Organisational closure. Deceleration. Merger and Acquisition. Stewarding Loss. Considering transitions and endings is now a part of the everyday life of organisations and inevitable cycles of change in civil society.
It can be complex, uncertain and fraught with anxiety. Often, this is because of the lack of accessible support, sound advice, practical knowledge and tactical guidance needed to create a positive experience of this process.
If this sounds like you or your organisation, read my earlier blog in this series. It takes a step back and asks some key questions which will enable you to start the journey to achieving good outcomes during these kinds of transitions.
Achieving a sale or transfer of an impact-focused entity
Getting great economic value on a sale of a business whilst securing an equally great future for it requires care and experience. What happens then if we add a third dimension: delivering a great social or environmental outcome? That requires care, experience and balance, especially if delivered in the usual melee of a corporate-style transaction.
That was the situation facing the Board of Tech Nation in late 2022. Formed in 2010 to spearhead a UK Government drive to develop digital capability in British Industry, it had achieved much, substantially funded by Central Government. Following the end of that grant support, it had a wealth of assets and know-how, other income streams, a clear social mission, and plans for the future. A number of its Board had experienced such situations in the private sector, but with a public interest entity needing to optimise its socio-economic impact as well as financial and future, how could it achieve that balance…and at pace?
The Sonnet team, already engaged to advise on Board duties, and the strategic and practical options, stepped in to guide the Board through the process of finding a great new home in a successor organisation, balancing financial, future, and social. Let me take you through some key aspects of how, together, we ensured a great result was delivered.
The First Stage
THE FIRST STAGE in these situations is to take stock and to determine what would be a good result. It needs to be based, as for any transaction, in an understanding of what’s there for sale…including any assets you didn’t really use but which might be valuable to someone else. Focusing on financial outturn and future sustainability and benefit requires a balance, and agreeing the priorities between the two at the outset is right. We now add the impact dimension and we have three value elements between which to prioritise. Is it impact at all costs, or a focus on impact provided a core level of financial return is achieved ? If a financial return is achieved, what will be done with the proceeds ? If applied to a social or environmental purpose, there is a potential trade-off with the impact achievable in the transaction itself: take a lower sale price, and leave more with the successor to develop impact, perhaps. For a Board that is unfamiliar with all three dimensions they will need good guidance, and some familiarisation time to be able to make good decisions in this area.
The Second Stage
THE SECOND STAGE is to look for your buyer or successor. Do your research and find a shortlist of capable successors, but what are you asking of them, and why would that represent a good value exchange for them ? If the future and impact elements demand assurances about how assets will be used for good, and staff and operations supported and grown, who can do that, and who wants to ?
Assets may look different to a buyer. In some cases, the buyer might actually have good reasons to value activities that have a high impact, but which might not generate much profit. They might be the organisation’s ‘unique selling point’ or what they are known for in the sector. This can, no doubt, boost the buyer’s reputation or attract ‘custom’ for financially stronger activities. Sometimes, grant-funded or charitable activities that are managed by a public organisation with a limited focus, have historical restrictions that can be lifted after a change in ownership. To ensure these activities continue and grow, it’s crucial carefully to analyse and help acquirers to understand these opportunities.
In cases where a buyer or acquirer does not perceive a strong financial rationale for supporting these activities in the future, the risks can be analysed and mitigated. Building commitments into the sale contract can provide reassurance that social value will be protected after completion. Nonetheless, it is crucial to acknowledge that such commitments may have financial value implications.
The selection of a successor needs to reflect the best balance of financial, future, and impact outcomes set against the target that the Board set at the outset.
The Third Stage
THE THIRD STAGE is agreeing and finalising the deal….and indeed the aftermath. In any transaction this requires an agreement of details, and of commitments (to pay proceeds, to continue or develop impact, for example). Where these include impact aspects, and the balance of these with financial and future, ensure that this is reflected in the documents, and in the future plans. The seller needs to get confident that the future impact they are seeking can actually be delivered by the successor. Those commitments need to be monitored, and action taken if they don’t happen. The means to do this need building into the contract, and who is going to action it over the coming year(s) agreed.
It’s a different world, finding this balance, as the TechNation team discovered, working through it with Sonnet. Matt Brigden, Planning and Strategy Director observed:
“[Sonnet] supported us to design and implement a robust process, enabling us to effectively and efficiently assess our options and reach a recommendation for Board approval. Their deep commercial, financial and legal expertise meant we were able to effectively manage all our internal, external and public sector stakeholders, throughout the process enabling us to move at speed to meet our critical deadlines. They were fundamentally instrumental in helping the Management Team and Board achieve the best possible outcome for Tech Nation.”
Stephen Kelly, Chair of Tech Nation, rapidly realise that this wasn’t like the ‘financial-and-future’-focused transactions he’d experienced before:
“The Sonnet team were fantastic to work with and we’ve really enjoyed working with them. They have guided us through the process and supported us to achieve a fantastic outcome, ensuring that Tech Nation is as well-placed as we could hope to continue to support another decade of growth for UK Tech. Their pragmatic advice and creative problem solving was invaluable throughout the process. Although the situation was new to us, their confidence and experience helped us navigate a variety of complex issues with confidence including approvals from funders. Their structured approach helped us to find an acquirer with the right balance of strategic alignment and capacity to take over Tech Nation’s brand and legacy.”
Dr. Sarah Wood, Director of Tech Nation, observed that
“Financial outturn and future prospects are well understood concepts, but we hadn’t understood how to bring impact into that. It was crucial to have advice that understood and balanced all three, as well as being practical. How the three could be delivered, how they affected each other, and how their delivery through the transaction could be controlled and monitored was a new arena for us indeed. I am happy that we have found a great successor in Founders Forum, and created a transaction that will secure that desired future public benefit.”
Chris Theobald, Director
To find out more about how Sonnet can help your organisation to deliver high impact transactions contact Chris Theobald
