Charity mergers: due diligence

All trustees undertaking a proposal to work in collaboration, jointly or to merge should carry out a due diligence examination of the prospective partner charity. A comprehensive due diligence exercise will enable trustees to establish a full knowledge base of the assets and liabilities of each charity – for example, employees, rent arrears, property leases, endowments, funding arrangements and governance structures. 

Purpose of this guidance

In a merger situation, due diligence is not about justifying any cost for the exchange of assets, but to identify the assets of each charity and – more importantly – any potential liabilities. The trustees of the receiving charity need to mitigate any future risks as a result of liabilities identified in the process. It is likely that the initiating charity would have already undertaken a similar exercise in assessing its suitability and preparedness for any potential merger. 

This document includes:

• Previous experience      
• Employment issues                                    
• Pensions                                                
• Funding                                                        
• Service agreements                                  
• Property                              
• Contracts and leases                               
• Permanent endowment                       
• Accounts                                             
• Governance                                          
• Warranties and indemnities                        
• Due diligence checklist 

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