On the Deal Q&A: A Good Crisis

The Canadian Cancer Society was facing a serious shortfall. So dedicated lawyers took action
With donations in freefall, and soaring administrative costs, a crisis was afoot for the Canadian Cancer Society (CCS). One solution: an unprecedented amalgamation with Vancouver-based Canadian Breast Cancer Foundation (CBCF), which was completed on February 1, 2017. Here’s how the Chair and external counsel — all volunteers with personal connections to the cause — got the job done.

Why did you need to consolidate two of Canada’s largest cancer charities?
Robert Lawrie (Chair, CCS): Machiavelli first said, “Never waste the opportunity offered by a good crisis.” Winston Churchill, and, later, President Obama’s Chief of Staff Rahm Emanuel popularized it. The Canadian Cancer Society used it as mantra. CCS needed to become more efficient. and change the structure of our board of directors from a representative to a skills-based model. We needed to find new leadership, but appropriately, leadership had to start at the board. And to change the board structure away from the representative model, we needed to convince the membership.
Marc Généreux (McMillan LLP, for CCS): When I started as volunteer on the revenue development committee of the Québec division in 1996, there were about 176 charities of different scales registered in Canada dealing with cancer. When my term ended as past Chair of the national board, there were about 300 charities. Cancer touches everyone and many people want to fight. Donors and most particularly large donors are expecting gains in efficiencies.
Joan Chambers (Blake, Cassels & Graydon LLP, for CBCF): One in eight Canadian women will develop breast cancer and nearly one in two Canadians is expected to get cancer. I call that a cancer crisis. Governments alone can’t fund everything that needs to be done. Health charities play a large role in this without them we would be lost. The time has come for charities to work together to find more efficient and effective ways to use donor dollars with maximum impact in the fight.
LEXPERT: It’s interesting that a private-equity and M&A specialist was recruited to Chair CCS. Why did you get involved?
Robert Lawrie: Most, if not all, of my predecessors as Chair had come up through the volunteer ranks. I was an outsider with no experience with the charity, beyond knowing the daffodil was its symbol, and although I hated cancer as much as the next guy, my attraction was to remake a venerable institution that was running deficits and losing relevance.
LEXPERT: How did this amalgamation come about?
Lawrie: I met Lynne Hudson [then-CEO of the CBCF] for the first time in mid-May 2016 at a conference sponsored by CIBC. I attended mainly to meet her. I invited her to lunch. Lynne was experienced in corporate and not-for-profit restructuring, and CCS needed her skills. I began our meeting essentially as a job interview: I was recruiting her to become the CCS CEO. It was quickly apparent she would become our top candidate, so we moved from the prosaic to the potential of an amalgamation. We talked about the start she had made on restructuring CBCF — the job wasn’t finished and how supportive her board had been in changing her charity’s governance and operations. Her achievements were my goals: we needed to strengthen our board with corporate-style directors with skills in governance, fundraising and communications. CBCF had already done that. We needed to change our membership structure to ensure our grassroots volunteers were heard, but not solely directing our charity. CCS previously struggled with 11 different organizations 10 provinces and a national office each with its own administration and CRA charitable status, we knew we had to consolidate. CBCF had already done that. Interestingly, the kind of directors we were recruiting also, would only be interested in a skills-based structure. In less than a week, the two charities had agreed on a non-disclosure agreement.
Chambers: These two charities collaborated on various breast cancer initiatives in the past and were well known to each other. When Lynne brought this to the CBCF board, it mobilized quickly to explore the opportunity. Both charities took the time that was needed for due diligence and to understand the impact and potential of this consolidation. At the end of the day, I couldn’t think of a better fit to strengthen the fight against all cancers.

LEXPERT: What efficiencies have been created by reorganizing and amalgamating?
Chambers: While the concept of operating as a united nationwide organization wasn’t new for CCS at the time of the merger with CBCF, the process of integrating CCS’s operations was not yet complete. Bringing CBCF staff on board has helped the combined organization expedite some of that integration work, such as building consistent HR policies across the country and integrating disparate systems and technologies. Operationally, the new organization is still very much in the beginning phases of its transformation. As with any large-scale change, this will take some time.
Lawrie: When I first met Lynne in 2016, our interim CEO, Anne Vezina, our CFO, Andy Wnek, and I had already begun to plan a significant restructuring targeting annual savings of more than $20 million. Most of that was achieved before Lynne joined in late January. Similarly, we had already reduced head count to below 800 from nearly 1,000 before the amalgamation. Following amalgamation, we continued the reductions but did so while implementing a regionalization model, removing more duplication both within CCS provincial structures and between CCS and CBCF. We also centralized many functions and closed duplicative offices. Costs and head count have continued to decline on an aggregate basis.

LEXPERT: What was your experience of working on this?
Généreux: It was a unique experience to merge two large cancer charities and there was no precedent of this scope to my knowledge in Canada. It was important to proceed as fast as possible and, while the participation of staff was crucial, we tried not to distract them from their core activities. Volunteers want to ensure continuity in the programs they were involved in, which often are close to their hearts.
Chambers: This was not a typical merger deal for the lawyers. Merging two large charities is very different than merging for- profit companies. In some respects we were really cutting new ground that made it more interesting and fun for the lawyers.  There is always some degree of tension in any deal, including this one, but the tone was always professional and respectful.

LEXPERT: Culturally, the not-for-profit sector is not always known for its nimbleness. But this deal represents a shift. Will we be seeing more announcements like this?
Lawrie: We have had preliminary conversations with several other charities about various forms of amalgamation or collaboration. The guiding principles have to be efficiency and assuring we will continue to serve the stakeholders of each. Those are demanding standards. But they are actually quite simple and logical. The premise is that, with higher efficiency and lower costs, we will be able to deliver more services and fund more research.
Généreux: Nimbleness is precisely what we were targeting in the reorganization and the amalgamation. From the exterior, already I have seen decisions being made at a faster pace. To me, it is a blend of merging and improving your organization constantly, listening to the community and stakeholders, and addressing their concerns appropriately and in a timely manner.
Chambers: A merger alone won’t solve financial difficulties. There has to be a strong desire from within to reduce costs and to create a strong platform for leveraging opportunities. CCS has a strong footprint in communities where CBCF has less of a presence. The merger created an opportunity for CBCF to leverage that footprint. And it gave CCS the opportunity to leverage CBCF programs. By pooling their research dollars, they are better positioned to support the most promising projects. A merger may not be the answer for everyone, but it wouldn’t surprise me to see more consolidation in the charitable sector in the years to come.
[Ed. note: The Colorectal Cancer Association of Canada and Colon Cancer Canada amalgamated in late June to form Colorectal Cancer Canada.]

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