Charity mergers could help sector “build back better” after pandemic

Charity mergers could help the not-for-profit sector recover from the Covid-19 pandemic, a major study has revealed.

The finding forms part of the Good Merger Index, a comprehensive analysis of charity and social enterprise mergers in 2019/20.

Published by sector specialists Eastside Primetimers, the research found that 67 mergers involving 136 organisations took place in the year to April 2020 – up from 58 the previous year.

The majority (62 per cent) of these restructures involved smaller organisations with incomes of less than £1 million, while a quarter (23 per cent) involved organisations with incomes of between £1 and £5 million. Just seven per cent of mergers and takeovers involved social enterprises with incomes over £10 million.

The study also reveals that £165.5 million of value was transferred from one organisation to another, either through an “existing organisation being taken over or becoming a subsidiary”, or “through the formation of a roughly balanced organisation from two equal merger partners”.

Just over half (53 per cent) of transferers were in financial deficit at the time of the merger or takeover, while 71 per cent of acquiring organisations were in financial surplus, suggesting most mergers are driven by financial necessity.

Correspondingly, three in five (61 per cent) reformations involved takeovers, while a third (33 per cent) involved the merger of two organisations. Just six per cent of deals involved a subsidiary model – where the transferring organisation retained a separate board and identity within the larger charity group.

Looking ahead, report author David Garratt believes that mergers may provide clear benefits to charities in financial distress as a result of the Covid-19 pandemic.

“Merger is clearly not the right option in all cases, but we continue to believe that merger should be in every charity chief executive’s strategic toolbox,” he said.

“This is due to many cases we’ve seen over the years where managers who have taken their organisations through it have found clear benefits, be it greater reach and social impact, more holistic services for core beneficiaries, new specialisms and income streams, or enhanced capacity.

“This is now truer than ever, when charities need every possible instrument at their disposal as they seek to build back better.”

Click here to access the Good Merger Index.

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Posted in Blog, Charities.