Insights

Eighteen months ago, Think Impact was approached to undertake an Options Appraisal for Youth Enterprises Australia. The focus was on clarifying the best strategy for their social enterprise. It quickly became apparent there was no clear business model for the social enterprise and a more radical Endgame needed to be pursued. The decision was made by the Board to pursue a merger and Think Impact changed roles to become the broker and advisor in that merger process. One year on from the merger being completed here are some key reflections from the process for other not-for-profit organisations considering merging (or being acquired).

Increased mergers

In our recent article on the Endgame tool we noted that the word ‘merger’ is being mentioned more frequently across the sector. At the recent Social Enterprise Jobs Summit there was an engaging panel on mergers in the sector and it was a strong topic of conversation amongst delegates. With the flurry of posts I’m seeing on LinkedIn it is clear that the topic is not just confined to the social enterprise sector. Many organisations are now considering this as an option. This is a dramatic shift from eight years ago when Think Impact initially published some thinking on how to approach mergers.

Here we reflect on the lessons learned from the recent merger process undergone by Youth Enterprises Australia (YEA).

Why merger was chosen as strategy

YEA was a Melbourne-based social enterprise focused on helping young Australians overcome barriers to employment. They provided a six-month transitional employment program to enable young people experiencing disadvantage to access employment opportunities.

Think Impact was initially engaged by YEA to undertake an Options Appraisal on three potential strategic pathways forward. The Board of Directors’ preferred pathway was continuing service delivery with growth through enhancing their social enterprise model. One aspect of the appraisal was to identify a clear business model for the social enterprise that reduced reliance on grant funding from philanthropy. It quickly became clear there was no viable long-term business model outside of philanthropic funding and with this funding pool shifting away from social enterprise, a new pathway was required. Maintaining the status quo would likely have led the organisation into a spiral of a slow decline and eventual closure.

The YEA Board quickly made the brave decision to pursue a merger with, or acquisition by, another not-for-profit organisation. A timeline of six months was set to complete the merger/acquisition.

Criteria for merging

The Think Impact team facilitated strategic discussions with the YEA Board and CEO to clarify the key drivers of the merger/acquisition. The intended impact was to allow continued focus on the purpose of YEA – providing employment opportunities for young people who experience employment exclusion.

One of the key questions was where to start with identifying potential merger partners. At first glance there were numerous options and a ‘hit list’ of over 50 organisations was quickly drawn up by the YEA team. Think Impact had changed role within the process and shifted to becoming the broker and advisor for the merger process. Part of this advisory support was also identifying legal support and advice for the process, which was secured from Minter Ellison.

Working with a small group from the YEA Board, including the Chair and CEO, Think Impact drafted a set of criteria to screen the potential partners. The initial criteria for desktop research were:

• maximise social impact for young people (the partner had to have a track record in this area)
• strategic and values alignment (similar person-centred philosophy)
• positive reputation/relationships with government, philanthropy and corporates
• financial strength
• desire of potential partner to grow/scale
• leaders/leadership team with strong track record of delivery
• local presence/based in Melbourne.

As the desktop research started the initial list expanded to nearly 70 organisations, but as the work deepened this was whittled down to around 10–12 that could be potential partners. The next stage of research was opening up conversations with these potential partners with an additional set of criteria:

• compatibility with existing corporate partners
• willingness to take the existing young people from YEA
• willingness to progress quickly
• good terms and conditions for staff.

In addition, there were conversations around willingness to take the YEA Registered Training Organisation (RTO) as part of the process.

Moving forward

From this, five organisations were identified as potential partners and invited to submit a response to a Request for Proposal (RfP) we’d developed with the YEA Board and CEO. To support the RfP process, Think Impact was the point of contact for questions from all the interested parties and briefed the parties on developments. This was important as YEA had limited resources and did not want to be unduly distracted for their core work with the young people they served. Similarly, Think Impact played a pivotal role in maintaining a disciplined timetable through the entire process, with minimal slippage.

