The Rise and Fall of the Mega-merger
As a business psychologist, I have spent some time dwelling on the failure of the mega mergers. In the last few weeks, boards of Affinity Sutton and Circle have agreed to press ahead with plans for a 128,000-home ‘mega-merger’.
This follows other major sector mergers falling apart in recent weeks, including Housing & Care 21 and Sanctuary, L&Q, East Thames and Hyde, and Genesis and Thames Valley all backing away from plans to join forces. I shudder at the thought of the wasted resources that have gone into the due diligence process, let alone the required unpicking of the change process that has typically involved 12-18 months’ efforts of winning hearts and minds. On an individual level, some of my network have viewed the various halts as good news for their organisation and on a few occasions the champagne has cracked open. That doesn’t detract from the fact that their organisations will come out changed; they will have to work hard to either look for new merger partners, or the more difficult challenge of redefining their new identity and communicating it to employees and customer. It’s high stakes stuff, so why does it keep going wrong?
According to collated research and a recent Harvard Business Review report, the failure rate for mergers and acquisitions (M&A) sits between 70-90%. That is remarkably high, but when you consider the range of business, IT and cultural factors that occur during the average merger or acquisition, it is not that surprising. But what else is it about the social housing sector that makes for a high failure rate? The following factors seem to feature heavily in conversations with my network:
- No common vision:
Without a clear statement of what the merged organisation will stand for, how it will operate and what it will feel like, the organisations will never blend. Whilst there is often a flurry of PR activity as the boards announce their intentions to merge (cue pictures of chief execs in hard hats on the top of high-rises), the feedback I hear is that this what follows is a long of period of business as usual where any communication is limited to staff and customers. Some comment that merger announcements are made too early, but there is the need, in this sector, to keep the housing association customers informed from an early stage.
- Lack of merger experience in a more complex sector:
Mergers are not a completely new phenomenon in the Social Housing sector, however in the commercial world, mergers and acquisitions are a fact of life. Over decades, it has fostered the emergence of big business and corporations dominating just about every industry you care to mention. What goes with this is that many lessons have been learned at all stages of process, however the social housing sector is somewhat behind on this evolution. Additionally, the business of social housing has become much more complex over the years with significantly increased diversity of their offering, which adds to the complexity of group structure and no doubt the intricacy of the merger process.
- Insufficient Commercial drivers:
The latest failed mergers are characterized by large solvent organisations that are equals looking to do something different, but would otherwise survive as independent organisations. This differs from past mergers that involved large organisations taking over smaller players at risk of insolvency. Whilst the 1% rent cuts kicked in, some major housing associations, including G15 organisations were still able to post record surpluses, which arguably does not provide an environment where mergers are required for survival. Additionally housing association sector mergers may be trickier than commercial mergers, as no fee is paid to acquire the organisation. Where the mutual benefit is not commercial, this perhaps gives more prominence to differences in personalities and vision at the top table that will often derail mergers.
- Alignment to social purpose:
Finally, the elephant in the room cannot be ignored: do these mega mergers allow for the continuation of the social purpose for which these organisations were originally set up? Some consider these proposed partnerships as merging for the sake of giving leverage to another widely geographically spread organisation that is unable to borrow against its own assets, and that they do little to advance the objectives of providing affordable homes that community needs. Likewise, the focus on developing homes that achieve a high rate of return, does not meet the needs of those on the lowest incomes, who need a subsidised rent. In addition, revealingly there is little mention of customers in the National Housing Federation’s merger code. The view is such that an alternative merger code is being developed by several housing associations, to take into account some of these fundamental points.
I would be delighted to hear your views, as always.
Sarah Stevenson is the Principal of Social Housing at Interim Partners.