How to carry out a successful merger

Charities are increasingly looking to form partnerships and mergers with other organisations in the sector. Often this is to be more efficient, with two or more charities sharing similar priorities and offering complimentary services to better support beneficiaries.

 

Financial need can be another driver. In the race for donations and funding, charities can more effectively survive and boost their income as one operation.

 

According to research for 2020/21 by consultancy Eastside Primetimers, the number of charity mergers is at its highest level for a number of years. In this year there were 77 mergers, the most since 2017/18.

 

These involved 166 charities, the highest number in six years. The total income of charities involved in mergers was £559m.

 

There has also been an increase in small charities involved in takeovers, which “may well be symptomatic of ongoing financial pressures” faced particularly by smaller organisations post-pandemic, says Eastside Primetimers.

 

Small charities have suffered from a drop in income during lockdowns at a time when the need to invest in digital infrastructure becomes greater.

 

 

Benefits of mergers

 

Firstly, trustees should consider whether a merger will bring benefits to a charity as part of their overall thinking and planning, according to legal firm VWV. “Trustees should properly assess whether a potential merger could bring benefits to the way in which their charitable purposes are advanced for the benefit of the charity’s current and future beneficiaries.”

 

Such benefits include:

• Cost savings to invest in joint infrastructure
• Ability to bid for larger contracts
• Adding complimentary services and skills to the organisation
• Securing a long-term future, particularly for small charities

 

Different types of mergers

 

Once two or more charities decide to merge, they need to consider the structure that best fits what they want to achieve from the arrangement. Different types of merger include:

• Merger: when two or more charities join to form a new organisation
• Takeover: where one organisation transfers its assets and activities to become part of another organisation
• Subsidiary: where one organisation becomes a ‘wholly owned’ subsidiary of another and retains its branding
• Group structure: two or more charities transfer activities and become part of a group of organisations
• Swapping services: charities decide to link up by transferring or swapping services or assets

 

Issues to consider

 

There is a raft of issues to consider once a merger has been agreed, including:

• Transferring of staff contracts to a new entity under TUPE, Transfer of Undertakings (Protection of Employment)
• How leasehold and freehold property can best be transferred to the new charity
• Regulatory issues may need to be considered
• How funding or commercial agreements and contracts need to be transferred
• Any implications regarding data protection legislation

 

Success stories

 

 

Eastside Community Trust

 

This Bristol based charity was formed in 2020 through the merger of three organisations in the city: community organisation Up Our Street (UOS), Felix Road Adventure Playground, and the Easton Community Centre.

 

This merger started three years before, with UOS’s leadership reviewing the long-term future of the charity. This saw the benefits of partnering with like-minded organisations that ran local facilities, who could in turn benefit from UOS’s financial assets.

 

Talks began and due to their shared interests in supporting the community they decided to escalate the arrangement from partnership to merger.

 

This merger involved due diligence around issues such as land registry details of properties. Assets were transferred and trustees from all organisations then joined the board of the new charity, called Eastside Community Trust.

 

The Trust is now a “significant community leader” in one of the most deprived areas of Bristol, according to Eastside Primetimers, with physical assets including the centre and playground. As a larger entity it has also been able to diversify its income streams and create a sustainable business model.

 

 

Dougie Mac

 

This Stoke-on-Trent charity was formed from the takeover by local adult hospice Douglas MacMillan, known as Dougie Mac, of nearby children’s hospice Donna Louise in 2021.

 

This was announced the year before due to Donna Louise’s struggle to raise funds to maintain its support for young people. The Covid pandemic escalated these financial problems.

 

It now operates as a single charity offering a broad range of support to children and adults across Stoke on Trent and North Staffordshire. Under the merger both sites retain their distinct identities and name. This also helped with the continuity of care offered for families.

 

The new charity supports more than 3,000 patients a year “offering a dynamic 21^st century hospice” for a range of ages, including 24/7 care, which is free of charge to families, says Eastside Primetimers.

 

David Webster, Chief Executive of Dougie Mac says the merger’s success is because it has been part of a clear growth strategy for the adult hospice, to create a single voice in the region around palliative and end of life care for all ages.