By Catherine Rustomji, Partner and Head of Charities, Shakespeare Martineau
There has been an increase in charity mergers in recent years, and whilst the pandemic is perhaps the obvious reason, it is unlikely to be the only reason.
The recent Good Merger Index, published by Eastside Primetimers, showed that between 1st May 2020 and 30th April 2021, 77 mergers took place, involving 166 charitable organisations. Whilst this was a relatively small sample size, the index did say it was the highest number of mergers recorded within the last eight editions of the publication.
Why would you consider a merger?
- Pandemic
- Financial difficulty
- Opportunities to improve or increase services
The evidence strongly suggests that fewer mergers have taken place among larger organisations, with more involving smaller charities. The pandemic and other economic factors have made it more difficult for smaller organisations to survive, whereas larger organisations that are better able to manage the economic storm can either stop or defer amalgamation plans, resulting in the reduction of more complex merger activity.
Mergers take time to consider, explore and finalise. Some may be borne out of financial difficulty or other pressures, but they are also an opportunity to improve and increase services being offered, enabling charities to better meet the needs of their beneficiaries.
What hinders a merger?
- Time
- Cost
- Available staff resource
- Financial consideration
Continued consolidation of the charity sector with strategic mergers – where it makes financial sense – is probable. However, a surge is highly unlikely, due to the time and money that mergers take. Each one must be carefully considered on a case-by-case basis, rather than being rushed into.
The time cost of key employees being involved in making a merger happen – and continuing to manage it – is often overlooked. Therefore, charities should ensure that a merger won’t negatively impact their ongoing responsibilities, particularly if the reason for merging is to overcome financial challenges.
Depending on the extent of a charity’s financial difficulties, a merger may not be viable. The merger partner must consider whether it is in its best interests to merge, should the other party be struggling. Taking on a financially failing charity, depending on the extent of such failure, could have undesirable consequences.
What are the benefits of a merger?
- Efficiencies of scale
- Opportunities to streamline services
- Improved IT and working practices
- Tighter financial oversight
If a merger can go ahead, there are a number of benefits. For example, efficiencies of scale, opportunities to streamline services, improved IT and working practices, and tighter financial oversight.
Undoubtedly, mergers have a place in the future of the charities sector, but in order to achieve the benefits, organisations need to ensure they are making the right decisions for both the charity and its beneficiaries.