Audit your assets
Auditing physical and non-physical, assets involves estimating their value, identifying any legal requirements associated with transfer and use, and scoping out their importance to your organisation. It is crucial preparation for a merger because it provides information about your financial position to potential partners, and is important input to implementation planning once agreements have been signed.
For many NFPs, particularly more recently formed NFPs, the value of their non-physical assets is greater than their bricks and mortar. These may include (but are not limited to) cash holdings, investments, future cash flows from endowments, government agreements and ongoing donor relationships. The rules about these assets – their use and transfer – can influence your decision to merge. If your legal structure changes, you may have less flexibility. For example, access to these assets may be contingent on the continuation of an existing legal entity. Legal advice is likely to be required.
To value non-physical financial assets, begin constructing a simple list, and then verifying ownership. This process should not be complicated, as confirming assets is often part of an annual budget / planning process.
Another type of non-physical asset is captured in the value of your brand. A strong brand allows you to acquire more influence and resources (through name recognition and fundraising). The trust that strong brands elicit also provides organisations with the authority and credibility to deploy resources more flexibly and efficiently. You will have an intuitive sense of the value of yours and your partners brand. In the context of a merger, consider the value of possible opportunities to leverage your partner’s brand, or the combination of both brands, for mutual benefit (See Develop your new identity and brand).
Your physical assets may include (but are not limited to) your office space, fleet, inventory and equipment. Assessing your physical assets prior to more detailed due diligence does not need to be comprehensive, but needs to give you a sense of the physical assets relevant to the negotiation process. At the very least, make a simple list of physical assets, including evidence of ownership, the date of purchase and any major ongoing financial commitment required to maintain its value. Locate the most recent valuation undertaken for major buildings.
This type of audit will help you assess the price paid for your assets, but perhaps not their current market value. Lease terms on property may also affect your plans, as a lease may prevent the tenant from merging without the landlord’s consent. For more detail on the legal requirements of leases, see Justice Connect’s Guide to Working With Other Organisations (Section 6.1).
Additionally, carefully assess assets that may require ongoing investment to maintain their value, or whose value may fluctuate. For example, assets that require 24-hour security might be valuable for your portfolio, but may also present a cash-flow challenge. The condition of assets is also important. One-off maintenance costs (such as the treatment of rising damp in housing stock) may become a liability in a future merged organisation.
Please feel free to leave questions or comments on this part of the merger toolkit.