By Clive Vergnaud, senior associate in the charity & social enterprise team at Stone King.
Given the financial impact of the pandemic, there has been a general expectation in the sector that, over time, we would start to see a flurry of charity mergers.
The Charity Commission included links to its pages on mergers and collaborative working in its Covid-specific guidance, and even included a link to its register of charities, saying: “Charities in search of partners for collaboration or merger can use our register of charities to find potential partners”, virtually playing matchmaker.
However, 18 months later, these expectations have not materialised. Closures and asset sales have gone ahead as usual, particularly among smaller charities, and some major reorganisations have taken place to meet the needs of beneficiaries during the pandemic. But overall, the level of mergers and collaborations has remained steady, in fact, some have even been put on hold as trustees and senior leadership teams focused on services and survival.
Why so few?
Perhaps charities and social enterprises are more resilient than we had feared. A traditionally cautious approach towards reserves may have stood the sector in good stead and the Commission’s pragmatic approach during the pandemic to unlocking permanent endowment and restricted funds has bought them time.
Government support measures for charities and businesses have of course also helped and been a lifeline for many.
But, as circumstances begin to revert and support is withdrawn, is this the time for some charities to reconsider and explore what merger opportunities may be out there for them?
Strategic is best
In the sector, the ‘takeover’ model – with one dominant charity taking over the services provided by a smaller charity, very often in financial distress – still tends to be the most common. In these contexts there is an imbalance of power and the sense of takeover tends to persist throughout and beyond the merger. The process is likely to be more acrimonious, resisted by staff and some of the benefits of the merger, such as the opportunity to adopt the strengths of the charity being taken over, can be lost.
The most successful mergers and collaborations are usually those that are agreed on as part of a strategic opportunity for all parties. Consider mergers in the for-profit sector, where they are common growth strategies and transactions are explored, tested and constructed carefully over time.
What merger options are there?
There are a number of ways in which two or more charities can combine their assets and activities to better advance their charitable purposes, including:
- two or more organisations coming together to form a brand new organisation and transferring their assets and activities to it;
- one charity transferring its assets and activities to the other;
- one charity becoming a wholly-owned subsidiary of the other;
- restructuring activities into a new or existing group of entities; and
- service or asset “swapping” (for example so that each charity can achieve a more balanced portfolio of activities, income and costs).
However, what matters above all is achieving the best results for beneficiaries.
Top tips if you are considering a collaboration or merger
For charities and social enterprises that are considering aligning themselves with another, it’s important to carry out appropriate due diligence, not just on financial elements but to understand as much as possible the culture, history and priorities of the other charity.
Some top tips include:
- Be clear about what you want to achieve. If possible try a small “test” collaboration.
- Calculate the costs. Mergers are expensive, even if they end up falling through. Funding may be available from grant funders or sector bodies.
- Agree a Memorandum of Understanding or Heads of Terms as early as possible – it will help tease out potential issues.
- Consider post-merger strategy; how will activities and networks combine to better serve beneficiaries?
- Set up a strong leadership team with a clear mandate and delegated authority to explore the merger.
- Communicate often and honestly with staff, funders and other stakeholders – you will need their buy-in.
- Trustees, remember that your overarching duty is to your beneficiaries.
