To merge or not to merge: that is the question for housing associations

18 Dec 15

Housing association mergers can bring big benefits but are not always the right way to go. Here are some questions to think about before you start off down the merger path.

These are tumultuous times for social landlords and that’s led to a good deal of soul-searching and debate over what their true purpose should be.

One thing’s for sure – greater financial pressures will drive merger activity in the sector in the future. But merger is not just seen as a route to security: for many housing associations it’s a way to fulfil ambitions and grow the organisation, whether it be to develop new homes or expand into areas like heath and social care.

The National Housing Federation has just announced a voluntary merger code, which sets out some principles for boards and executive teams to consider. However, this is very much designed for those who have decided merger is the best way forward and there is much to think about before you reach that stage.

A key consideration for social housing organisations must be the synergies that can be created through the merged entity, particularly around the supply chain.

Procurement for Housing works with 850 social landlords across the UK to help drive efficiency and value for money. Increasingly, we’ve been brought in post-merger, to help housing associations integrate their businesses – the procurement function being a critical part of the equation. The phrase ‘after the horse has bolted’ comes to mind. I’ve often found myself untangling problems that could have been avoided if the ground had been prepared ahead of the merger.

So here are a few pointers designed to make the merger process run smoothly, or not run at all:

Establish the primary driver for the merger

Julian Ashby, chair of the regulation committee at the Homes and Communities Agency, criticised housing associations earlier this year for allowing merger to be driven by a chief executive’s retirement date. Merger needs a sound rationale based on the added value it will bring to both the new organisation and its customers.

Cultural alignment – are you a good fit?

It’s vital to look for synergies between the housing associations involved before you merge, not afterwards. Perhaps your respective stock is at different ends of the country or the tenure and nature of the stock means there’s a need to dispose of some properties ahead of the merger. Do you have a shared ethos and similar culture? PfH has worked with landlords whose business plans and mission statements were so different it’s a wonder that talks even got off the ground!

Get procurement right and you’re more likely to maximise the benefits

By creating a larger organisation, merger will bring greater purchasing power, and with it a chance to benefit from substantial long-term value for money. That’s why it’s important to thoroughly assess the way the merging organisations source, buy and manage goods and services in advance.

How aligned are current contracts and are there synergies in the supply chain? Will the newly consolidated supply chain bring mainly quick wins in the shape of one-off savings or is there scope for long-term alignment to deliver much greater efficiency? Spend analysis will provide a much clearer picture of where money is going and help eradicate duplication and inefficiency. Is the structure for procurement right and do you have the right capabilities in your procurement team to drive value and not just administer a sourcing project?

Don’t forget about the costs of integration

There’s a tendency to focus on identifying the potential savings and efficiencies that merger will bring and to forget about the costs of integrating two or more organisations. In one case, our analysis showed those integration costs cancelled out the savings by a factor of almost 2:1. By effectively starting the process of integration prior to merger it’s possible to offset those costs.

Will the new entity be more powerful?

As mentioned earlier, a big driver for merger is to stimulate future potential for growth by improving the balance sheet. If it doesn’t bring substantial financial benefits, then you’re unlikely to achieve that growth.

If it’s a bad fit, walk away – even if you risk losing face

Better to upset a few people than enter into a merger that’s damaging on a much bigger scale and affects the quality of services to tenants and the reputation of the organisation.

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