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Actions to ensure a planned merger is in the best interests of your organisations and beneficiaries
Due diligence is the mutual, legal and financial exercise which uncovers information an organisation would need to:
This exercise helps to assure trustees that a merger is in the best interests of their organisation.
Due diligence looks at areas including:
The scope of due diligence varies according to the size and complexity of the organisations involved. Some organisations may want to carry out some or all of the due diligence themselves.
For smaller or simpler mergers this may be appropriate, particularly if your trustees or senior management team have relevant experience. Where outside support is required, organisations often engage consultancy support.
For more complex mergers, it is common to have specialist financial and legal assistance for some or all of the due diligence exercise. Although this has a cost, there are advantages:
Sometimes mergers take place to allow for an organisation in financial difficulties to survive so its services continue.
However, many mergers of this sort do not continue once the scale of the financial problems are known.
It is vital that due diligence uncovers the scale of any financial problems, both historic (such as pension deficits) and future liabilities (such as pending claims) and whether they are:
Where an organisation has a pension deficit or complex pensions arrangements, this is a liability which could mean a major cost for the merged organisation. Specialist pensions advice should be taken.
It may be possible to structure the merger to overcome such problems, For example through a merger by change of control, keeping the assets and liabilities where they are.
This would avoid financial risk to the other party but the reputational risk of being linked to an organisation that has ongoing financial difficulties would remain.
Last reviewed: 18 August 2020Help us improve this content
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