Manage property and other assets
The physical assets of each organisation are often an important part of its identity. It is therefore important to account for the impact of moving spaces for staff and service-users, as well as the financial implications. For example, service-users and staff at a youth drop-in centre may share an emotional attachment to a particular space where activities have run for many years.
What becomes of existing physical assets (property, fleet, inventory, other equipment, etc.) depends largely on the needs of the merged organisation, and the relative strength of each organisation’s negotiation position. Deciding whether to keep or dispose of assets, or acquire new assets may be a difficult subject during merger discussions. Negotiation should begin during the due diligence phase and should involve the negotiation team (including members of both executives and boards) and any facilities managers from both organisations. And remember that you may require legal advice to handle the transfer of some types of assets, particularly where both organisations do not have the same legal structures (e.g. one organisation is for profit, and the other is not-for-profit).
Careful negotiation on the transfer of physical assets will ensure opportunities to optimise resource use are taken.
Negotiation will involve consideration of the impact of the choice of office environment on organisational culture and an assessment of the resource needs of the merged organisation. Before you begin, verify ownership of major assets, including property and endowments. To help make decisions around physical assets, consider:
- Links between physical location and culture – Staff tie organisational identity to office space, so uncertainty around potential location changes should be handled sensitively, openly and honestly. The location of the office space (e.g. regional or city-based) and the layout of the office space (e.g. open plan or private offices) reflect organisational culture. How will staff adjust to changing locations?
- Relationship with key stakeholders – Proximity to service-users and funders are an important consideration for the location decision. Does physical space have implications for service delivery? Will our service-users be able to access our services? Does one location give us greater access to potential donors?
- Non-property assets – How the non-property asset resources of both organisations such as cash, investments, trust funds and goodwill will be transferred must be clarified in a final merger agreement. The way in which each organisation’s reputation will be leveraged, and how much each brand can be expected to generate funds are important consideration. How can you use these to the advantage of the new organisation? What are the risks?
- Property asset valuation – The value of assets acquired as part of a merger impact the financial health of the merged organisation over the long-term. For large assets, an independent valuation will required to achieve an accurate and impartial view of the value of the physical asset. Valuations are always required for for-profit purchases of not-for-profit assets, and may be required for some not-for-profit to not-for-profit purchases. Be aware that laws and regulations may mandate major capital investment, such as historical preservation rules or stringent environment laws. Ultimately, deciding how to manage physical assets is a process of matching the needs of the merged organisation with the resources available, and then to decide whether there are assets which should be sold or leased. An office space that can hold 200 people will be a liability in the long-run for an organisation of 150 people. And sometimes, owning an asset may tie you to making expensive routine expenditures, such as 24-hour security, or major capital improvement, such as a new roof.
Please feel free to leave questions or comments on this part of the merger toolkit.