Learning from Mergers - the case studies

Groundwork
North East
Scarborough, North Yorkshire

Groundwork North East was formed in July 2009 following the

merger of four Groundwork trusts and the regional office of
Groundwork UK. Rather than setting up a new organisation,
assets from four organisations were transferred into the fifth,
which then changed its name. Another Groundwork trust in the
August 2008 region chose to remain independent. The four Groundwork
Initial discussions
trusts that merged – West Durham and Darlington, South Tees,
begin; Working
Group set up East Durham and Northumberland – had similar roles and
Working Group activities prior to the merger. While staff from different trusts
undertakes
consultations and
February 2009
knew each other, and chairs met quarterly via the regional
starts preparations
for merger Boards make formal committee, there was little history of joint working.
decision to merge;
one of the trusts
pulls out of merger
The merger was partly prompted by local government reorganisation.
Durham became a unitary authority in 2009, meaning that there were now
two Groundwork trusts working in the same local authority. As a result,
April 2009 these two were already considering merger. Meanwhile, some parts of the
New chief officer is region were somewhat under-served, and regional partners, such as the
appointed Regional Development Agency, were supportive of closer working.

The trusts also faced some capacity issues. For example, it was not possible
for each to recruit a landscape designer, so a regional landscape design
Chief officer leads team had been set up. The trusts were considering doing something
on due diligence
similar for other teams. There was a recognition that more collaboration
process and
oversees formal and could better serve local people.
staff consultation
The catalyst for merger came from Groundwork UK, which was looking at
strengthening regional delivery and bringing more consistency to project
management and reporting systems across Groundwork trusts. The central
organisation was encouraging Groundwork trusts to choose one of two
1 July 2009
options: creation of a single regional trust (‘model A’), or creation of a new
Merger date
regional independent trust to work with all trusts in the area (‘model B’).
Post-merger phase
As ‘model A’ offered a chance to rationalise human resources and address
some of the capacity gaps already identified, while ‘model B’ would have
meant creation of yet another organisation, the North East trusts chose the
former.

Page 2
“So having made this decision
[to create a single regional
trust], how we did that came
down to the ease of getting
things approved by the
Charity Commission.”
Learning from Mergers - the case studies
Groundwork North East
The merger process
Initial merger discussions started in August 2008. A working group,
comprised of representatives from the trust boards and the chair of the
regional committee, was set up to drive the merger forward and lead on
the consultation process. A further series of working groups took forward
specific elements of the merger process, including finance, HR, IT systems
and administration and projects. During 2008/9 the trusts received £50k
from Groundwork UK to support the merger process, which helped
towards paying for solicitors and legal costs, external recruitment support,
new branding and later, implementation of a new IT system.
Having chosen in principle to form a single regional trust, the regional
committee decided that the model of merger would be a transfer of assets
into one of the existing trusts, Groundwork West Durham and Darlington,
which would then change its name to Groundwork North East. This model
was chosen partly so that the new organisation would have a track record
and trading history.
It was also more straightforward than setting up a new trust and dissolving
all the existing organisations. West Durham and Darlington was the most
complex of the trusts structurally, and had an income-generating business
centre, The Greenhouse, plus a wholly owned subsidiary. It would therefore
have been the most difficult to dissolve, so made sense that it was this trust
that the others transferred their assets to.
The boards of the individual trusts took the formal decision to merge in
February 2009. At this point, one trust decided not to go through with the
merger, and the director of the regional office resigned.
Despite one trust pulling out, a formal decision was taken to continue with
the merger. The next step was to bring in an external consultant to lead
the recruitment of a managing director for the new organisation. This post
was filled by April 2009, an internal appointment. Key tasks for the new
managing director included:
• leading the due diligence process
• overseeing a large formal staff consultation on the new organisational
structure
The due diligence process was carried out ‘in house’. Groundwork North
East produced a due diligence pack and asked each trust to work through
it. The pack included a list of what needed to be covered, agreed by
solicitors. A working group then spent a couple of days cross referencing
and checking to pick up any economic, technical and organisational
issues, which were again cross-checked by solicitors. Using solicitors in this
way, rather than getting them to do the whole process, saved the trust a
considerable amount of money.
The organisational restructure included identifying 25 posts as ‘at risk’
(out of a total of 150), meaning that some staff needed to apply for roles
in the new organisation. However, 23 new posts were on offer, so few
redundancies were expected.

Page 3
“You need everyone to feel
that they are coming in as an
equal partner. This is really
important if want to make it
a success.”
Stakeholder
“A major benefit was that
we could take the best terms
and conditions from other
organisations – so staff now
have better salaries, more
holidays, better conditions
and feel more secure. So
generally staff are fairly
positive.”
Stakeholder
“It’s been a fantastic
experience. When we did
the skills matching process,
writing down what we’d
achieved, it showed we
achieved a lot and now,
having gone through the
merger, we’ve achieved even
more.”
Stakeholder
Learning from Mergers - the case studies
Groundwork North East
The merger took place on 1 July 2009, although owing to an issue around
pensions that still needed to be resolved, one trust did not merge until later
in the month. During July, staff whose roles were at risk were interviewed
for new roles, and new terms and conditions of employment for all staff
were agreed. By 1 August 2009, staff were in their new posts.
Success factors for the merger
Treating all of the merging trusts as ‘equals’ in the process was critical to
its success. Although trusts varied considerably in size – from 8 staff to 70
– and some were financially stronger than others, the merger discussions
focused on the positive aspects and skills that each would bring to the new
organisation. The process is legally a merger, not a takeover, and the new
organisation has ‘merger accounts’.
Communicating the changes effectively to staff was seen as really important
to the success of the merger.
A further success factor was that Groundwork West Durham and Darlington
understood what mergers involved - having been through similar
processes twice before. One of these, a takeover of a smaller charity,
had been successful, while another more recent takeover had been much
more difficult, with a pension liability causing serious problems. Staff and
trustees therefore had a good idea about what types of issues might come
up, particularly around due diligence, before embarking on the process.
Benefits of merger
Groundwork North East has benefited financially since the merger.
Although one-off costs have been incurred, longer term cost savings have
been made through sharing back office costs - there is only one financial
director, rather than four, for example. The former Groundwork UK regional
office was closed, saving overhead costs, although a new office has now
been opened in Sunderland to give more consistent coverage across the
region.
Turnover has also increased, from £7.9m in 2009/10 to some £12m
predicted for 2010/11. This is partly as a result of securing a number of
new, larger contracts for service delivery, which has also meant that 50
new staff have been recruited. Stakeholders felt strongly that this would
not have been possible if the organisations had not merged. The size and
scale of the new trust has increased its capacity to win large contracts, and
its senior management are also able to “act and decide on things as one”,
meaning they are better able to take advantage of new opportunities. The
trust is also applying staff day rates more consistently in order to ensure full
costs of service delivery are recovered.
Although some jobs were at risk and the process of transferring to a new
organisation necessarily involved some insecurity, the new structure and
organisation has offered benefits for staff and the process itself helped to