Three potential partners submitted proposals. After review, YEA entered into discussions with two of these partners facilitated by Think Impact. From this process, YEA decided on one partner and they commenced more detailed due diligence, supported by Minter Ellison.

The process was completed around six weeks later with YEA becoming part of White Box Enterprises, where through setting-up Civik, a social enterprise in Melbourne, there would be the potential to create youth employment opportunities, particularly in the infrastructure services sector.

The acquisition of YEA by White Box Enterprises was effected by White Box Enterprises becoming the sole member of YEA, on the condition that the assets were used to grow Civik (of which White Box Enterprises is sole member). This was the most straightforward way for White Box Enterprises to take full control of YEA, including its cash reserves and all other assets. Similarly, White Box Enterprises took over responsibility for YEA’s office lease, RTO and all other liabilities.

Reflections

Nearly a year down the track, Think Impact caught up with some of the key people involved in the merger process – David Brookes (former Chair of YEA), Steve Clifford (former CEO of YEA) and Mark Daniels (Chief of Operations at White Box Enterprises) – to get their reflections on the key lessons from the process.

‘I thought the process was solid, and I appreciated the competitive proposal approach – it encouraged innovation. The intermediary role you [Think Impact] played was really valuable, it created space for open, unemotional discussion. The due diligence support from Minter Ellison was excellent, and having Angela from YEA on the Board has been a great addition. Civik is going well – the usual ups and downs – but overall, it feels like a strong, impactful use of the funds.’ – Mark Daniels, Chief of Operations, White Box Enterprises

Five key lessons emerged for any organisation considering this Endgame option.

1. Clarity and conviction from the Board

Work is required with the Board to ensure everyone is aligned and confident that a merger or acquisition is the right course of action. Create space for open discussion and shared understanding. The Board should actively own and lead the decision-making process. Aim for clear and unanimous agreement, as was the case when YEA Directors endorsed the merger as the best path forward.

2. Have brokerage support

Engage an independent broker or facilitator to support the process, especially in the early stages. A skilled broker can help navigate sensitive conversations, build trust between parties, and ensure that expectations are clearly understood and managed. Brokerage support also brings objectivity to negotiations, keeps momentum going, and helps align values and goals across organisations. In YEA’s case, this role was critical to maintaining clarity, confidentiality and progress throughout the merger discussions.

3. Clear criteria to assess proposals

Establish clear, Board-approved selection criteria at the outset to guide consistent and thorough assessment of all proposals. Prioritise the factors that will protect your organisation’s legacy and support long-term success. In YEA’s case, this included ensuring leadership continuity – such as the planned transition of one YEA Director to the Civik Board.

4. Set a timeframe for decision and execution

Set a clear timeline with defined milestones and decision points to guide the process. This provides focus and ensures management has the direction and resources needed to carry out the process efficiently.

5. Use external advice strategically

Bring in external expertise to support the process. Having a brokerage partner, like Think Impact, to facilitate communication and coordination across organisations was crucial. Seek legal advice early – as YEA did with Minter Ellison – to ensure critical areas like due diligence, legal agreements, regulatory requirements, and integration planning are all addressed.

‘The merger was a big strategic decision taken by the YEA Board. Key to a successful result was having the Board’s unanimous backing and implementing a robust, disciplined and timely process based on assessment criteria that would enable positive impact for young people well into the future.’ – David Brookes, former Chair, Youth Enterprises Australia

‘YEA had limited resources and my Board was keen to maximise the benefits for ongoing mission without wasting precious resources on an inefficient merger process. Having spent over 30 years doing mergers and acquisitions in the corporate world, I was super impressed with the rigour and professionalism which Kevin and the Think Impact team brought to this NFP merger.’ – Steve Clifford, former CEO, Youth Enterprises Australia

Considering a merger/acquisition?

If you are considering a merger or acquisition and want to discuss getting external strategic advice, don’t hesitate to get in touch with us via hello@thinkimpact.com.au.