Charity mergers on the rise?

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Charity mergers on the rise?

Published 15 March 2022

 

As charities think strategically about how to adapt for their future in the wake of the COVID-19 pandemic, a key consideration will be the potential benefits of joining forces with another charity to further strengthen their position and advance their charity’s purposes more effectively.  This was the path chosen in 2020/21 by 166 organisations involved in 77 mergers identified by the latest Good Merger Index reportwhich tracks mergers involving charitable organisations over the previous year.

Key takeaways:

  • Mergers and takeovers in the charity sector are on the up
  • This is likely driven by a rise in the number of small organisations involved in mergers
  • Mergers can bring benefits to charities and should form part of a charity’s strategic thinking

In this briefing, we look at these latest ‘Good Merger Index’ findings in more detail, including what they can tell us about the impact of the pandemic on charities and why more merger activity may be good for charities and their beneficiaries going forward.

What were the key findings?

The Good Merger Index (‘GMI’) is an annual publication produced by Eastside Primetimers, which looks at mergers among charities and social enterprises over the previous year. The recently published 2020/21 version is the 8th edition of the GMI and covers mergers completed in the period 1 May 2020 to 30 April 2021, when we were in the grips of the COVID-19 pandemic.

The number of mergers between charitable organisations identified over this period was 77 - the third highest number since the GMI was started and the highest since 2017/18. 

The number of organisations involved in those mergers was 166 - the highest number in 6 years.

Meanwhile, the number of takeovers over this period was 58, which is the highest number since the GMI was started back in 2014. This was the third year of growth in the number of takeovers and may reflect the financial squeeze being experienced in the sector.

Significantly though, whilst the number of mergers and organisations involved is on the increase, 2020/21 saw a dramatic fall in the value of income transferred - £62 million of income transferred, down from £176 million in 2019/20 and lower than any previous GMI year. This is likely to be a reflection of the fact that the rise in merger activity has been driven by smaller organisations (turnover of less than £1 million), with the number of smaller organisations being active in the merger space increasing year-on-year and the figure for 2020/21 being 67% higher than the average of all previous years of GMI.  Conversely, there has been a fall in the number of more complex ‘mergers of equals’, particularly between larger organisations, which could potentially be a reflection of organisations delaying or putting on hold complex deals whilst they dealt with the initial impact of the pandemic.   

Whilst this latest GMI report does not specifically comment on which charitable sectors were most likely to be involved in merger activity in 2020/21, the ‘Top 20’ mergers table in the report illustrates that a high proportion of mergers happened within the health, social care and education spaces.

What can we take from this?

Whilst the report emphasises that it is difficult to draw any firm conclusions as to the causes behind the findings, it is suggested that the overarching trend of increasing merger activity driven my smaller organisations could reflect the pandemic having affected charitable organisations differently, depending on their size.

Specifically, it may be that larger organisations have been more able to weather the storm but have stopped or deferred more complex merger activity whilst focusing on their response to the pandemic.  Meanwhile, smaller organisations with more limited options for mitigating the effects of the pandemic have been more likely to be acquired by takeover in order to maintain their activities and beneficiary impact.

What next?

Although the number of mergers overall has increased, it does remain the case that the proportion of charities involved in mergers is very small.  However, as charities look beyond the pandemic to the medium and longer term, we may well see them adjusting their strategies, with consideration of potential mergers to improve sustainability and impact becoming a higher priority.

As the GMI report is keen to underline, mergers can bring huge benefits for charities and their beneficiaries, especially where a merger is approached from a position of strength as a strategic option.  Potential benefits of a merger may include, for example, extending geographical reach, greater access to potential donors, driving efficiencies, increased influence and greater leadership capacity.

Given that a charity’s trustees are under a duty to promote the objects or purpose of their charity effectively for the benefit of current and future beneficiaries, they should be considering as part of their strategic thinking how that objective can best be met and whether that might be by joining forces with another charity via a merger or other form of collaborative working.  As the GMI report says, ‘Leaders in the sector must keep merger on the agenda in any strategic discussions’

Our charity lawyers have significant experience of advising charities on mergers and all other forms of collaboration. We can guide you through the legal process in a way which allows you to concentrate on the overall vision and success of a merger or collaboration while ensuring you are aware of any risks and are robustly represented.

Authors

Emma-Jane Dalley

Emma-Jane Dalley

Bristol

+44 (0) 117 366 2960

Alistair Robertson

Alistair Robertson

London - Walbrook

+44 (0)20 7894 6020

Anne-Marie Gregory

Anne-Marie Gregory

Bristol

+44(0)117 918 2324

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