Making the pieces fit

Written by Joe Lepper
April/May 2017

Last month Hospice UK and the National Council for Palliative Care (NCPC) became the latest charities to begin the process of merging.

A key factor in the move has been to pool resources to improve campaigning and support within the palliative care sector, according to Michael Howard, Hospice UK’s chair.

“As the national voice of hospice care in the UK, we are constantly looking for ways to improve the quality of care received by those reaching the end of life. By collaborating directly with NCPC we can pool resources, share knowledge and expand our reach – and ultimately improve outcomes for the beneficiaries of end of life care,” he said in announcing the move.

According to Acevo and Charities Aid Foundation’s Social Landscape 2017 report, Hospice UK and NCPC are part of a growing interest in the sector in merging.

One in 10 charity chief executives surveyed for this February-published report said they planned to merge with another organisation within the next year. A further 3 per cent said they had already merged in the past 12 months and 4 per cent said they had merged more than a year ago.

Motivation

But while Hospice UK and NCPC’s merger has the aim of creating a more effective organisation, Directory of Social Change director of policy and research Jay Kennedy says most mergers do not happen for such clear, strategic reasons.

“Quite often it is actually an acquisition as one charity finds itself at a point of failure for whatever reason, usually related to financial issues. So for example if you are reliant on one income stream and that is drying up,” he says.

“It could also be changes to the beneficiaries group and demand for your services is outstripping your ability to meet that. It could also be not being able to carry on leadership of an organisation, for example if the board has lost its energy and is not able to attract new trustees to keep it running.”

Dan Francis, governance consultant at NCVO, urges charities to instead follow Hospice UK and NCPC’s lead and consider merging as part of a regular review into how they can better serve beneficiaries.

He says: “Charities should be constantly asking questions such as can we be better in collaboration or merging and deliver more effectively? Could we put our resources to better use with another charity? Is there someone else who is better placed to deliver the work we do and is complementary to our work?”

Chris Williams, a partner in the charities team at solicitors Blake Morgan, says such consideration of merging from a position of strength, rather than financial failure, is more likely to ensure the move is beneficial for both sides and their client base.

“The best time to look at a merger is when the things are going well and not gone adrift,” he says.

An example he gives of two charities linking up in this way is the April 2011 merger of youth charities The Prince’s Trust and Fairbridge, of which Williams was a trustee.

At the time both charities were financially sound but Fairbridge had highlighted the need to merge with a partner that could widen its fundraising sources, as at the time it was reliant on council contracts for delivering its youth services.

The Prince’s Trust, which could offer Fairbridge this fundraising expertise, also benefitted from the merger as it was looking to boost its service delivery capabilities.

“The CEO of Fairbridge looked at the Prince’s Trust’s enormous fundraising operation but also that it didn’t deliver services itself, so approached them about a merger at a time when Fairbridge was doing well and could have done so for many years but had highlighted a future concern,” adds Williams.

Richard Litchfield, chief executive of charity consultancy Eastside Primetimers, says the example of BeatBullying, which went into administration in 2014, shows what can happen when a charity leaves it too late to consider merging.

“We had an informal conversation with BeatBullying 12 months before they went into administration and we were saying to them that you really need to look at looking at merger partners as a high priority. But there were things getting in the way and they thought they may still get out of the problem,” he says.

“In a situation where you are in financial distress and have left it too late, not only do you reduce the chances of finding a good merger partner you also increase the chances of not finding a solution at all.”

Partners

As with the coupling of Fairbridge and the Prince’s Trust, the pursuit of a partner who offers complementary expertise and resources was also a driver in this April’s merger of Alcohol Concern, which has a strong focus on media relations and campaigning, and Alcohol Research UK, which has research expertise.

Dave Roberts, the chief executive of the merged charities, who held the same role with Alcohol Research UK, says: “We each had different strengths and weaknesses in terms the way we were delivering our core activities. By merging, we have brought those strengths together and cancelled out most of the weaknesses.”

Another strategic reason behind Alcohol Concern and Alcohol Research UK’s merger was to reduce unnecessary competition for funding streams in their crowded sector.

“There are over 1,000 charities doing work around alcohol. There are 167,148 charities in England and Wales - and that’s just the registered ones. All competing for space, for work and for resources. This can’t be sensible in the current economic climate,” says Roberts.

With funding streams dwindling, creating economies of scale is more important than ever and a key factor in January’s merger of the Royal Society for Blind Children (RSBC) and Royal London Society for Blind People (RLSB).

Dr Tom Pey, CEO of the new charity, which retains the RSBC name, says: “By combining back office functions, we are anticipating savings which will be used to increase the level of support we can provide for our customers.”

Once two charities have begun considering merging Litchfield says good planning and ensuring the process is not beset with unnecessary delays is key to its success.

“The quicker the better otherwise it becomes a massive distraction for those involved. It involves heartache and uncertainty,” he says, adding that ideally a merger should only take around six months.

