COVID-19 has impacted every aspect of the social sector’s strategic and operational thinking. Many organisations are asking themselves hard questions about financial viability and how to meet their obligations to the people and communities that rely on them. These circumstances have seen many new and innovative partnerships forged as one way for charities to combine their reduced resources and meet exploding demand. But despite speculation, it is more of an open question as to whether coronavirus will trigger a shift toward charity mergers.
What does the data say so far?
We have certainly seen mergers take place since the onset of the pandemic. Charity Commission data suggests charities registered 114 mergers between March and June (up from 89 in the same period in 2019). We must always take these figures with a big pinch of salt, though. The commission’s figures typically include a lot of legal housekeeping around micro-charities and late registrations of previous deals. Some announcements in March and April, such as the coming together of Voluntary Action Lewisham and the METRO Charity in London and mergers of local YMCAs in Somerset and the West Midlands, were the culmination of conversations that had started well before the crisis. Brighton Housing Trust and mental health charity Sussex Oakleaf similarly noted that they finalised an eighteen-month process “in spite of” the current situation.
More significantly though, some mergers announced over the summer have explicitly cited COVID-19 as a contributing factor, rather than just a hurdle to be jumped. A pair of Age UKs in Sussex noted that “the impact of coronavirus on income across the charity sector emphasises how important it is for charities to work together to reduce overheads”. The Brain Tumour Charity and Meningioma UK indicated that their recent merger had been “accelerated” by soaring demand for support services (while also continuing a trend “towards consolidation in a sector historically populated with small charities, many of them founder-led”).
Will this time be different?
However, although the sector faces both an existing funding crunch and the additional cliff-edge posed by the end of furlough on October 31st, a surge in consolidation isn’t a given. After all, we’ve been here before. Annual Good Merger Index surveys published by Eastside Primetimers found that despite predictions, austerity in the 2010s didn’t lead to a particularly marked increase in mergers in the charity sector. Rather than combining for impact, organisations have tended to ‘circle the wagons,’ striving to meet their beneficiaries’ needs in more cost effective, innovative or simply reduced ways. Why not? Well there’s a long list of reasons why charities don’t consider or pursue mergers. They range from concerns about autonomy, perceptions of uniqueness (some more justified than others), or simple ‘founder syndrome’, to fear of reputational damage, uncertainty about process, or concerns about job security.
At the end of the day, charities will always have the option to shrink and serve fewer people, even if trustees and management will of course hate having to make this kind of decision. But given the scale and vital nature of the sector’s provision for its many different beneficiaries, the onus is clearly on charity trustees and management to think proactively about whether this is really enough, or if they could instead make more of a long-term difference by joining forces with a complimentary organisation. This is why proactive consideration of mergers should be one of six pillars of any Build Back Better agenda for the social sector.
What can sector managers do?
Commissioners and the various sector bodies representing hard-hit charities should also be part of this conversation, providing a degree of organising oversight or a nudge to groups that might benefit. Better still, they could facilitate introductions between compatible entities and provide support to offset some of the complexities of merger. At Eastside Primetimers we have sought to establish a Partner Register of organisations experiencing financial difficulty and seeking a partner. Fundamental to this is the drawing up a partner development plan and a process for evaluating potential approaches to or from organisations in their field – the most transformative mergers are always those with a clear strategic rationale, not those carried out as a last minute ‘rescue.’
So, will there be more charity mergers as a result of COVID-19? For now its too early to say. We won’t know the real financial impact for many charities until the sector gets into the budget planning cycle for the next financial year, and the macro-economic effect of COVID may take years to fully trickle (or flood) down to charities on the front line. Finally, we also know that the sector often resisted merger in the face of seismic reductions in available income throughout the 2010s. However, what is clear is that both the risks posed by COVID-19 and the potential benefits of consolidation should mean that at least considering merger must be a vital part of every charity’s governance toolkit.
David Garratt is associate director for mergers and partnerships at Eastside Primetimers, and a former chief executive at Refugee Action. You can contact him at firstname.lastname@example.org if you would like to sign up to our next Virtual Merger Roundtable event on November 5th, join our Partner Register or seek a conversation about merger support