Presentation on theme: "#ASAE14 The Best of Both Worlds Adding a For-Profit Subsidiary to Your Nonprofit Association Monday, August 11, 2014 3:30pm hashtag: #asae14."— Presentation transcript:
#ASAE14 The Best of Both Worlds Adding a For-Profit Subsidiary to Your Nonprofit Association Monday, August 11, 2014 3:30pm hashtag: #asae14
#ASAE14 Case Study: Establishing A New Entity Association Overview Independent Community Bankers of America (ICBA) –5,000-member national trade association in financial services industry –501(c)6 with multiple affinity programs and 3 for-profit subsidiaries
#ASAE14 Establishing New Entity Spring 1998: Ferguson & Company/Watson Wyatt Study (Survey of Member Banks) Results reviewed by ICBA Bank Services Cmte Committee approves concept and further research (task force appointed) RFP drafted and sent to providers Interviews with providers/finalists selected ICBA Reinsurance formed & capitalized ($150,000) December 1999: Company writes first piece of business
#ASAE14 ICBA Reinsurance Highlights 12 Consecutive Dividends Paid to Member Banks/Over $1.5 Million Almost $10 Million in New Revenue to ICBA and Member Banks Banks Purchase Shares of Stock in Company/Equity Participants ICBA Bancard and ICBA Mortgage own Shares of Stock
#ASAE14 From Paper Cups and Napkins ICBA’s successful history in affinity and endorsed programs provided the foundation for future initiatives –Established entrepreneurial philosophy –Created comfort with risk Programs grew in complexity and risk/reward –Paper Cups and Napkins –Travelers Cheques –Blanket Bond, D&O and P&C Insurance –Group Health Program
#ASAE14 ICBA Subsidiary Structure ICBA ICBA Services Network (Holding Company) ICBA Bancard/ICBA Mortgage/ICBA Securities/ICBA Reinsurance/TCM Bank/PMI Mortgage Company Subsidiaries pay dividends to the holding company. Holding company pays dividends to ICBA. Subsidiaries assume a portion of ICBA’s overhead and sponsor events to offset ICBA’s expenses Subsidiaries pay royalties to non profit (ICBA) for use of name and logo.
#ASAE14 Case Study: Strategic Acquisition Profession Overview –80 eye banks provide 70,000 corneas for transplant –Self-contained niche profession; few vendors or suppliers Association Overview –80 members = 100% of market –Derive 86% of revenue from members
#ASAE14 Profile of Target Product Crucial to success of transplant Dominant market share –One minor competitor, two possible new entrants in next 18-36 months Significant cost factor to eye banks Parent company undergoing transition
#ASAE14 Evaluation Process Informal feasibility analysis Business plan for Exec Cmte review Dedicated, closed door discussion Hired M&A expert –Financial analysis –Strategy –Approach target and negotiate purchase (assist in establishing management structure)
#ASAE14 Internal Audience Establish threat/opportunity –Create urgency –Demonstrate EBAA’s awareness Provide collaborative solution –Opportunity to purchase shares Source of seed money Ownership = Affinity Transparency
#ASAE14 Subsidiary vs. Affinity Subsidiary Revenue Potential Active Marketing Higher Cost Full Control/Ownership Outlet for Creativity Innovative/Progressive Control of Records Transparent Incubate New Ideas Affinity Exposure to Failure Passive Endorsement Lower Cost Less Time Commitment Turnkey Operation Safe/Traditional Dependent on Vendor Opaque Incubate New Ideas
#ASAE14 Unique Features of For Profit Subsidiary Unlimited Revenue Opportunity –Expand target market beyond membership Integrate External Partners –Collaboration possibilities from blank slate Transcends Existing Organizational Structure –Avoid restrictions of parent organization –More nimble and creative Demonstrate Member Value –Unique products for members’ specific needs Golden Handcuffs
#ASAE14 Legal Considerations Structure Tax Business and Contractual Other
#ASAE14 Legal – Structure Management –Shared Staff and Overhead –Possible Incentive Compensation Governance, Board Composition and Relationship to Parent Ownership and Capitalization Multiple and Tiered Entities Involvement with Nonaffiliated Entities
#ASAE14 Legal – Tax Protecting Tax Status of Parent UBIT Considerations –Trade or Business –Regularly Carried On –Not Substantially Related Reducing Taxes with Sponsorships and Contributions to Parent
#ASAE14 Legal – Business & Contractual Ownership and Control of the Business or Program IP and Other Protections Legal Compliance, Indemnification, Hold Harmless Characterization of Activities and Revenue Sources
#ASAE14 Legal – Other Dealing with Complexity Segregating Possible Legal Liability from Activities Creating a Structure to Facilitate Success and Mitigate Failure (if Necessary) Role for Professional Advisors
#ASAE14 Ongoing Review Must ensure it’s still a good fit Establish expectations and metrics Formalize review process with strict adherence to standards Consider add-on or cannibalization of existing programs Manage success and maintain freshness Embrace the ability to change course or discontinue operations.
#ASAE14 Review When Identify or anticipate a need Loss of a vendor or supplier Significant shift in environment Opportunity matches mission Staff have time for new projects Why Generate a new revenue source Protect essential product or service Exert control over opportunity before others can capitalize Golden Handcuffs How Understand your market Draw on expertise inside/outside organization Select model that fits your members’ and your Board’s risk tolerance Embrace the advantages
#ASAE14 Questions? What are the necessary steps to wind down an underperforming subsidiary?
#ASAE14 Questions? What are the necessary steps to wind down an underperforming subsidiary? What is a reasonable timetable for getting a subsidiary up and running and making a return on investment?
#ASAE14 Contact Us Stephen A. Ello, CAE President & CEO ICBA Reinsurance Steve.Ello@icba.org (202) 659-8111 Jeffrey P. Altman, JD Partner Whiteford Taylor Preston LLP firstname.lastname@example.org 202-659-6818 Kevin P. Corcoran, CAE President & CEO Eye Bank Assn of America Kevin@restoresight.org 202-207-0883
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