Page 4
“Local authority partners take
us more seriously – view us
more professionally, we bring
more skills and expertise, and
can flexibly deliver across the
region.”
Stakeholder
Learning from Mergers - the case studies
Groundwork North East
highlight individuals’ skills and achievements. Since the merger, some staff
have been able to move from back office to frontline delivery roles.
Programme delivery has been structured on a sub-regional basis
and sub-regional directors employed. This has provided clearer lines
of communication with local authorities. Reflecting better partner
engagement, nearly all local authorities in the region are members of the
trust.
Finally, keeping local offices, and using a sub-regional delivery model, has
helped maintain links with frontline organisations and communities. As well
as the sub-regional directors, there are sub-regional advisory boards that
have responsibility to maintain relationships with local communities. At the
same time, Groundwork North East can offer a wider range of services,
staff and skills to those it supports.
Challenges
During the merger process, the trusts worked through several challenges.
Some were related to the reorganisation. For example, all the trusts’
finance officers knew that they would all be competing for one job. This
limited the progress that could be made in setting up the finances for the
new organisation before the merger took place, and meant a lot of work
needed to be done afterwards.
One trust joined later than the others, because of a pension liability issue
that came to light during the due diligence process. The new Groundwork
North East board wanted to make sure they had a complete picture about
the extent of this liability before agreeing that this trust would also be part
of the merger. In the end, trustees took the view that going ahead with
the final part of the merger was in the best interest of Groundwork North
East, even though in effect the liability meant that this trust had a negative
balance sheet. Nevertheless, this increased the cost of merger considerably
– including the pension liability, it is estimated that the merger has cost the
trusts some £250k.
Although the merger took place in July 2009, not all the former trusts
have yet been formally dissolved. Trusts’ staff and finances have been
transferred, but accounts left open owing to outstanding debtors. In some
cases leases also still need to be transferred and it has been expedient to
delay dissolving the organisations formally. While this means that there are
still some legal loose end to tie up, this does not generate significant extra
cost for Groundwork North East.
On the governance side, the trust has a board of over 20 trustees as a
result of the merger, as well as the 12 sub-regional advisory groups. In the
longer term, a governance review may be necessary.
Since the merger, the new organisation has got up and running very
quickly. Nevertheless, there have been some ongoing challenges, not least
in relation to IT. Groundwork North East has implemented a new project
management system, which Groundwork UK has advocated that all trusts
 Learning from Mergers - the case studies
Page 5 Groundwork North East

start using. However, putting this in place while staff are also getting used
to the new organisation and ways of working has been really difficult.

Communicating the changes and the organisation’s new direction

effectively to staff has continued to be an area of focus since the merger.
As staff still work across some ten different offices, considerable effort has
been made to make Groundwork North East feel like ‘one organisation’.
This has included holding annual staff conferences and quarterly staff
meetings. A new marketing and communications post is being recruited,
to help with internal communications.

Another persistent challenge is in establishing a new organisational

culture. Staff have needed to be sensitive in making sure that the new
trust doesn’t feel “Durham-centric”, particularly as the managing director
was formally chief officer of the West Durham and Darlington trust. When
communicating changes in working practices, for example, the trust has
to avoid making it feel to staff that they are just being asked to ‘do things
the old West Durham way’. Some sensitivities about loss of identity have
remained after the merger itself.

In the longer term, the trust anticipates that the funding climate will become
tougher and has started scenario planning around possible reductions in
funding. Nevertheless, its success in the current year has set Groundwork
North East in a stronger financial position going forward.

Lessons Learned
• Working with boards in a way that underlines that they are equal partners is crucial. Groundwork North
East’s strategies included making sure there were equal numbers of representatives from each organisation
in decision making, and focusing on the skills and strengths that each brought to the table, for example by
drawing on the ‘best bits’ from across the trusts when setting out contracts for new staff. “If Boards don’t see
that there’s equality in the process … then you’ve lost them.”
• Good communication with staff throughout the process is key – and needs to be across whole organisations,
being mindful that some staff may not be office-based.
• Embedding cultural change is an ongoing process, and requires senior staff to think carefully about how they
present changes in working practices, to reinforce that organisations have merged on an equal basis – and
not taken each other over.
• Due diligence needs to be undertaken very carefully and thoroughly, but not necessarily by a solicitor.
Groundwork North East’s approach was to use lawyers to check that the process was sound, but to support
trusts to do the leg work themselves.