Navigating Club Mergers: A Guide to Legal and Financial Due Diligence

As featured in the latest edition of Bowler Magazine

Club mergers have become increasingly common in recent years, with many clubs looking to join forces to increase their resources, membership base, and overall success. While there are many cultural and strategic considerations involved in merging with another club, it’s also important to conduct thorough legal and financial due diligence to ensure that you fully understand the risks and benefits of the merger.

In this article, we’ll discuss some key legal and financial considerations that clubs should consider as part of merger discussions.

Financial Health check

One of the most important steps in the due diligence process is assessing the financial health of the clubs involved. It’s essential to understand the current financial position of the club you are considering merging with or acquiring, particularly their liabilities.

Reviewing financial statements, management accounts, budgets, and business plans of both clubs can help ensure that their financial position accurately reflects what has been represented, and that the anticipated financial position following the merger is realistic. Consider enlisting the help of a club industry expert who can analyse figures and budgets to industry benchmarks and provide advice on the sustainability of revenue and potential for growth.

Conduct Legal Due Diligence

In addition to assessing financial health, it’s important to conduct legal due diligence regarding the assets and parties involved in the transaction. This may involve reviewing title details, leases, encumbrances, zoning constraints, building certificates, fire safety, employment issues, and encumbrances over any assets.

It’s also important to conduct due diligence on the other parties involved to ensure that they have complied with their constitution and have power to enter into the proposed transaction, and that they are not insolvent or subject to any court proceedings.

Determine Merged Club Structure

As part of any merger, it is critical to determine the proposed structure of the club and membership classes. This should be addressed at an early stage, especially if your club is being acquired by a larger club.

It’s essential to ensure that the constitution of the other club allows for the acquisition and recognises any separate membership class and voting or other rights you are expecting to be maintained following the acquisition. Consideration also needs to be given as to whether your existing club will continue to operate in its own right, and if not, will the merged club become an affiliate with Bowls Queensland?

Document the Proposed Merger

Once the key terms of the proposed merger have been agreed, the detailed legal arrangements need to be documented between the parties. This process can take time, especially if additional documents need to be negotiated, such as a lease, land contract, finance documents, or amendments to a club’s constitution.

To expedite the process, parties may agree to basic terms and document them in a memorandum of understanding. This can clarify key terms and provide a period of exclusivity to more fully negotiate a deal, conduct further due diligence, or consult with key stakeholders such as members regarding the merger.

Club mergers can be a complicated process, and it’s important to conduct legal and financial due diligence to ensure that you fully understand the risks and benefits involved. By following the steps outlined above, you can increase the likelihood of a successful merger and set your club up for long-term success. If you have any questions relating to a club merger or acquisition, please don’t hesitate to contact me directly on 07 3224 0353.

“The content of this publication is for reference purposes only. It is current at the date of publication. This content does not constitute legal advice and should not be relied upon as such. Legal advice about your specific circumstances should always be obtained before taking any action based on this publication.”
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