April is ‘merger month’, writes our columnist, and business considerations are often the factor compelling them
April is “merger month”, when many charities and housing associations complete the paperwork on deals to tie in with the end of the financial year.
I’m aware of about 15 mergers that were wrapped up in recent weeks, although there will be more that received less attention. The legal completion date is not a day for the lawyers and advisers alone – it is also a celebration for the senior managers who will have spent hundreds of hours negotiating and planning these new arrangements.
Although we don’t yet have figures for the total merger activity last year, the flurry of deals in April shows some striking trends. Most notably, the total amount of consolidation remains small compared with the size of the sector and, when mergers do happen, they are frequently driven by the business requirements of commissioning.
Take for instance the Richmond Fellowship, a national mental health charity, which has taken over a medium-sized substance abuse charity called Aquarius. Similarly, Addaction, a national substance abuse charity, has expanded its mental health offer by completing a takeover of KCA. In both cases the motivation has been to bring together substance misuse and mental health services under one roof. Both organisations aim to improve the quality of services for people who experience multiple needs, but they also have an important business imperative because regional commissioning now bundles substance misuse, mental health and even homelessness into the same contracts.
Leisure trust mergers are also influenced by commissioning trends. Abbeycroft Leisure and Anglia Community Leisure in Suffolk merged on 1 April. And GLL, the largest leisure trust, has taken over both North Country Leisure and Carlisle Leisure Limited using a group structure model that allows providers to keep their brands and some governance control. The charitable leisure trust sector is facing huge pressure from a squeeze in local funding as commissioners pare back revenue subsidies and introduce more open competition. Losing a contract is potentially fatal for small trusts that manage single facilities and creates a strong incentive for them to join the sort of structure that GLL is pioneering. Carlisle and North Country’s pre-emptive moves will put them in a much stronger position to retender successfully.
The outsourcing of public services is not new – figures from the National Council for Voluntary Organisations show that the voluntary sector’s reliance on them has doubled over the past decade. But as commissioners press for service integration through bundling contracts and, of course, lower prices, voluntary sector bidders will increasingly need resources and financing capacity to be competitive.
Over the years, this question of scale has divided opinion. While many argue for it, others have sought to reframe the question in terms of impact (not wanting to neglect the work of many small charities). Whether we like it or not, though, public sector commissioning seems to be demanding that the two go hand in hand: you do need to have scale to have an impact.
Whatever happens in this election, I can’t see the direction of travel for public commissioning changing because all parties will prioritise efficiency and integration. The recent mergers in the sector seem to reflect this reality as resourceful organisations try to find the right structures to thrive.
Richard Litchfield is Chief Executive at Eastside Primetimers – originally posted as a guest blog for Third Sector on April 17th 2015.