BLOG: New policies are needed to stimulate charity mergers

Written by Richard Litchfield
25/11/2016

Charity mergers are commonly advocated as an important response to address duplication and tougher financial and commissioning conditions in the voluntary sector. That’s true. But our recent study now provides real evidence (possibly for the first time) that previous mergers – completed in 2013 and 2014 - have grown and increased their size over and above the sum of the two merging parties.

Despite real successes, though, the Good Merger Index 2016 found that charity mergers remain both rare and static – 54 deals happened in 2015/2016, about 0.07 per cent of all charities. This trend is little affected by external factors and defies the expectation we initially had that collaboration activity might increase year-on-year.

We have also looked again at the financial position of charities that merge, with a particular interest in charities that get taken over (or more rarely, merge with a roughly equivalent-sized organisation). These charities tend to be in deficit when they merge, a picture that has actually worsened since last year – then 53 per cent of these ‘transferor’ organisations were in deficit, now 61 per cent are. Charities do face financial headwinds, but it is clear that the sector is not responding strategically.

The question is what do we do about this – how do we create an environment where it’s easier and cheaper for charities to merge? If just a fraction of the budgets committed to developing social impact measurement or social investment were allocated to helping charities and social enterprises pull off mergers, then this would create a substantial leap forward.

Furthermore, key parties including government, funders, the regulator, umbrella bodies such as NCVO and Acevo and advisors who work in this field should borrow lessons from the government’s adoption of a social investment strategy. All should operate in a more joined up way to improve the infrastructure for charity mergers.

We make recommendations about what needs to change: CEOs and boards should take a proactive attitude, routinely evaluating the case for the merger. This could be supported by much clearer Charity Commission guidance and also by a voluntary ‘Merger Code’, like the one the National Housing Federation brought to the housing association sector. Impact measurement should be used more widely to ascertain impact on beneficiaries and empower Trustees to consider whether merger can increase the scale of the impact they’re making. Further research particularly of the financial benefits should be undertaken too.

And lastly, finance – paired with vital expertise – could be provided to unlock the later financial rewards organisations can reap from merger. Some foundations do provide some support and there has been some public funding in the past, but this has been patchy. Our partner for the launch of the Index, Big Society Capital, is assessing the case for this.

These ideas, and more, are needed to bring about a real change in the sector’s approach to consolidation. We hope our findings and proposals spur action not just debate.

Access the Good Merger Index 2016 here.




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