Provider Reorganisations - Mergers and acquisitions
The LSC have a statutory responsibility in regard to provider reorganisations and a merger between two further education colleges requires the consent of the Secretary of State. The LSC Circular and Supplement 02/09 'Provider Reorganisations' provides guidance on the regulations that cover this subject. The following paragraphs highlight some aspects of the process, and it is recommended that you look at the LSC circular as it provides a short, clear summary of the issues.
The circular can be found on the LSC website, www.lsc.gov.uk under documents, circulars.
There are no statutory procedures for a merger of a further education college with a designated institution or other body. However, because such a proposal would have a significant impact on the further education college, it may be helpful to follow a similar process.
There are two approaches to mergers between further education colleges:
- Model A. Dissolution of both colleges by the Secretary of State and the creation of a new body to which the assets and liabilities are transferred. This option may be most appropriate where the two colleges are of comparable size and strength
- Model B. Dissolution of one college with the transfer of assets and liabilities to the remaining college. In this case the remaining college may change its name to reflect its changed role. Model B may be most appropriate where one college is stronger or much larger than the other.
Ultimately, a new governing body will be set up following a Model A merger.
A Model B merger normally involves some governors from the dissolving college being appointed to the continuing college governing body. In this situation, it may be possible for clerks to delay filling places that become vacant in the months leading up to the merger.
To provide some level of continuity following a merger, it may be desirable for the new or continuing governing body to increase the number of members for a specified period of time. The governing body has flexibility in the membership numbers anyway, but if the total number exceeds the maximum of 20 members, the college can apply to the DfES to increase the maximum as a temporary measure. The increase is not automatic, each case is considered according to its particular circumstances.
Throughout the period when the merger proposals are being considered, the clerk must guide the governors and ensure they act only in the interests of their existing college, to continue to sustain its financial health and advance its education mission. The merger proposals should be viewed in terms of the long-term interest of their existing college.
It is good practice to set up a steering group consisting of the principals and chairs of both colleges. The steering group would draw up the heads of agreement document to be considered and approved by both governing bodies. It is likely the heads of agreement document would include:
- the rationale for the merger
- preferred model
- proposed name of the college
- identity of the principal and senior postholders
- staffing and property issues and
- an initial action plan.
To note: Until recently, it would be expected that a shadow governing body/board be set up as part of the merger process. However, it is now the case that DfES do not agree that a shadow governing body be appointed because there is then a presumption that they should be the new board of the new college.
A merger action plan must satisfy the requirements of the Learning and Skills Council and that the merger negotiations follow the action plan precisely. The specific requirements include:
- the governing bodies of both institutions must approve in principle the merger proposal, including the preferred model, Model A or Model B. It is advisable to record this in a heads of agreement by both colleges
- your further education corporation should agree feasibilities and explore alternative options
- a strategic plan for the new or merged college is required
- the strategic plan requires a strong financial plan
- fall-back plans should be drawn up in case the merger is not approved
- due diligence studies should be carried out - financial, legal, commercial and environmental. Professional advice on this area may be needed. If these identify material weaknesses in the other college, the governing body may wish to impose conditions to be satisfied before the merger can proceed - 'conditions precedent'
- the principal and senior postholders of the new or merged college should be identified. Where the merger creates a pool of senior post holders suitable for vacant posts in the merged college, the requirement for open competition to fill the posts can be waived. In this case, the merger steering committee can request that senior post holders be selected directly from the pool of senior post holders available from the colleges involved in the merger. The chair of the corporation should contact the DfES to obtain advice
- governors should be made aware of the inspection report and of the findings of the consultation with interested social and economic communities, partners, competitors, staff and students
- if the merger submission is approved by the Learning and Skills Council, the submission can go forward to the Secretary of State who will decide whether to approve the merger and authorise the relevant orders.
A merger is a complex procedure. The clerk is required to advise governors on a regular basis and good communications between the two colleges is essential. During this process it is good practice for governing boards to seek professional advice and guidance from colleges that have successfully negotiated a merger. |
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