How mergers and acquisitions can support quality services
The world is changing. It is the smart organisation that recognises that in order to survive the new landscape, they must change right alongside it. But what does that mean for the services you’ve been mandated to deliver?
You are unlikely to be surprised when you hear that a sort of dating service has popped up for community service organisations considering the mergers and acquisitions path.
It’s a service that will focus on finding the right cultural fit between the relevant parties so that the continuum of quality client service never falters.
Social Scaffolding has partnered with the Community Service Industry Alliance to offer a variety of services related to mergers and acquisitions. It comes off the back of a recently held – quite popular – workshop on the topic with BDO Australia and McCullough Robertson Lawyers.
You may remember, back in July this year we interviewed Aaron Dahl (a partner at McCullough Robertson Lawyers) and Cristian Ulloa (a partner at BDO Australia) about using mergers and acquisitions as a business strategy.
Between the article and the event, there has been a strong tide of interest in knowing more, and finding out where to gain support to implement such a process.
We spoke to Stephen Mungomery at Social Scaffolding who has an extensive background in the mergers and acquisitions space, ranging from the resources industry to not-for-profit sectors.
Stephen says the end goal for organisations hoping for a successful merger and acquisition process is to find the right cultural fit between parties.
“There are as many organisations that are culturally incompatible as there are organisations out there that will be compatible,” says Stephen.
“That’s where the magic of a service like ours comes into its own. We will sift through the available opportunities and find a good list for an organisation to consider.
“The NDIS Business Confidence Survey showed us that around 50 per cent of organisations have either discussed mergers and acquisitions, thought about it or are going to think about it. The pool is big,” says Stephen.
“Changing funding patterns are largely behind it. The increase in demand for services from an ageing population puts pressure on government resources, and this, in turn, has an impact on their ability to provide funding, grants and revenue for the Community Services Industry.”
“There’s going to be a pretty severe flow-on effect in terms of tighter and tighter budgets for organisations operating across the Industry,” he says.
It’s about a change in culture and mind-set
There is acknowledgement across the Industry that the model of funding community services is changing, that customers have more choice and control over the services they use, and that this is a spreading phenomenon. NDIS and Aged Care reforms are bringing new market mechanisms to play.
Customers are more mobile in terms of who they access services from.
This will not stop.
It is not slowing down.
It is a pattern that will expand across the sectors.
“The funding changes are causing organisations to become more commercial,” says Stephen.
“They can’t support the overheads they’ve had in the past and they need to become more customer focused.
“Some organisations are struggling to deal with these pressures.
“Some have recognised they need to change but they don’t know how.
“Some are embracing the change and looking to expand.
“There’s a natural fit between these groups,” he says.
Is there a point where it’s too late to consider going down the merger and acquisition path?
How do organisations know what the ideal point is to be considering this strategy?
Stephen is very matter-of-fact.
“For some organisations it will be when the receiver knocks on the door because they haven’t been able to manage the change effectively,” he says.
“The new aged care and disability program reforms have occurred through phased roll out, done largely by geography.
“So, if an organisation is large enough – and it is spread over those different geographies – it gets a chance to trial things and see what happens when one part of its business changes.
“But in terms of smaller organisations, it’s a pretty big impact when suddenly the funding models change.
“You used to be funded three months in advance, now you’re funded 30 days in arrears.
You have to have cash flow to survive that four-to-five months of basically having no income,” he says.
Stephen says it comes down to Boards being commercially focused enough to recognise that the world is changing and that their organisation may need to change as well.
“A lot of service providers have been around for a long time and are used to operating in the previous model. This is such a different situation. It’s sometimes hard for organisations to adapt,” he says.
“Under NDIS and aged care reforms, organisations now need to change the way they bill their clients. They need to put in place new processes, systems, procedures, and other back-office systems.
“These things are not just so they can bill and charge their customers, but to also drive sustainability.”
How does an organisation go from looking at their back-office systems to looking at a merger and acquisition strategy?
“A smaller organisation might say: we think we can still offer services to the community. We think the service provision part of our business works well,” says Stephen.
“They might look to merge with a larger organisation so that they can still provide their services and benefit from the economies of scale of the larger organisation.
“Many larger organisations see the quality and relevance of smaller organisations, and they may want to help maintain those services and clients through a merger or acquisition,” he said.
What does this mean for an organisation’s mission?
“If you can merge with a likeminded organisation then your reason for being continues,” he says.
“So, the service delivery that you were founded to provide will continue or even expand, but perhaps under a different name or model. Importantly, your clients will continue to receive quality services.”
Stephen says that some organisations don’t want to go through the whole merger and acquisition process, and that they’re really just looking for an exit strategy. They might see this as the right time for them to facilitate their clients being supported by another organisation.
Is there any preparation an organisation needs to do before they seek out support services for a merger and acquisition strategy?
“It depends on where they are in terms of their strategic thinking,” says Stephen.
“Some organisations have a Board that has already made a decision and is looking for the process to make it happen.
“A CEO or a Board Chairman might not have really considered a merger and acquisition strategy, but something has piqued their interest in the process and they want to get together for a chat with someone who knows more about it.”
Stephen says that each organisation may be on a different part of their journey and it doesn’t matter where they’re up to, they can always reach out to Social Scaffolding or the CSIA for advice and support.
“Some organisations will be really interested in help in a transactional sense. They may have found a likely partner or candidate, but just need help in the nitty gritty of due diligence, preparing documents, implementation plans and that type of thing,” he says.
“Others will be more speculative, and looking for more of an educational process.
‘The new partnership between the CSIA and Social Scaffolding can help with all of that.”
How do people get involved?
If you’d like to have a reassuring and confidential conversation about the merger and acquisition services offered under the new CSIA and Social Scaffolding partnership, click the button below to contact Matthew Gillett, CSIA Industry Development Manager.