Why are fewer charities merging?

Merging is a great way for charities to improve their efficiency, especially when linking up with similar organisations that offer complimentary services. 

The move is also a great way for cash-strapped charities during the cost-of-living crisis to avert closure and secure their long-term future as part of a larger organisation. 

Given the charity sector’s finances have been battered in recent years, first by the COVID-19 pandemic and then by inflation, it would be expected that the number of charities merging would increase.  

However, evidence is showing that mergers are in decline and are now at a record low. We examine this latest trend in charity mergers and showcase how linking up is still proving a positive move for many in the sector. 

Are charity mergers in decline?

According to recruiters Eastside People’s annual Good Merger Index, the number of charities involved in mergers  in 2021/22 tailed off following a sharp spike after the COVID-19 pandemic.  

 
While during the height of the health crisis in 2020/21 there were 77 mergers involving 166 charities, this slumped to 51 mergers involving 103 charities in 2021/22. 
 

This “contradicts expectations that COVID-19 would drive more consolidation in the social sector during the second year of the pandemic”, says the recruitment firm.  

The total value of the top three mergers is £42.9m, up from £33.1m the previous year, but less than the 2014 to 2020 average of £97m. Meanwhile, the value of income transferred across all mergers in 2021/22 was £466m. The highest on record was £1.3bn recorded in 2017/18. 

Researchers add that mergers in 2021/22 were at the lowest level of activity since Eastside People’s records began in 2013/14. 
 

But why is this, given the charity sector is still blighted by lost income from lockdowns and further financial fears amid the cost-of-living crisis?

Post pandemic fears ease 

Detailed analysis of the figures indicate that small charities may not have been as badly impacted by these crises as first feared. Often their appearance in the figures is among charities being taken over, due to their size, or with financial problems.

 
But takeovers have reduced by 31% since 2020/21’s figures and the number of charities with a turnover of £1m or less involved in a merger is down from 115 in 2020/21 to 50 in 2021/22. 
 
Moreover, researchers found that less than half of charities involved in a takeover merger were generating a deficit prior to the move. This is only the second time in eight years that this proportion has fallen below 50%. 
 
“Overall, the fall in the number of all mergers and a reduction in the number of takeovers, combined with the improvement in the financial position of transferors, could indicate that COVID-19 did not impact the finances of organisations in the sector as negatively as was predicted or might be perceived,” says Eastside People.  
 
“We know that the government’s furlough scheme and changes in the behaviour of funders were generally very helpful to the sector."

Homeworking reducing mergers 

Another reason may be the increase in home and hybrid working post-pandemic, suggests Eastside People’s Partnerships and Mergers Account Director Tracey O’Keefe. 

 
“Certainly, merger is not an easy process and, with demand for services ever-increasing and organisations having to pivot to digital delivery and homeworking in this period, perhaps the focus has been elsewhere,” she said. 
 

“It may even be that those in-person conversations between friendly chief executives or trustees that often plant the seed of merger discussions just haven’t been as easy over Zoom,” she said.

Case study - The merger of All We Can and Y Care International  

Among successful mergers that took place during this latest research was September 2021’s link up between two international humanitarian charities All We Can, the operating name of  grant maker Methodist Relief and Development Fund, and youth charity the YMCA’s charitable company Y Care International. 

Prior to the merger, All We Can had around 20 staff and a turnover of £3m, with Y Care having a turnover of £5m, although prior to the merger it reduced its staff team from 25 to five.  

A benefit of the move was the large supporter base of Y Care International and All We Can’s desire to build its base. They are also similar as both are faith-based charities.   

While merged, they retain their own branding to have a distinct separation of their work and secure boundaries around their governance. During negotiations both wanted to take a “one kitchen, two brands” approach. According to Eastside, this has been aided by an agreement that were would be no merging of their brands over time.  

The two charities under the same organisation remain legally separate post-merger. For example the board of Y Care International includes all All We Can trustees as well as YMCA representation. Y Care no longer employs any staff, with all functions carried out by All We Can, under the charity’s Chief Executive Graeme Hodge.  

“This was a process with long, deep, honest and open conversations underpinned by strong faith values, which sustained board and staff members throughout,” adds Eastside People.