, McCormick Group , Fripp Island, S.C. For this program, attendees must listen to the audio over the telephone. Please refer to the instructions emailed to the registrant for the dial-in information. Attendees can still view the presentation slides online. If you have any questions, please contact Customer Service at 1-800-926-7926 ext. 10 .
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Non-Profit M&A: Benefits and Pitfalls Seminar Feb. 20, 2013 Dan McCormick, McCormick Group Barry Sagraves, Juniper Advisory LLC danh@mcc-group.com bsagraves@juniperadvisory.com Michael Peregrine, McDermott Will & Emery mperegrine@mwe.com
Today ’ s Program Types Of Business Relationships To Consider Slide 8 – Slide 12 [Dan McCormick] Leading An Organization Into Merger Consideration Slide 13 – Slide 19 [Dan McCormick] Slide 20 – Slide 37 Latest Trends And Events In This Area [Barry Sagraves] Legal Issues In M&A, For Non-Profits Generally Slide 38 – Slide 49 [Michael Peregrine] Slide 50 – Slide 59 Financial Impact, Process, Pitfalls In Non-Profit M&A [Barry Sagraves] Governance, Due Diligence And Board Responsibility Issues Slide 60 – Slide 66 [Michael Peregrine]
Notice ANY TAX ADVICE IN THIS COMMUNICATION IS NOT INTENDED OR WRITTEN BY THE SPEAKERS ’ FIRMS TO BE USED, AND CANNOT BE USED, BY A CLIENT OR ANY OTHER PERSON OR ENTITY FOR THE PURPOSE OF (i) AVOIDING PENALTIES THAT MAY BE IMPOSED ON ANY TAXPAYER OR (ii) PROMOTING, MARKETING OR RECOMMENDING TO ANOTHER PARTY ANY MATTERS ADDRESSED HEREIN. You (and your employees, representatives, or agents) may disclose to any and all persons, without limitation, the tax treatment or tax structure, or both, of any transaction described in the associated materials we provide to you, including, but not limited to, any tax opinions, memoranda, or other tax analyses contained in those materials. The information contained herein is of a general nature and based on authorities that are subject to change. Applicability of the information to specific situations should be determined through consultation with your tax adviser.
Dan McCormick, McCormick Group TYPES OF BUSINESS RELATIONSHIPS TO CONSIDER
The Collaboration Continuum The Collaborative Continuum Initiatives Service- Joint Shared Communicate Merger Sharing Ventures Governance POTENTIAL BENEFITS COMPLEXITY Legal MOU/LOA* Contracts Filings Instruments * Memo of understanding/letter of agreement 9
Formal Collaborations Short Of Merger I. Joint venture A. Two or more parties form an alliance to create or operate a new venture together. Each entity bring specialized skills and resources to the table. II. Shared services A. Two or more parties agree to meld specific activities or programs into a single delivery or service system (e.g., accounts receivables and payables are handled by a centralized center). III. Shared governance A. Two or more parties agree to establish an enterprise by melding resources and, more importantly, equally sharing governance and strategic decisions. “ More than 100,000 nonprofit groups nationwide will fail within the next two years, including a few "big brand-name nonprofits. ” - Paul C. Light, professor of public service at New York University 10
Collaboration Continuum (Cont.) As the opportunity for potential gain increases, so does the • complexity of the relationship. • A collaboration can start at any point across the continuum and does not suggest that it will proceed further. A contract for outsourcing, or melding specific budget line • items under a single management system, is a less complex option but easier to dismantle. Sharing cost, oversight, operations management and • governance produces the best long-term relationships and builds trust. 11
Alternate Forms For Merger And Acquisition Merger (A>B=B) or consolidation (A+B=C) • • Consolidation usually cost more because of having to create a new tax-exempt entity to house the new structure. Acquisition of transfer of assets followed by dissolution • “ Alliance, ” contract, joint venture, LLC, etc. • • Umbrella entity with subsidiaries (ownership issues) 12
Dan McCormick, McCormick Group LEADING AN ORGANIZATION INTO MERGER CONSIDERATION
Starting The Exploration I. Assemble an exploration team II. Set reasonable expectations A. Outcome – timing – ultimate relationship III. Get the parties in a room A. CEO to CEO – volunteer to volunteer – third-party consultant to help B. Informal exploration with no expectation other than determining real interests IV. Think about how you are “ showing up ” A. Be aware of the dominance of the large and the tyranny of the small “ It ’ s not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. ” - Charles Darwin 14
Reasonable Expectations It ’ s all about your mission and how to advance your impact on I. what you are trying to achieve. II. Formal engagements are entered into for three primary reasons: A. To acquire new skills, abilities and capacities or expand the footprint B. To develop, with a partner, new skills and abilities that are impossible or difficult to achieve on your own C. Preserve resources in a way that allows for impact on your mission to continue and thrive 15
Assemble An Exploration Team I. CEO and two volunteer leaders is an optimal make-up of an initial team. II. Set up a meeting with potential partners and ask them to bring the same type of team A. Sometimes, volunteer-to-volunteer is a better way to start. III. Keep the discussion at a very high level A. Talk about the vision of what might come from a discussion about a deep formal collaboration or merger B. Remember, you are seeking agreement to continue to meet and explore, not to get closure on any concept, principal or negotiation point. IV. Don ’ t expect rip-roaring acceptance of the idea, concept or notion A. NPOs are fiercely independent. 16
How To Start The Discussion It ’ s not your neighbor ’ s collaboration/merger. I. A. Our frame of reference is for-profit mergers that we know about or have experienced. NPO mergers are very different and can be formed to address “ your ” B. critical needs. 1. Legacy concerns can be met. 2. Protection of people and programs can easily be accomplished. II. Be open to lots of options A. Think of it as the design of something new, not negotiating to protect the old It doesn ’ t have to be competitive or contentious. B. “ Change is the process by which the future invades our lives. ” – Alvin Toffler 17
Why Some Strategic Relationships Fail I. Leadership changes II. Condition changes III. Rarely equal involvement (somebody gives or gets more) IV. No real lock on long-term commitment It ’ s more like dating than a true partnership. V. “ The twenty-first century will be the age of alliances. In these complex times, no organization can succeed on its own. ” Harvard Business Professor and Author James Austin, The Collaboration Challenge: 18
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