When egos dare

Plans for the merger are now on the back burner and, like all too many housing sector alliances, it may never happen at all. In the past three years, prospective housing association mergers that have bitten the dust include Genesis and Moat, Riverside and Orbit and Anglia and Flagship, while the aborted link-up of charities Shelter and Crisis in February is another example.

This is in marked contrast with the private sector's love affair with mergers and acquisitions: internet provider AOL hooked up with media conglomerate Time Warner in January last year and telecoms company Vodafone's pursuit of German group Mannesmann in 2000 was almost indecent in its tenacity.

Mergers make sense in the housing sector as much as elsewhere (see "Why two would want to become one", below). But the number of housing associations which have successfully joined forces is tiny. Octavia Hill and St Marylebone got together to form Octavia Housing and Care in April last year and Liver Housing Association's long-running merger saga – it failed to win Liverpool's stock transfer after a barney about golden handshakes – was eventually resolved by a merger with Grosvenor to form Arena in August 2001. But such joint ventures are in the minority. The fact that the Housing Corporation doesn't even have a record of how many organisations have paired up speaks volumes.

So what's going wrong? "Riverside looked like a match made in heaven but it just didn't turn out that way," says David Hucker, the former chief executive of Orbit. At Moat, chairman Viv Packer is similarly circumspect of her company's flirtation with Genesis, saying "the timing was wrong – it's as simple as that". Roger Humber, former chairman of Anglia Housing Group, says: "The official line from the failed merger with Flagship was 'the culture didn't fit'."

Ideal husbands
Yet on the face of it, each of these failed mergers looked ideal and they all began promisingly enough, with the elaborate courting of tenants and staff. It would have made geographical sense for the associations to merge. Riverside has 14,000 homes in the North-west, while Orbit has roughly the same number across the South and Midlands. Surely, a perfect match? Anglia and Flagship share similarly rock-solid foundations: the latter was, according to the National Housing Federation's 2001 directory, "actively looking for partnership approaches". Meanwhile, it would seem sensible for Genesis and Moat to consolidate a position of power in London and the South-east, saving millions of pounds in the process.

The main reason for failure, say those who have presided over unsuccessful talks, is the thorny issue of who gets the top job.

The intractable issue of who would be in charge was rumoured to be one reason why the pairing of Shelter and Crisis failed, for example.

It always comes down to the question of self-interest and whether people are capable of overcoming this

viv packer, moat housing association

The term "cultural differences" is often cited when talks collapse but, as National Housing Federation deputy chief executive James Tickell explains, it is usually a euphemism for personality clashes and ego battles: "Cultural differences can be important but the phrase is often code for another underlying reason." Moat's Packer says: "It always comes down to the question of self-interest and whether people are capable of overcoming this. The crunch comes at chief executive and executive director level."

An added complication is that, under contractual obligations, the outgoing chief executive in any merger will need to be paid off. "What happens in a merger ultimately comes down to the interests of chief executives and their compensation plans," says one source who has experience of mergers. "Chief executives have some healthy contracts which generate large compensation payouts."

Careful forward planning is essential, says David Hucker: "You've got to plan for the merger before you do it. Most are almost shotgun weddings, as one or other of the housing associations has to do it because they are unable to stand alone.

"How many associations produce a five-year business plan saying 'we're going to merge'? Hardly any. However, this needs to happen and those associations that are unviable need to admit this. They are quite tough decisions, but you have to be prepared to address issues such as IT and staff resources.

"Dipping your toe in the water to test the temperature is a good idea – service level agreements do this."

Increasingly, there is a third way: a number of associations are forming group structures rather than the more demanding partnership of an outright merger. Kensington Housing Association, for example, was so keen to find a partner that it let it be known last September that it was open to offers. It finally accepted overtures from Ealing Family Housing Association and the two are hoping to make their arrangement formal by the end of August, assuming the Housing Corporation gives its blessing.