Around half of charity mergers driven by “opportunity” rather than “need”, report reveals

Around one in two charities acquired by other not-for-profit organisations did not report a budget deficit, a major report has revealed.

The study, published by charity consulting firm Eastside Primetimers, provides annual insights into the state of merger and acquisition (M&A) activity in the charity sector.

Entitled the Good Merger Index 2018/19, the report suggests that while many charities seek acquisition out of “financial desperation”, around half do so proactively for the betterment of the charity.

According to the research, 58 charity mergers took place last year, involving 116 organisations, representing a decline from 81 mergers in the previous year, and 70 in 2016/17.

The figures also show that the average transferee profit margin was 4.2 per cent, while the average transferor margin was minus 14 per cent. The combined income of the organisations involved was £374,048,330.

Commenting on the findings, the authors say there remains “significant structural barriers to mergers in the social sector, including a systemic lack of knowledge and awareness of merger processes, limited funds available to support mergers and an absence of motivation or incentive for boards to consider merger unless as a result of external (usually financial) pressure”.

They added: “Although difficult to say with any certainty, anecdotally, the lower figure this year may have been driven by a combination of factors including political and economic uncertainty in the UK, and an unwillingness to engage in long merger and partnership processes in a challenging, austere environment.”

According to the report, the most common merger type in 2018/19 was the traditional takeover (63 per cent), followed by mergers of equals (18 per cent), asset/service transfers (nine per cent), subsidiary deals (seven per cent), and group structures (four per cent).

Click here to access the report.

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