08 June, 2023
The establishment of the Regulator of Social Housing (the Regulator) in 2018 brought with it a seismic shift in respect of the governance of social housing.
Overall, the Regulator should be seen as a success (and the changes it has brought about positive). However, the continuous scrutiny which it places on Registered Providers of Social Housing (RPs), broad requirements via its Standards and current economic climate has, in some instances, placed a strain on some smaller RPs. Moreover, as the sector embraces modern working practices, many RPs have begun to identify economies of scale stemming from collaborations or mergers with other RPs.
While mergers have long been a feature within the social housing sector, the number has grown over the recent years.
What is a merger?
A merger is a corporate strategy to combine with another company and function as a single legal entity. Generally, the companies which seek to merge are typically equal in size and scales of operation.
Mergers can be achieved in a variety of ways, and within the housing sector the historic methods in which these have been achieved (i.e. through transfers of engagements, amalgamations and joining or forming group structures) remain the staple. However, new kinds of partnerships have emerged over recent years, such as strategic alliances and cost-sharing groups. In this article we will focus of the more traditional mechanisms.
Why do RPs merge and what are the benefits?
Many RPs looking to merger are doing so as a result of the challenging economic climate and a requirement to invest in existing stock, decarbonisation and rising building safety costs. Essentially by becoming a bigger organisation, housing associations have the ability to increase their "buying power".
Resultantly, the 'new' RP becomes a more active proposition for funders and they can invest in more homes / in its current stock .
Other key drivers for merging include, the opportunity for associations to increase their overall efficiency once they have merged through economies of scale - and essentially enable provision of better services to tenants.
Are mergers without issue?
Fundamentally, mergers are not without their issues and there is no guarantee that the merger will flourish.
Smaller associations tend to benefit from a simpler governance structure; decisions in such organisations can be made much more efficiently without the need of having to go through multiple layers of management. They are often better placed to understand and respond quickly to the needs of their tenant's compared to larger associations as they have a closer relationship with their customers.
Whilst some boards may view a larger organisation as more stable, tenant's in some larger RP's feel removed from the decision making process and that investors are prioritised over their requirements.
A merger (in any sector) will have problems where the parties fail to do adequate due diligence. The parties to the merger require a granular understanding of the quality of the stock they will be acquiring, the group they are joining, and what this will mean in terms of future investment.
A failure to complete this process on an adequate scale could result in newly merged RP having its governance ratings downgraded.
While a merger might appear to be the golden ticket for some RPs, the result must ultimately be in the organisations best interest and produce measurable efficiencies and better outcomes.
The starting point for any RP considering a merger must be what would be the outcome for the organisation if it does not merge rather than simply consider the perceived benefits.
At the heart of any decision to merge must the be the best interests of the tenants. Before an RP embarks on a merge it must consult its tenants and consideration must be given as to whether their best interest lie in an independent organisation.
For more information contact Jonny Hutchings in our Housing & Regeneration department via email or phone on 01257 240821. Alternatively send any question through to Forbes Solicitors via our online Contact Form.
Learn more about our Housing & Regeneration department here