Practical advice Litchfield gives around planning a merger involves ensuring due diligence looks beyond the financial performance of a prospective partner.

“Due diligence should be customised and used to assess whether the things you want to come from a deal will actually come to pass,” he says.

“The Charity Commission’s website has a due diligence checklist which is great and focused on financial questions. But other things are also vital such as how will the other charity reassure me that our mission will be preserved? What happens if profits and surpluses are achieved? Will they be used to help our beneficiaries or transferred to another part of the organisation. What happens if it goes wrong? Can we have a pre-nuptial?”

Whether a potential partner has already been involved in a successful merger is another important factor to consider. This was the case for the Bookbinders Charitable Society, which in December announced it was merging with the Book Trade Charity (BTBS), which less than two years before had merged with the Matthew Hodder Charitable Trust. “Having taken over the Matthew Hodder Charitable Trust in March 2015 but showing that we were able to use the financial resources to wider benefit, while returning to the original priorities of the charity, gave BCS the confidence that we were the right partner,” says David Hicks, BTBS chief executive. The close relationship between BCS and BTBS’s boards over a number of years has also helped, Hicks added.

This focus on personal relationships cannot be underestimated in securing a merger deal, says Francis.

Where such strong bonds are not already in place he recommends staging a series of workshops where both sides can look closely at building relationships and finding out more about each other’s objectives.

Testing out the relationship, such as through a jointly run promotional campaign, is another good way to find out whether the two sides are compatible, says Williams.

“It is about a shared vision and about how they can benefit from the merger. In the ideal world you would try and collaborate to start with and see whether you have a shared vision,” Williams adds.

Priorities

Putting beneficiaries first, over personal pride and ambition, is another key to a successful merger, says Williams, who adds that some charity founders struggle with the loss of control involved.

Litchfield adds that trustees and senior staff need to “make hard decisions about giving away some of your autonomy and that is never easy”.

He adds: “You need to be open-minded. Putting beneficiaries first and not making things like brand name and board personality non-negotiable”.

For senior managers this should also extend to agreeing to their own redundancy, if it benefits the merged charity’s newly created structure.

“You have to consider being the turkey that votes for Christmas,” Litchfield adds.

He concedes though that as opposed to the private sector, where founders are often financially rewarded for giving up their firm, “there isn’t that flow of money and incentive in the same way for charities, which remains a block on charity mergers happening.”

Dr Pey agrees that focusing on the benefits to beneficiaries should be the priority of any merger negotiations.

“Lawyers and accountants are there to tell you what could go wrong. It is the job of the leaders to keep their focus on the needs of the customer,” he says.

Alternatives

Charities looking at merging also need to consider alternatives that are less far reaching, such as working in close collaboration in bidding for contracts and grants.

Francis says: “Sometimes a merger is not the right thing to do. Two charities might be similar and complementary but there may be differences in their beneficiary base or the nature of the way the organisation was established that make a merger difficult.

“In that scenario charities can consider how else they could collaborate to better support their beneficiaries.”

Becoming a connected charity for administrative purposes is another alternative solution to a full merger.

Williams explains: “With this you can have the same board and shared functions but remain separate. If you can get two similar charities working together with the same board that seems a good way to coordinate their work,” he says.

The Charity Commission offers advice on how to connect in this way, which it adds means that only one set of accounts has to be filed and charities also share a charity number.

But while mergers can bring benefits to charities involved, opinion is divided as to whether this is good for the sector as a whole.

Kennedy says a heightened focus on mergers could discourage new charities to set up and harm diversity and innovation in the sector.

Kennedy: “We are sceptical about mergers. It is not that we are saying they are wrong or that it shouldn’t happen but the promotion of it as a panacea is a problem. Because it isn’t.”

“Having more charities is important for the public and beneficiaries to have choice. No-one would ever think we have too many small businesses and we need less choice for the consumers.”

In contrast, Litchfield says that even if the number of mergers accelerated 10-fold it would still have little impact on diversity in a sector with around 170,000 charities.

“This notion that somehow increasing the number of mergers slightly or even a lot would impact negatively on diversity in the sector is just bonkers,” he says, citing figures from Eastside Primetimers’ Good Merger Index, which showed there were 114 charities involved in 54 mergers in 2015/16.

This latest index also revealed that seven out of nine of the largest charity mergers in 2012/13 went on to post continued growth over and above the income of the pre-merger organisations.

With such strong potential for success Hospice UK and NCPC should feel optimistic for the future, even if the debate about whether mergers harm or benefit the sector look set to rumble on.

Joe Lepper is a freelance journalist



Related Articles


Most read stories...
World Markets (15 minute+ time delay)
FTSE 100
7263.43
-11.82
Nikkei 225
20310.46
+11.08
S&P 500
2506.81
+0.16
Crude Oil
N/A
N/A